Andy Burnham must redress the balance between markets, fairness and poverty

As Mayor of Greater Manchester, Andy Burnham’s approach to governance, from bus franchising to efforts on housing and homelessness, was to intervene where markets failed to deliver fair outcomes. If he is to become prime minister – as is widely expected – I hope that his response is similar in tackling another failure of marketisation: the entrenching “poverty premium”.

The “poverty premium”, the extra cost faced by low-income households when they try to access life’s essentials, means that people on low incomes spend £380 extra each year on household bills such as energy, insurance, food and credit. The latest research from the charity I lead, Fair By Design, found that 95 per cent of low-income households pays at least one of these premiums – that equates to roughly 6 million households. One-in-four households pay £505 extra each year and one-in-ten £736, our findings show.

To be clear: this is not the extra costs we’re all facing because of inflation. This is an additional burden on top of inflation that low-income households face day-in day-out.

The poverty premium exists because people on lower incomes have fewer options. Where wealth brings flexibility: to switch, to pay upfront, to absorb shocks. Low income brings constraint.

That constraint plays out differently across households. A single parent without a car is more likely to rely on expensive local food shops. A private renter may struggle to change energy tariffs or improve the energy efficiency of their accommodation. Older households or those without reliable internet access can be locked out of digital deals entirely. Households which occupents are white are less likely to experience poverty premiums than any other ethnicity, our research found.

It is ten years since the University of Bristol – who work with us on this issue –­­­­ first measured the poverty premium and there have been some successes over the last decade. But this latest report shows that the poverty premium is increasing and that bolder action is needed.

Food is now the single largest driver of the poverty premium. This is caused by the rising cost of food, the increasing difference in prices between larger and local versions of supermarkets and households doing more of their shopping in these more expensive local stores. Insurance remains, and has consistently been, the costliest poverty premium. Paying monthly instead of annually, living in a higher-risk postcode, or relying on single-item cover all increase the cost of protection.

Energy, too, tells a new story. During the height of the energy crisis, the focus was on extreme prices affecting everyone. For the brief moment that wholesale costs eased and cheaper fixed tariffs returned – and before the war between Iran and the US – inequalities in access to the best rates re-emerged. Those who pay for their energy once they receive their bill, rather than by direct debit, also face a persistent standard credit premium, paying more for the same energy.

Unsurprisingly, digital exclusion is becoming a more powerful determinant of cost. More of the best deals are accessed online, require active switching, or depend on navigating complex tariffs. For households without reliable internet access or the time and confidence to engage, the risk is not just missing out occasionally but being systematically excluded.

In each case, the issue is not simply price. It is access.

There have been important interventions over the past decade. The energy price cap, action on high-cost credit, and the Financial Conduct Authority’s Consumer Duty and work on premium finance have all helped blunt some of the sharpest edges of the system.

But these interventions are limited because they treat symptoms rather than causes. They prevent the worst outcomes while leaving intact the underlying dynamics that produce them.

This matters politically because it challenges an assumption that shapes how markets work: that markets, if left broadly intact, will deliver fair outcomes. They do not.

In practice, we need to shift towards a model of “default fairness”. That means moving beyond a model that assumes fairness will emerge if consumers are simply equipped to navigate markets more effectively. For many households, that premise does not hold.

Applied to energy, that could mean getting rid of the payment method premium or being even bolder and introducing an energy social tariff. In insurance, it could mean re-examining how risk-based pricing interacts with deprivation, and whether monthly and annual payers should pay the same for the same level of cover. It could involve a renewed push for affordable credit, including scaling no-interest loan schemes and placing stronger obligations on mainstream lenders to serve excluded groups.

None of this is without tension. Intervening in pricing structures raises questions about distortion, cross-subsidy and cost. But those questions already exist; they are simply resolved, at present, in ways that disadvantage those already struggling to make ends meet.

We’re hopeful that a Burnham-era Labour Party is likely to be more explicit about this trade-off. It would not abandon competition, but nor would it treat it as an end in itself. The test would be whether essential services work for people, not the other way around. Will a Burnham-led Labour be willing to ask who our economy is designed to work for?

The poverty premium has not only grown but it is becoming more deeply embedded in how everyday markets operate.

If we are serious about economic fairness, it will need to go beyond shielding consumers from the worst harms. An economy where those with the least consistently pay more is the product of design. And that means it can be redesigned – if there is the political will to do so.