Cost of living: Experts demand 6 changes to help people pay bills - Yahoo News UK

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The structure of payment systems in the UK means those with higher incomes are often getting better deals. (Getty Images)

About 14 million people on low incomes are being forced to spend more money on essentials than their wealthier counterparts due to a "poverty premium", campaigners have warned.

People with limited cash to spare each month often have no choice but to opt for more costly methods of payment, says consumer charity Fair By Design.

For example, some people on zero hours contracts might pay for their energy upon receipt of a bill instead of setting up a direct debit, because their income isn't steady enough.

This applies to around 8% of households, who end up paying an extra £202 per year as a result, according to Fair By Design's latest report. Those on pre-payment meters – often the poorest – face a premium of around £45.

Those on tight budgets who have to pay for their car insurance in monthly sums are spending an extra £103 per year because providers consider these payments to be part of a loan for annual insurance.

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People who rely on cash are increasingly finding themselves charged for withdrawals. (Getty Images)

The Financial Conduct Authority (FCA) has previously found that 45% of people who rely on cash do so because it helps them to budget or to avoid getting into debt – but people are becoming increasingly reliant on ATMs that charge a fee for withdrawals.

Some end up using their credit cards to bridge the gap, creating mounting piles of debt just to get by month to month.

Why is this happening?

The "poverty premium" exists partly because products and services are designed for a mythical "super consumer", says Fair by Design.

This would mean someone who never becomes ill, always has a steady income, are is to understand complex terms and conditions and have the time and technology to easily find the best deal.

Campaigners accuse regulators and policymakers of being disconnected from the lives of people in poverty, and of not collaborating enough to tackle these problems head on.

What's the solution?

Fair by Design has drawn up a list of six demands, including for energy regulator Ofgem to remove the extra charges of low-income customers who pay upon receipt of a bill.

The group is also asking for Ofgem to fulfil the government's commitment to removing the prepayment metre premium for good.

Campaigners are calling on the FCA to make insurers remove the monthly premium faced by customers, and to ensure people have access to free cash when needed.

They also want the Payment Systems Regulator (PSR) to ensure a wider availability of inclusive and flexible payment methods, and for utility providers to adopt more flexible payment systems.

Yahoo News has contacted the government, Ofgem, the FCA and PSR for comment.

Read more: How overpriced is the housing in your area? Map shows worst hotspots

The full list of recommendations are:

1. Ofgem to remove the extra charges low-income customers pay for paying on receipt of bill

2. Ofgem to fulfil the government’s commitment to remove the prepayment meter penalty permanently

3. The FCA to require insurers to remove the premium charged of pay monthly customers

4. The FCA and PSR to ensure people have free access to cash

5. The PSR to ensure wide availability and viability of inclusive and flexible payment methods

6. Utility providers, under guidance from regulators, to adopt flexible payment systems

How is your area affected by the poverty premium?

The poverty premium costs Londoners a combined £368m per year. (Getty Images)

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One in eight households in Britain experience some form of poverty premium, taking around £2.8bn from the national economy per year, according to a study last year by Fair By Design and the University of Bristol.

This equates to an average of £4.5m per year from each parliamentary constituency, but some places are left worse off than others.

For example, according to the Trust for London, the poverty premium costs Londoners on the lowest incomes with a combined total of £368m per year.

Read more: How to claim pension credit and get £301 cost of living payment

Using this interactive map, you can check the overall cost of the poverty premium in your area and the proportion of households paying it.

It also shows the average cost to households and a breakdown of how much more people are paying for pre-payment meters, non-standard billing, non-switching premiums, area-based insurance, single item insurance, access to money and higher-cost credit.

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