Class War

One in three children in the UK – some 4.5 million – are from families which live below the poverty line, or earn half the average income. Gas disconnections have increased by 60 per cent since 1991, with 30,000 households cut off last year. Over a million people in the UK are living without gas or electricity and up to 4 million adults do not have a bank account.

So when Prime Minister Tony Blair declared war on poverty following his election in 1997 and created the Social Exclusion Unit, the move was welcomed in many quarters.

Two years on, and a range of measures aimed at removing social exclusion and “wiping out child poverty in 20 years” have been put in place, although it could take many years before these moves lead to a noticeable shift in underlying inequality.

The Government has told banks, utilities and supermarkets to fundamentally rethink some of the ways they do business.

After two decades of chasing those model consumers who are well off, high spending and loyal, marketers are being told to target another group. This time, the Government hopes the poorest members of society will also be on the receiving end of marketers’ attention.

Last week, Blair revealed his latest steps to reduce social exclusion. A new Utilities Bill was published, vowing to ensure energy providers protect the “fuel poor” – some 4 million people who spend over ten per cent of their income on keeping themselves warm.

The financial services industry has already been forced to launch an array of savings products, such as Individual Savings Accounts (ISAs), which offer low costs and easy access to low-income earners. This has met with limited success. The big grocery chains have agreed to look at building supermarkets in poor, run-down areas, which are usually neglected by major retailers.

But the idea of targeting the poorest groups is anathema to marketers, who have employed Pareto’s Principle, or the 80/20 rule. This stipulates that 80 per cent of a company’s profits is likely to be drawn from 20 per cent of the highest-spending customers.

The growth of inequality has played its part in destroying mass markets. Marketers are forced to target the richest 40 per cent of society more and more tightly.

Banks have been accused of “cleansing” their accounts of low-income users in the search for those profitable customers.

At the same time, marketers have discovered the use of a powerful new tool – the Internet – which enables them to cherry-pick the wealthiest customers. By offering access to services exclusively over the Internet, marketers can sift out, and exclude, the poorer and more marginalised consumers.

Prudential has faced strong criticism for the way Egg, its high-interest savings bank, cut itself off from mainstream customers by offering Net-only access – a system that ensures it attracts only the wealthiest clients.

The rise of the Internet is threatening to disrupt Blair’s actions to reduce poverty. Last week, consumer watchdogs said they were alarmed by the growing “digital divide” created by the Net.

Some watchdogs believe utilities companies may be discriminating against low-income groups by offering cut-price energy over the Internet. Last month, Amerada Hess launched Energy Online, which markets discount gas and electricity only on the Net.

A spokeswoman for the Gas Consumers Council says: “We agree that it is unfair. We will look into it and speak to Ofgem, the industry regulator. We need to focus on low-income customers as well.”

But an Amerada spokeswoman denies the poor are being discriminated against. “We don’t see it as increasing the digital divide – it’s a way of offering more choice to our customers. It doesn’t appeal to everybody, even those who have Internet access. It is not cherry-picking – the market is not that huge at the moment.”

The Utilities Bill unveils a Social Action Plan designed to help the poorest users of energy. It proposes that companies should manage debts, rather than enforce them – instead of cutting off energy or telephone supplies, the Bill suggests entering into agreements with customers in debt.

Martin Fitch, research associate at the centre for utilities consumer law at the University of Leicester, says: “Our research shows about 250,000 people a year go to advice centres because of difficulties with utilities, about 70 per cent of which relate to debt – so there’s a major concern about affordability.

“We are very disappointed that the regulator has not negotiated an arrangement to limit debt repayments to &£2.60 a week, so companies would not allow debt to build up and would have to be more socially responsible. Having the nuclear option of disconnection, they can afford to be relaxed.”

Internet access in schools and libraries may help excluded groups in the long run. But it will take decades before its use has permeated every stratum of society. The ability to make use of the Internet’s discounts depends on customers having access to bank accounts and credit cards.

Vesey Crichton, European strategy and marketing director of Internet search engine Altavista, sees Net exclusion in global terms. He says that less than two per cent of the world’s population has access to a PC or Internet-ready device. But within three years, PCs will become less expensive, enabling wider penetration, and Internet-enabled devices will be much more widespread.

By 2003, Crichton says, there will be 600 million PCs, but 2 billion network-enabled devices. Photo-Me International, which runs photo booths, last week saw its share price rocket following news of its plans to provide booths with Web facilities. EasyJet has recently launched its own range of Internet cafés.

Net savings

Another effect of the Internet will be on government spending. Blair has initiated a drive for better communication between ministries to solve social exclusion. Crichton says “‘joined-up government’ is not done for the benefit of the socially excluded, but is motivated by cost control. If government services are less expensive, there will be more pounds to spend on useful things.”

But it is not just the cost of buying a computer which may stop people from using the Internet. One observer says: “There will be a body of people for whom the Internet is not an option, because of their lack of numeracy and literacy.”

Crichton says the onus is on the Internet and computer industry to make the system more accessible. “Their profitability will depend on the number of people using the Internet. Limited usability is a hindrance. It is imperative to open it up for people who find it difficult. A lot of development dollars are going into making it easy to use.”

Tesco last week revealed plans to extend its Internet shopping offer – but how will supermarkets adapt once their top ten per cent of customers are buying online?

Tesco claims it is doing its bit to help the Government’s aim of reducing social exclusion – and that it does not exclude any groups anyway. A spokeswoman says: “Tesco is totally classless – we offer low-price Value Lines and top-of-the-range Finest products. You can see a company secretary standing next to an unemployed person in one of our stores.”

New Labour continues the tricky tightrope act of a Government which is friendly to business as well as a consumer champion, one which is committed to cutting down poverty while promising to protect the wealthiest citizens from tax hikes.

But some commend it for the subtle way it is putting social exclusion onto companies’ agendas. Dr Susan Baker, lecturer in marketing at Cranfield School of Management, says: “The Government is not doing this behind people’s backs – it is being shrewd by creating public debate. Clever companies will tell their shareholders that tackling social exclusion communicates social and ethical values which will have a return in the market.”

Blair has invoked the “rights and responsibilities” doctrine to enlist the support of industry in the crusade against poverty. He has appointed top business people to countless taskforces looking at how to reduce social exclusion. But it is the Government itself which has to remove the source of social exclusion – inequality of income distribution.

Income imbalances

Martin Barnes, director of the Child Poverty Action Group, says: “The Government is sometimes strong on rhetoric but short on solutions. The Social Exclusion Unit encourages initiatives, but it needs to take this more seriously. It has got to look at income first – the primary responsibility is with the Government.”

Meanwhile, utilities, banks and supermarkets are unlikely to allow the war on social exclusion to dent their margins too severely. They may be able to use their contributions to portray themselves as socially responsible and to jump on the ethical bandwagon.

But it will be hard for them to build the ethical dimension into the way they do business. That would require a complete rethink – and legal reappraisal – of the way company executives are responsible to their shareholders.