Pricewatch: Ten ways you end up paying more if you have less money

It pays to be rich or, to put it another way, it costs a lot of money to have no money. Everything from borrowing and eating to driving and washing your clothes costs the most for those who have the least.

With so much focus on spiralling prices of late, it has been easy for stories to get lost in the blizzard of inflation news or at least come and go without much fanfare. One such story came in the form of a depressing piece of research published by the Society of St Vincent de Paul (SVP) earlier this month.

It noted that the number of people struggling financially has doubled since the start of the pandemic with almost one in five people now having difficulty making ends meet. The SVP report also illustrated how rising costs have disproportionately affected those on lower incomes.

According to the SVP study, 37 per cent of people have cut back on essential heating and electricity use with the percentage climbing to 48 per cent among those who are unemployed. A similar percentage of single parents have also been forced to reduce their energy consumption.

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When you go to pay your motor tax, you're penalised if you can't afford to pay it all in one lump sum. There is no way the Government should be doing this

A quarter of renters in both private accommodation and local authority housing have cut back on essentials such as food in response to rising energy prices, while 61 per cent of renters in local authority housing have cut back on essentials.

“The importance of this research is that it explores the depth of financial worry and concern across every cohort of the population,” says SVP’s head of social justice and policy Dr Tricia Keilthy. And she notes that “the data clearly show that the groups more vulnerable to poverty, including unemployed people, single parents, and renters, have found it particularly difficult to managing rising energy costs”.

The impact of the big squeeze on those who can afford it the least has also been noted by Daragh Cassidy of bonkers.ie. Given that he works on a price comparison and switching site, the cost of things take up much of his working day and sometimes it leaves him frustrated, if not angry.

“The biggest way it costs more to be poor is when it comes to paying for things like home insurance, car insurance and motor tax,” he says. “Those who don’t have the money to pay upfront in one go often get hit with hefty surcharges to pay by direct debit over the course of a year.”

He says that while businesses may claim they’re only passing on the associated costs “and there is some truth to this, but some of the penalties and interest seem way too high and it would be good if the Government and the CCPC [Competition and Consumer Protection Commission] would regulate this better.

“However, what really riles me up is our very own Government engaging in this. When you go to pay your motor tax, you’re penalised if you can’t afford to pay it all in one lump sum. There is no way the Government should be doing this. It feels like an attack on the poor and I can’t understand how successive governments . . . have never made more of a fuss over this. Given the current cost of living crisis, the Government should stop penalising motorists in this way as a matter of priority.”

While rising prices are without a doubt hitting those who can afford it least the hardest, the reality is even without the inflationary pressures, the system works against poorer people – and has done for many, many years.

Here are just some of the ways things are worse for the worst off.

1.People on lower incomes tend to have to rely on credit cards and other high interest loans to get by because their regular income doesn't stretch as far as they need it to stretch. With interest rates that are frequently in excess of 20 per cent, on fast credit the access to cash comes at a high price. Someone who runs up a credit card bill of €1,000 will end up paying well over €200 in interest over the course of a year while someone who has the luxury of borrowing the same sum off a bank will pay closer to €70.

The picture is bleaker still for people who believe they have no option but to lean on moneylenders to get by. According to the Central Bank close to 300,000 people borrowed a total of more than €150 million from moneylenders in 2020. And according to the Money Advice and Budgeting Service such “enterprises” can charge APRs of as much as 187 per cent. That is wildly out of synch with the rates imposed by banks and credit unions. Were you to take out a loan of €500 and pay it back over 25 weeks you would end up paying back €625. A person who gets the money from a bank or credit union will pay a fraction of that.

2. Someone who has the wherewithal to pay for their home insurance, or car insurance in full once a year, pays less than someone who pays it by direct debit. The cost of paying in instalments can mean bills climb by anywhere between 5 and 10 per cent. So if the annual cost of your car insurance is €500 and you pay over the course of a year then you can expect to pay about €540.

3. It is not only private companies whose sole aim seems to be to maximise the profits for their shareholders, even the State can work against poorer people. 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. That means that someone who drives a car which falls into the B2 band for car tax pays €280 a year – but only if they pay it in one go. If they pay it in two instalments the cost rises to €316 while if they pay the tax every quarter it costs €336.

Well over 70 per cent of people now apply and pay for their motor tax online which means it requires virtually no human intervention to issue one tax disc each year or four of them. Pricewatch has raised this issue with the Department of the Environment on more than one occasions. It always offers a robust defence of the system which is hardly a surprise given that the State profits from it. In fact the higher charges for those who don’t wish to, or can’t afford, to pay their motor tax once a year generates about €70 million for the State’s coffers each year. If the instalment system was to be scrapped there would be a gap that would have to be plugged somehow.

4. But when it comes to driving, it is not only motor tax instalments which hit poorer people hardest. The Republic's motor tax rules are based on emissions and not engine size as they once were. That is all well and good from an environmental perspective – and we don't want to downplay the importance of that. But means that someone who can afford to drive a top of the range Tesla will pay less motor tax than someone driving an almost clapped out 15-year-old banger with the same-sized engine. And that doesn't seem fair.

5. It is much easier to avoid paying bank charges when you have money than when you don't. The highest fees and current account costs are imposed on people with a large number of out-of-order transactions on their accounts, We're talking about unauthorised overdrafts, unpaid direct debits and over-limit or referral fees. The cost of running a current account where everything is hunky dory at all times is frequently less than €100 a year – it can even be free if you are absolutely loaded and keep a lot of money on deposit in a zero-interest rate current account.

The average yearly cost if your finances are a bit of a mess is likely to be well over €200. If you accidently stray into overdraft territory with AIB, for example, you will be hit with a referral fee of €5.15. Given that the process is almost certainly automated, we are not sure who the overdraft is being referred to but we’ll leave that aside. You will then face an overdraft facility fee of more than €20 as well as interest on the overdraft. And because the overdraft is unauthorised you’ll be hit with a surcharge of 12 per cent on top of the interest rate of 12 per cent.

6. Pricewatch has been banging on about the benefits of shopping around for cheaper gas and electricity for donkeys years but it is much harder if you one of the many thousands of people who have a pre-pay meter in your home. While the idea of such meters is good in that they allow people to pay for their usage as they go to avoid massive bi-monthly bills, the cost or prepaid power is frequently as much as double the discounts rates on the table for those who don't use meters.

7. If you own your own home – or at least if you own some of it and have a bank which owns the rest of it – you are more than likely paying less than someone who is renting a house of exactly the same size on exactly the same street. Someone who can get a mortgage to cover the cost of a two-bed house in Dublin 7 will pay about €1,800 each month.

Someone renting there will pay more than €2,200. And the home owner will move closer to owning their home outright with each passing month while the renter is left with nothing. And moving from renting to owning can be onerous – not least because of the Central Bank mortgage rules which mean that people can borrow only 3½ times their annual salary. The discrepancies between renters and homeowners grow larger for those who bought their homes in pre-boom times and have tracker mortgages while those who have already paid off their mortgages are really on the pig’s back.

8. Apart from mortgages or rent, the single biggest cost faced by Irish households – at least those houses that are not paying for childcare – is food. A person with money will most likely own a car they can drive to the cheapest supermarket to do a big shop. They will also be able to stock up on non-perishable items when they are selling at a discount. And if they are not forever worrying about how to make ends meet, then will be able to plan their meals in an orderly and economical fashion.

By contrast if you don’t have a car or the extra money – or space in your presses – to stock up when prices are good, you will have to spend money on public transport to get to the shops or rely on convenience stores which are always more expensive. Even if you pay just 20 per cent more for your groceries because of that you will end up spending over €1,000 more on your shopping then a well off person.

9. Someone with money can buy better-made clothes and shoes which – inevitably – last longer than cheaper items. Spending €200 on a pair of shoes that last you four years, works out cheaper than spending €60 on a pair every year. And it tends to the same for almost everything that you wear from coats and jumpers to T-shirts and pyjamas.

10. Speaking of clothes, if you are in the fortunate position of having a washing machine, you can do your laundry for a lot less than if you have to rely on a laundrette. Spending a fiver a week in a laundrette over four years will set you back €1,040. You can buy a cheap washer-dry, meanwhile, for less tan €400.