A scheme to help low-income households avoid paying too much for their energy bills is being launched by Virgin Money, which has said it wants to ensure none of its customers are paying a “poverty premium” within 10 years.
Utilities and other services typically cost more for customers who do not pay by direct debit or shop around and move to the cheapest deals.
Research suggests that the average low-income household pays an extra £490 a year for essential services, and that the poorest families are being charged at least £780 more than if they could access the best deals.
Britons from black and minority ethnic backgrounds, and disabled people were recently found to be most likely to face disproportionately high living costs.
Virgin Money launched a basic bank account last year, and in November set a target of no customers paying a poverty premium by 2030.
It will analyse data from customers of its basic and mainstream current accounts and contact those who it believes are paying a premium with information on how to cut their bills.
In an essay for the Social Market Foundation thinktank to be published this week, the bank’s chief executive, David Duffy, will say: “While Covid-19 has brought a variety of challenges, it has also helped to sharpen our focus at Virgin Money on supporting our customers when they are most vulnerable.”
The bank is using seven categories where people can end up paying a poverty premium, which have been identified by the University of Bristol. They include insurance, credit and access to money, as well as energy and fuel.
Its first move will be to contact customers who appear to be paying too much for their energy to highlight that they may be able to save money by paying by direct debit, or switching to another tariff, and dispel myths about taking these actions.
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“This, of course, will not be enough to eradicate the energy poverty premium from our customer base,” Duffy writes.
“That is why we are working across sectors to understand what other solutions we can bring, in particular for those who are digitally excluded and struggle to shop for the best deal and those with poor or no credit history who may not be eligible for monthly billing and the discounts that brings.”
While some customers are unable to move on to direct debit deals because providers will not give them credit, and others prefer to use prepayment meters to manage their budget, others who could switch are not always aware of their options.
Virgin Money has a tie-up with the switching service Go Compare but customers who use it to change their provider will receive the commission of £40 for a dual-fuel switch and £20 for either gas or electricity.
Some customers will be able to save simply by moving to direct debit payments, and while this is not always an option, there are some groups, for example, private renters, who may not realise they are allowed to switch from a prepayment meter.
The bank has taken advice from Fair By Design, an organisation dedicated to tackling the poverty premium.
Carl Packman from Fair By Design said it was “encouraging to see Virgin Money creating its own approach to tackling the poverty premium”.
He added: “It’s also very heartening to see their call across industry to develop targets to tackle the poverty premium and publicly disclose progress. Concerted efforts like this will be key to solving this injustice for those on low incomes.”