Penalised for being poor – The London Economic

Penalised for being poor

Mike Deverell discusses five reasons why those with less end up paying more

In Terry Pratchett’s “Men At Arms” there’s a passage which neatly encapsulates why it’s so expensive to be poor:

“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

“Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

“But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

“This was the Captain Samuel Vimes ‘Boots’ theory of socioeconomic unfairness.”

Pratchett may be a fantasy writer, but the above is no fantasy. There are many scenarios like the one outlined above where the poor end up paying more.

Here are five reasons why it’s so difficult to climb out of the poverty trap. They are mainly taken from official government figures and research by charities as stated.

Fuel Poverty

In 2012 the poorest 30 per cent by income spent eight per cent of their income on gas and electricity bills. The richest 30 per cent spent two per cent of their income on fuel bills.

In 2013 the average electricity bill was £569 per annum when paid quarterly. Those with enough certainty of income to pay by direct debit qualified for a discount, paying only £526 pa. Meanwhile, those on prepayment meters paid the most, £572 pa.

A person with a prepayment meter paid 8.7 per cent more than someone who paid on direct debt. For gas the difference was 8.1 per cent. In aggregate, the average household using a prepayment meter paid £100 more a year for fuel.

There are three million people with pre-payment meters for electricity and over four million who have them for gas in this country, mainly those on low incomes.

VAT

In 2009/10 the poorest fifth of the population paid VAT amounting to almost ten per cent of their disposable income. By contrast the richest fifth paid only five per cent of their disposable income on VAT.

VAT has twice the impact on low income households it does on high income households. The report these figures are from was produced at a time VAT had been temporarily reduced to 15 per cent. VAT is now 20 per cent.

Other Taxes

Other taxes have an impact as well. This includes council tax which in 2012/13 was equivalent to ten per cent of gross household income for the poorest fifth. It also includes indirect “taxes” such as TV licences, duties on alcohol or tobacco.

According to figures from the ONS, when you add the impact of all taxes together, direct and indirect, the richest fifth of households paid tax amounting to 35.1 per cent of their income in 2012/13 whereas the poorest fifth paid MORE – an astonishing 37.4 per cent of income.

Food Poverty

Food Poverty is an increasing issue, according to a recent report from the All Party Parliamentary Inquiry into Hunger In the UK.

In the decade to the end of 2013, food inflation was 47 per cent in Britain and yet Britain’s wages only grew by 28 per cent over the same period, 19 per cent less than the increase in food prices.

Combined with increases in housing and fuel costs, the overall proportion of household incomes spent on these essentials increased from 36 per cent in 2003 to 40 per cent in 2011.

The combined effect of all this is an increased reliance on Food Banks. According to a report from the Trussell Trust, the three main food bank providers donated 20,247,042 meals in 2013/14, a 54 per cent increase on 2012/13.

Austerity

Since the coalition government came to power in 2010, they have embarked on a programme of spending cuts to try to reduce the deficit.

Much of the cuts made to date have not been to central government services but to local government. Local councils provide a number of essential functions, not just bin collections and the like but housing and social services that support the vulnerable. By their nature these services are mainly used by the less well off.

Cuts to local authority grants from central government have disproportionately hit the poorest parts of the country. The table below shows the change in spending power of various local authorities.

Liverpool, the most deprived authority under the IMD rank has had the biggest cut to its spending power according to research from the Joseph Rowntree Foundation. Seven of the top 10 are also in the top 10 most deprived authority areas:

Poor

Whatever your politics, it is hard to argue that being poor is not an expensive business. Climbing out of poverty is hard enough, but when you are being forced to pay more because you’re poor then it becomes all but impossible.

Sadly none of the major parties appear to have a joined up strategy to address poverty.

Addressing this issue requires more than just some woolly “big society” rhetoric. It requires a radical think of taxation and regulation. Unfortunately, whilst the main parties have differences in their policies, none of them are looking at the kind of structural changes required to make a real difference.

1 Response

Leave a Reply