Poverty Premium

Lord Sharkey Excerpts

Monday 10th September 2018 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I too congratulate the noble Lord, Lord Hodgson of Astley Abbotts, on securing this debate and on his eloquent and forceful opening speech.

The poverty premium—the poor paying more—is a very serious problem, and it is highly likely to be made worse as the use of cash continues to decline. But there are other factors that will make the poverty premium worse. There is the widening gap between household income and household expenditure—on average £900 last year, and likely to get worse. Figures due to be released this week will show wage increases to be once again lower than inflation, intensifying the squeeze on just-about-managing families. This comes at a time when there is a huge lack of financial resilience.

The FCA’s excellent report on the financial lives of UK adults, published in October last year, makes for worrying reading. The survey shows that around 15 million people have no or low financial resilience. The survey also shows that 4 million of these people are already in financial difficulty: they have not paid domestic bills or met credit commitments in three or more of the last six months. In addition, 4 million of these financially vulnerable people have never used the internet. All these figures are worrying. They remind us of the existence of real poverty, of the huge numbers in or on the edge of real financial difficulty, and, importantly for this evening’s debate, they remind us about the lack of digital access in a society that is becoming increasingly digital. I will return to that theme in a moment.

The 2016 University of Bristol study, already referred to by the noble Baroness, set out its views about what constituted the poverty premium. It saw it as the poor paying more for energy, telecoms, insurance, food and grocery shopping, access to money and use of credit, and it estimated the poverty premium at £490 per household per year, but with a huge variation within that average—for some households, as much as nearly £800 a year. These are all lower than the £1,300 per annum estimate made by Save the Children in 2010, but Bristol cites methodological differences for the different outcomes, which raises the question of the need for reliable data if we are to advance this kind of discussion.

The Social Market Foundation, in its paper of March this year, acknowledges the need for better measurement and puts forward its own proposals for a reliable set of metrics. I commend this approach. If we are to measure the effect of the decline in the use of cash or, indeed, of any factor on the poverty premium, it is vital that we have an agreed set of metrics. Do the Government agree with that? If they do, what can they do to help establish proper tools for assessment?

The Government are in fact, slightly indirectly, already engaged in this area. The big society may have all but disappeared with its inventor, but its legacy lives on in Big Society Capital. The fund is developing what it describes as,

“a targeted holistic programme designed to eliminate the poverty premium by 2027”.

HMG are the majority shareholder in Big Society Capital. Can the Minister say what part they are playing in this project, and how advanced the project is? Is it, for example, considering tonight’s question on the impact of the decline in the use of cash? On this issue, I note that the Treasury has just concluded a consultation on cash and digital payments in the new economy. Perhaps the Minister can tell us when we are likely to see the report.

In the call for evidence to that inquiry, the Government recognise the use of cash as an entirely legitimate choice. It is certainly that, but it is also often an entirely rational choice or a matter of necessity for people in poverty. There is, furthermore, no justification for those with least money paying more by using cash than by using other means to buy the same services. This has special force when what people are buying with cash are vital and basic necessities. There is no real justification for the premium. It should not exist, and it certainly should not be allowed to get worse as cash usage declines. The premium is either exploitative—it frequently is—or the consequence of poor market practices: neither situation is desirable or fair.

The Government will need to take action as cash usage declines. In particular, the Government will have to take urgent steps to remove or ameliorate the digital disadvantages of the poor. It is the lack of digital access and/or digital savvy that is most likely to preserve, or worsen, the premium as cash usage declines.

Critically, free access to cash must be maintained, especially for those living in financially deprived areas. This is a current concern. The recent disputes over the transfer fees in the ATM system between banks and the operators involved raise the prospect of the removal of ATMs and the introduction of more pay-to-use machines. This problem is likely to become more acute as cash usage declines. What is at risk is both free access to cash and the creation of areas in which there is effectively no access, free or paid.

I am aware that the LINK organisation has promised to maintain free access ATMs where needed and to replace any machines withdrawn by operators from disadvantaged areas. I worry, however, about what this promise is worth if LINK’s shareholders can override it at will, as they can. This will present a key test for the Government. Removal of free-to-use ATMs from financially deprived areas will lead to a decline in the use of cash and will certainly worsen the poverty premium. It would be good to hear the Minister say that he will not allow that to happen.