‘Here’s how Labour can cut costs for low-income families – within its fiscal rules’

Inflation may have fallen in recent months, but the cost-of-living crisis is still squeezing family finances. For some families, prices are now 50% higher than two years ago – before Liz Truss became Prime Minister.

Global price shocks may be a root cause, but they have been amplified by UK markets for essentials that do not work in the interests of consumers. For energy, food, financial services, broadband and water, families are paying more because of unfair industry practices or to compensate for problems they did not cause.

People on the lowest incomes are affected most. They even pay higher prices for essential goods and services because they have a low income. This is called the ‘poverty premium’.

And new analysis from the Fabian Society found that the average low-income family pays £444 extra per year than the average family, for things like energy, insurance and credit. Around a quarter of the population experience greater financial hardship and insecurity, because markets are designed to treat them differently and unfairly.

We need long-term reform to reshape how markets work

The next Labour government will inherit a country still struggling with the cost of living – and with markets for essentials that create unnecessary, additional pressure on family finances. They should work quickly to cut costs so people can keep more of their money. And they should undertake long-term reform to reshape how markets work.

There are plenty of international examples to learn from. Over the past two years, progressive governments around the world have grasped the potential of reshaping markets to tackle rising prices.

The Biden administration in the United States has used the power of the federal government and regulations to tackle high and unfair costs. They have started to reduce overdraft fees, tackle rental application fees and prevent internet or mobile companies from charging exit fees. This has kept billions of dollars in the pockets of America’s poorest families.

In Spain and Australia, social tariffs offer discounted prices for energy – providing sustainable and targeted support to households who need help with their bills. Evidence suggests that these interventions have delivered outsized benefits for people on the lowest incomes.

Our report sets out how Labour can tackle the ‘poverty premium’

In Cost Cutters, a new Fabian Society report published today, we set out a plan to tackle the poverty premium and make markets work for low-income families.

First, we propose a comprehensive ‘Cost Cutting Plan’ for the first King’s Speech of a new Labour government, to help families afford essentials. The government should direct regulators to intervene. They should: ban energy companies from charging more if customers pay when they receive a bill; prevent insurance companies from charging more to people who pay monthly; and eliminate price rises within fixed mobile and broadband contracts. This plan could save low-income families nearly £220 per year, without any government spending.

Second, we propose better social tariffs, or discounted prices, for energy, water and broadband. These already exist in water and broadband, but the support they provide is inconsistent and difficult to access. Help should be far easier to access within these two sectors, and postcode lotteries should be removed.

In energy, we suggest replacing the Warm Home Discount, a £150 a year rebate on energy bills, with a 20% discount on bills from 2026. Based on the current price cap, this would save eligible households just under £340 a year. In the report, we set out how this could be paid for in a cost-neutral way for the Exchequer, and without any real-terms increase to energy bills for families.

We know that a Labour government will face tight fiscal constraints. They won’t be able to spend big to improve living standards. But that doesn’t mean they are powerless. In this report, we show how Labour could reshape these important markets to raise living standards and help rebuild financial security.

Read our coverage of the 2024 local elections here.

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