The poverty premium across London

The poverty premium shows up across many sectors, and for different reasons. Some examples are:

1. Insurance - the best deals are reserved for customers judged 'low-risk'. Families in poverty are more likely to live in deprived areas with higher recorded crime-levels and more road traffic accidents, upping car and home insurance costs.
2. Cost-spreading penalties - Low-income households are also locked out of the cheapest deals. Paying annually and up front usually works out cheaper over a year than paying monthly, but only if you can afford the lump sum in the first place.

We explain what the poverty premium is and why it exists in more detail here.

On this page, we combine data from Fair By Design and University of Bristol to explore the size of the poverty premium in London, and where it hits families the hardest.

The poverty premium is highest in London

There are around 2.5 million Londoners in poverty. The vast majority of these (around 97% of households) are affected by the poverty premium in some way.

And on average, for each household affected by the poverty premium, it costs an additional £451 a year – 9% higher than the next highest region, the West Midlands.

This is an average, which means that for many households, it costs significantly more. These additional costs place a further stretch on the budgets of households who are already struggling.

In total, the poverty premium costs households in poverty in London a combined £364 million a year.

Interactive maps: the poverty premium across London

The size of the poverty premium varies significantly across London. This map shows the estimated cost of the poverty premium in council wards across London, ranging from £611 per household in Southall Broadway in West London, to £337 in Cripplegate (Central London).

The map shows that the wards where poverty premium is highest are clustered in two parts of London, both north of the river:

• East London – specifically in Tower Hamlets, Newham, Barking and Dagenham and Redbridge.
• West London – specifically in Ealing, Hounslow, Harrow and Brent

These eight boroughs make up the vast majority of wards (75%) with the highest levels of poverty premium. Beyond this, there are a scattering of wards where the poverty premium is especially high in Croydon, Greenwich and Camden.

What contributes to the overall poverty premium, though, differs greatly across London. In some places, it’s largely driven by the extra cost of insurance. In others, it’s largely the additional cost of energy. The maps below show four main ‘poverty premiums’, and how they are spread across London.

Energy: paying more to stay warm

The energy related poverty premium is, essentially, when households in poverty have to pay more for their energy bills. It affects around two thirds of London’s households in London, and costs London households an average of £161 a year.

It’s usually caused by more expensive payment methods and tariffs. Low-income households are more likely to use costlier options like standard credit, and less likely to be on the cheapest deals, often because barriers or time poverty stop them switching.

The map shows the estimated cost in wards across London. It finds that the worst-affected areas forming a ring around the city.

Outer London has older, less energy-efficient housing stock. Inner and East London on the other hand are more densely populated, with more flats and a larger share of newer developments that tend to be cheaper to heat.

Overall, the average energy related poverty premium in Outer London is £165.60 a year -  compared to £151.40 a year in Inner London.

The single worst-affected area in the whole country is in Outer London: Longbridge in Barking and Dagenham, where households in poverty pay an average of £190 more on their energy bills.

Insurance: paying more for peace of mind

Insurance is the most expensive poverty premium for London’s households in poverty. It affects the majority of Londoners in poverty, costing them a combined £111 million a year.

Two things drive it up. Low-income households are more likely to pay monthly rather than in a cheaper upfront lump sum, and insurance costs more in deprived areas to begin with.

Insurers charge higher prices where they judge the risk to be greater, and traffic accidents and recorded crime are both higher in deprived areas, so people living there pay more for the same cover.

The pattern is stark: the map above shows the estimated insurance poverty premium in wards across London. It lines up almost exactly with our map of deprivation.

For many low-income Londoners this simply means paying more. For others it means going without altogether, especially home contents insurance, which leaves them far more exposed to debt when something goes wrong.

Credit: paying more to access money

Many low-income households pay more simply to access and manage their own money. Two things drive it:

• Low-income households are more likely to use cash to budget day to day, and pay-to-use ATMs are especially common in deprived areas, so people end up paying a fee just to get at their own money.
• They are also more likely to rely on high-cost credit, paying far more overall to spread or avoid a one-off cost they can't cover up front.

Our map shows the estimated cost this has on low-income households across London. It especially affects areas in East London. Of the worst-affected wards, just under 40% sit in three neighbouring East London boroughs: Tower Hamlets, Newham and Barking and Dagenham.

Food: paying more for groceries

The food poverty premium is the extra cost low-income households pay for everyday groceries. It affects 44% of London's households in poverty and costs them a combined £109 million a year.

Convenience stores are significantly more expensive than larger supermarkets, and low-income households are more likely to depend on them.

This is because deprived areas are more likely to be 'food deserts', with no affordable supermarket within easy reach. Time poverty plays a part too.

The map shows the burden falling hardest on East London, particularly Hackney, Tower Hamlets, Newham and Barking and Dagenham.

Explore Fair By Design’s full report ‘Paying More for Less’ to see the poverty premium in more depth, including how it affects different demographics and the rest of the country.