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Measuring the Poverty Premium

This Social Market Foundation (SMF) report examines how one can quantify and track the size of the “poverty premium” in the United Kingdom.

We define the poverty premium as “the extra cost that households on low incomes incur when purchasing the same essential goods and services as households on higher incomes”. Research suggests such premiums exist in a wide range of areas, including energy, insurance and groceries.

The report recommends how a ‘Headline annual poverty premium’ metric could be established and measured. It argues that this poverty premium measure could be adopted and adapted by regulators such as the Competition and Markets Authority, Ofgem, Ofcom, Ofwat and the Financial Conduct Authority to give insight into whether market outcomes are fair, and how to address existing premiums.

The authors suggests that the measure should be reported annually by the Department for Business, Energy and Industrial Strategy, to ensure there is proper political and public scrutiny of whether markets are delivering fair outcomes. This should mirror the annual reporting on income poverty and fuel poverty.

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Nigel Keohane
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