Life 'more expensive, more unstable and more stressful' for UK's poorest households » Bill payments » 24dash.com

Poorer families are forced to pay £1,000 more a year for energy bills and financial services because they cannot access the deals available to those on higher incomes, a charity said today.

New Philanthropy Capital said this annual poverty premium took up an average of 9% of the income of poorer households.

It warned that financial exclusion exacerbated poverty, as it excluded people from the discounts that were available to those who paid by direct debit, as well as low-cost borrowing - forcing people into the arms of door-to-door money lenders who typically charged interest of 177%.

As a result it said life was "more expensive, more unstable and more stressful" for people who do not have access to appropriate financial products.

The group said around two million people in the UK do not have a bank account, while at least three million cannot get mainstream credit.

Around half of the country's poorest households also have no home contents insurance.

The report warned that financial exclusion was likely to get worse as a result of the credit crunch.

It said the number of people forced to turn to expensive doorstep lenders was likely to "increase greatly" from its current level of three million as a result of increasing numbers of people being turned away by mainstream lenders.

The group is calling for more resources to be put into preventing financial exclusion through education to improve people's financial capability, as well as improving access to financial services.

Author of the report Simon Blake, senior analyst at New Philanthropy Capital, said: "Being unable to borrow at reasonable rates can make it very difficult to escape from poverty.

"Expensive credit swallows up cash, so instead of spending money on basic things they need, like food and clothes, people end up putting it all into loan repayments.

"As the credit crunch begins to bite, we should be focusing on those that are hit the hardest."

The research found that people on low incomes pay an average of £129 a month in interest on high-cost debt, the equivalent of 11% of their income.

The report called for banking services to be made more "useful and relevant" to people on very low and fluctuating incomes to help tackle financial exclusion.

A second report on the issue of financial exclusion carried out by research group the Runnymede Trust found that there were significant differences between white communities and black and ethnic minority ones in areas such as savings, pensions, financial awareness, insurance and risk.

It argued that financial inclusion should be seen as a necessary component of social justice.

Author of the report Omar Khan said: "Disadvantaged groups may genuinely be more 'risky' for financial institutions, and so likely to incur higher costs in terms of access to goods and services.

"This means we should think harder about how we as a society make decisions about the distribution of costs and risks."

The Joseph Rowntree Foundation also carried out research looking at the various initiatives that have been set up to try to reduce financial exclusion.

It found that while the number of people in the UK without a bank account fell from 2.8 million in 2002/2003 to two million in 2005/2006, many groups of people remained vulnerable to financial exclusion.

It warned that the gap between those making the best use of financial services and those unable to do so looked set to widen.

The group is calling on the Government to make more long-term funding available for debt advice and financial capability projects and to make sure that its recently announced initiative to provide free generic financial advice is properly targeted to people's circumstances.