How companies ensure the poor get poorer
Pricewatch: It’s a strange paradox, but the richer you are, the less you have to pay for life’s essentials. Those who can least afford basic goods and services are penalised the most
When it comes to taking money off those who don’t really have it, the finger of blame can be pointed at companies big and small. Photograph: iStock
Being poor in Ireland is not cheap. One of the many inequities of our society is the fact that people who have the least are often expected to pay the most for basic goods and services including food, energy and money.
But while it might be tempting to think that it is simply a case of giant multinationals preying on the poor, the reality is that when it comes to taking money off those who don’t really have it, the finger of blame can be pointed at companies big and small.
If we want to drive we have to pay tax and that can be paid on an annual, half-yearly or quarterly basis. People who pay in two instalments are charged 111 per cent of the annual payment while those who pay quarterly have to fork out 113 per cent of the annual payment. The average annual motor tax in the Republic is about €500, which means that those who can only afford to pay their car tax bill in instalments have to pay as much as €65 more than those who can afford to pay upfront.
Given that the process of issuing tax discs is mostly automated now – at least 70 per cent of all applications are now done online and that number is only going to climb – the extra charge for those who need to have four tax discs issued instead of one seems ridiculous. It does not, however, seem ridiculous to the Department of the Environment . It has long defended its charging policy, saying the differential takes account of the extra workload for staff in motor tax offices. We don’t buy that. The reality is the State makes money from the quarterly charges – a not-too-shabby €70 million each year – and if they were to scrap the instalment charges they would have to plug the gap in another way.
The motor tax instalment system is not the only area in which those with less are penalised most when it comes to getting on the road. In 2008 the Government changed the motor tax rules and based the tax bands on emissions rather than engine sizes. While that may have made sense from an environmental point of view, and while it has certainly helped to get cleaner cars on the road, it has not done much to help those who cannot afford to drive more modern cars. That means we now have a patently absurd situation where the owner of a 181 Beamer or Merc is paying less motor tax than someone who can only afford to drive a 15-year-old banger with the same-sized engine .
Some banks make it possible for you to avoid paying bank charges – although to do that you need to keep thousands of euro on deposit in your current account. But that is not the only way banks gouge the less well-off. It is a widely acknowledged fact the highest fees and the highest current account costs occur when consumers have a large number of out-of-order transactions on their account such as unauthorised overdrafts, unpaid direct debits and over-limit or referral fees. The cost of running a current account where everything is in order all the time is frequently less than €100 a year. The average yearly cost if your finances are a bit of a mess is well over €200.
If, like many people, you chose to pay for your car insurance on a monthly rather than annual basis, you can expect to be penalised by your motor insurer. Effectively, paying monthly is like taking out a very bad-value loan from your provider. The premium they attach to those who pay monthly can be as much as 20 per cent, so if the actual cost of a policy is €1,000 a year, pay monthly and it could jump to €1,200. People who don’t have the cash to hand to pay their bill once a year would be better off borrowing the money from the bank to cover the costs each year – but of course only the most solvent people are in a position to borrow money from the bank. It is the same with health insurance.
If you have money you can eat well for a lot less than if you don’t. If you have money then the chances are you will own a car, which you can drive to the cheapest supermarkets in search of the best value. You will also have the financial wherewithal to stock up on certain items when they are discounted. And you might have more time and headspace to plan meals. If, on the other hand, you don’t have a car or the extra money – or larder space – to stock up when prices are good, then the chances are you will have to shop in local stores that are walking distance from your home, and for that you can expect to pay a premium of at least 20 per cent. Spread that over a year and you could see the person who has the least spending well in excess of €1,000 more on the same food as the person who has the most.
The cost of renting a home continues to spiral and anyone looking to rent a two-up-two-down within walking distance of Dublin city centre will be lucky to get change out of €2,000 each month. A person who was in a position to buy just such a home 10 or 12 years ago probably has a tracker mortgage and is paying around €1,200 each month.
Pricewatch has frequently written about the benefits of switching electricity and gas providers and pointed to savings of up to 20 per cent on the standard charges imposed by all providers. However, such savings are generally only available to people who pay by direct debit and opt for paperless billing. All too frequently people who have prepaid meters cannot avail of any such discounts and so end up paying money they can ill afford for a service that those who can most easily afford to pay it get for hundreds of euro less each year.
People with little or no disposable income left once all bills are paid are, generally speaking, not welcome in Irish financial institutions – although Credit Unions are an honourable exception. That means they sometimes have to look elsewhere to finance life’s essentials. The most benign option for many people is the store credit and leasing arrangements offered by big-name retailers. This kind of financing represents spectacularly bad value for money. But it is nowhere near as bad as the outrageous rates of interests charged by the legal moneylenders who continue to prey on poorer people.