The Government’s review of electricity prices has found that “prompt payment discounts” hurt low-income households. These households often struggle to pay their bill on time, and are effectively facing a 10% “late payment penalty”. The full review report found that most people do pay their bills on time, most of the time; even in the “most deprived” decile, 85% of the discounts are claimed. But that compares with 95% for the “least deprived” decile. Lower-income households were more likely to borrow money from friends or family to pay their bill, or to have their power disconnected.
Wherever you sit on the political spectrum, clearly it’s not ideal for people to go into debt just to pay off their bills – fees, charges, penalties and interest costs just make it harder to break the cycle.
Meridian Energy quickly announced that they’d scrap the discounts, and will replace them “with a monthly guaranteed discount of equal value”. They found that most customers do genuinely want to pay the bills, are often only a few days late, and the costs that Meridian actually incur chasing up the money were “a fraction of the value of the discount we were taking away”.
Good on them for a quick response, and hopefully other power companies will follow suit.
Meridian suggested that prompt payment discounts had started because the power companies used to be owned by councils, which charged late fees on rates bills. The discounts have stuck around for decades since the power industry was deregulated, but they might finally be on the way out.
Given what Meridian had to say about councils, we thought we’d take a closer look at rates bills too. Auckland Council do indeed hike their prices by 10% for households who pay late.
This practise needs closer scrutiny, and councils would do well to read the electricity review report – surely it goes against the grain for councils to disadvantage their low-income constituents, and we assume that most people are not Penny Bright and will actually pay their rates.
In fact, the picture is a little more complicated for rates bills, because Auckland Council also offer a discount for people who pay their full year’s rates in one go, rather than in quarterly instalments. Unfortunately, the discount for doing so is tiny at 0.87%. We’ve crunched the numbers so you don’t have to: you should only pay the rates in full if your effective interest rate/ cost of capital is 2.3% or less.
The thing is, almost no one has a cost of capital of 2.3% or less. Even Auckland Council doesn’t: they’re currently borrowing money at 3.17%. So everyone should pay their rates in instalments, rather than in one go. But why doesn’t Auckland Council (or other councils) take the opportunity to review their discount schemes so they more accurately reflect the benefit of collecting the money early, or the cost of collecting it late?
Last week, Andy Florkowski shared some insights from his recent trip to Tokyo. This week, he has shared some video highlights from the whole trip.
Andy was selected as the only New Zealand participant for the Dulux DIAlogue on Tour scholarship programme, along with four designers from Australia. DIAlogue on Tour takes recipients to two cities for cultural tours, studio visits and meetings with design minds. The programme aims to promote the exchange of ideas and insights across cultures and disciplines.
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