From headline statistics to lived experiences: a new approach to measuring the poverty premium

The poverty premium, when households pay more for essential goods and services because they are poor, remains a problem in the UK today. Previous attempts to measure it, however, have been crude. This research aimed to take the measurement of the poverty premium beyond an illustrative figure to something which better reflects the lived experiences of poorer households. To achieve this, we developed a conceptual framework to understand how the poverty premium arises, taking a process-driven rather than a traditional sector-based approach to identify components of the poverty premium. We then calculated a typical cost for each component and surveyed lower-income households to measure exposure to them. The average poverty premium incurred was £490. Finally, cluster analysis explored the underlying heterogeneity of the poverty premium. Importantly, our approach reveals the breadth and depth of people’s experience of the poverty premium and the pathways which contribute to it. It has highlighted the implications of behaviour and constraint for effective practice and policy intervention, and will make it possible to monitor the poverty premium more accurately and meaningfully over time. Funding acknowledgement The Oak Foundation Introduction Given that poverty describes, rather simply, a lack of resources (Townsend, 1979), the notion that poorer households should then pay more to access essential goods and services than better-off households is counter-intuitive. However, the term ‘poverty premium’ was first coined in 1960s USA (Caplovitz, 1963) to reflect the recognition that poor households were indeed paying more for their essential goods and services because they were poor. Sadly, the poverty premium remains a real and important issue in the UK today, and represents structural disadvantage for those least able to afford it (for example Strelitz and Lister, 2008; Bevan, 2009; Stewart, 2010; Hirsch, 2013; Richards, 2015). A resurgence in interest began in 2007 with work by Save the Children and Family Welfare, which estimated the poverty premium to be just over £1,000. By 2010, the poverty premium had risen to an estimated £1,300 per family per year (Save the Children, 2010). These estimates were important in raising the profile of the problem, stimulating discussion and informing the social policies needed to resolve it (for example Joseph Rowntree Foundation, 2016). SOCIAL RESEARCH PRACTICE // ISSUE 9 SPRING 2020 5 However, there were significant limitations to the estimates from these studies. They were essentially illustrative figures, and for the low-income households they were intended to relate to, they remained hypothetical. In particular, the calculation of the premium was predicated on the assumption that a lowincome household incurred all of the individual elements of the premium, from a home contents insurance premium costing £32 to buying a cooker costing an extra £430 (Save the Children, 2010). Yet, in reality, any given household may or may not incur a particular premium. Qualitative research has shown not only how profound the impact of the poverty premium can be on households, but also that exposure to it can vary widely (Cambium Advocacy, 2015). Without knowing the breadth and depth of the lived experience of the poverty premium, these headline figures risked overstating the scale of the poverty premium, and potentially directing disproportionate amounts of policy attention to costly but relatively uncommon poverty premiums. In addition, poverty itself was not always established clearly as a key contributory factor in the extra costs arising and this could also risk overstating the reality of the poverty premium. As such, the estimates were limited in the extent to which they reflected the reality of households’ experiences. Our research (Davies et al, 2016a) undertook to measure, comprehensively, the poverty premium as it exists in Britain today. Our aim was to seek a new approach to measuring lower-income households’ exposure to the poverty premium which better reflected their lived experiences of it; something previous studies had not done. This would relate poverty as a key, contributory factor to additional costs arising (defining the premium as a poverty premium) and reflect households’ actual and varied exposure to these extra costs in their daily lives. The measurement challenge The study we conducted was ambitious; not just to take the measurement of the poverty premium beyond a nominal figure of what this extra cost could represent to poorer households, but also to reconceptualise the poverty premium to better reflect its contemporary nature. This ambition permeated throughout our approach: from how we thought about the essential living costs potentially affected by a poverty premium; through how we measured exposure to the poverty premium among lower-income households; to how we explored the different exposure of different groups of lower-income households. We carried out the research in 2016 in three linked stages: ◗ First, we undertook a conceptualisation exercise to identify the range of poverty premium components which exist today. This needed to take account of the changing poverty premium landscape and identify the pathways through which a poverty premium could be understood to arise. From this, we developed a new measurement framework, which we validated in focus groups ◗ Second, we completed a costing exercise to identify a representative, nominal cost for each component in the final measurement framework. At this stage, we also undertook a survey of lowerincome households to measure exposure to each one. This enabled us to calculate the average, lived cost of the poverty premium given the depth (the nominal cost) of each component and its breadth (percentage of households experiencing it) ◗ Finally, we carried out cluster analysis of the survey data to explore the heterogeneity of the lowerincome households’ experiences of the poverty premium. This identified significant variations in households’ experiences and highlighted important socio-demographic drivers of these For the purposes of this study, we defined lower-income households as those with incomes equivalised for household size of below 70% of national median income by life-stage (working age or state-pension age). This ensured that we included those whose incomes were below the relative poverty threshold,1 and those above the threshold whose low incomes still resulted in them incurring poverty premiums. 1 60% median income equivalised for household size. SOCIAL RESEARCH PRACTICE // ISSUE 9 SPRING 2020 6 We used a mixed-methods design, which included an extensive review of empirical literature of poverty, money management and the poverty premium; a desk-based review of the sectors in which a poverty premium might arise; and a costing exercise to identify representative nominal costs for each component in the final measurement framework. We also undertook seven focus groups in England and Scotland with lower-income householders of working and state-pension age. We developed a bespoke questionnaire to capture the main components of the poverty premium in a nationally representative faceto-face omnibus survey, with a final sample of 947 lower-income householders. A stakeholder group of research, industry and charity experts convened specially for the study was consulted at all key stages of the research. For more details about the fieldwork and definitions see Davies et al (2016b). Stage 1: from poverty to the poverty premium: developing a new framework In creating a new measurement framework to account for the poverty premium as it exists today, we needed to establish, front and centre, the extra costs that can occur when people buy essential goods and services, which could constitute a poverty premium. Our overriding concern lay in establishing that any extra costs lower-income households incurred had their roots in poverty. Viewing the poverty premium through the lens of the consumer was at the heart of this. Developing a new conceptual underpinning Unlike previous research, our approach involved developing a conceptual model which emphasised the behavioural pathways through which poverty leads to the poverty premium. This saw the poverty premium as arising from the circumstances, needs, choices and constraints of lower-income households, including the interaction of these with other factors. To ensure that our initial conceptualisation remained grounded in the lived experiences of lower-income households, we drew heavily on the empirical research literature of experiences of poverty and of household money management in this context. Key elements of our initial model were then refined and validated through focus groups with people in or near poverty and the stakeholder group convened specially for the project. The final conceptual model (Figure 1) summarises the main pathways from poverty (‘living on a lowerincome’) to the poverty premium. It emphasises the direct role of low incomes on consumption behaviour in dark shading and the indirect role of supply and other compounding factors in light shading. Figure 1: Conceptualising pathways to the poverty premium SOCIAL RESEARCH PRACTICE // ISSUE 9 SPRING 2020 7 Drivers, factors and their interactions The key influences in the model come from the ‘consumer drivers’, or demand-side factors. For lowerincome households these relate to how those with constrained finances behave; the difficulties in affording lump-sum and up-front costs and accessing money quickly; the lower spending power realised through low usage, including in smaller, more frequent shopping trips; and the need for insurance for smaller minimum values. The need for tight budgeting control in lower-income households can also result in smaller, more frequent shops and a preference for cash spending, prepayment meters or paper billing. Finally, limited resources can make lower-income households averse to risks