It’s been a very strange month of September in the world of business, politics and economics – irrespective of which side of the Irish Sea you happen to live on. The events that led to the first part of the crisis that emerged were pretty much out of our control.
The departure of Boris Johnson from Downing Street, the relatively sudden death of the Queen, and the arrival of what was loosely described initially as a ‘mini-budget’ in the UK, made for some of the choppiest waters that the markets have ever seen. This, of course, has led to equally serious implications for our own economy here, which relies so heavily on what happens in London and elsewhere.
My old secondary school economics teacher used to proclaim that “if Britain sneezes, then Ireland comes down with pneumonia”. That has proven to be the case over the last two weeks with fears over export costs, the collapse of Irish-based business in the UK, and general unease about the ability of the British to repay some of the massive debt that they are building up with a series of tax breaks and tax cuts for not just the lower paid but, bizarrely, for some of the best-known millionaires in the Union too.
Energy crisis
Here in Ireland, the coalition government produced their own array of measures to try and deal with what has become an energy crisis for most families in the last few months by introducing fairly widespread changes in the 2023 Budget on Tuesday, dishing out cash and incentives in several directions – with mixed views on how effective it’s all going to be.
The electricity bill chaos was the big one that had to be attacked and the finance minister’s first attempt to calm things down was to try and effectively subsidise everyone’s bills. You don’t have to go too far in Roscommon or any other county to meet somebody who has been severely affected by the staggering spike in electricity charges.
Stories of customer bills going up by thousands of euro in the space of just one month are everywhere. We all read the incredible details of how Annie & Vincent Timothy in Roscommon town saw the family supermarket electricity bill go from just over 6000 euro to an incredible high of over 20,000 euro in a very short period of time. I know of dozens of people in business who are literally not sleeping at the moment in the fear of what is going to be on the bottom line of the electricity bill the next time it pops through the letter box or drops into the inbox.
The Government response on Tuesday was to pledge that businesses will receive up to €10,000 a month to assist with energy bills and that every household will get €600 in electricity credits in three payments over the coming months.
To cap or not
The reaction on Tuesday night was fairly muted for the most part. For most people, the thought that there would at least be some sort of a hand-out or an effort to give them a leg-up with paying a big bill every month over the winter period was at least reassuring. But since then, there’s also been a feeling much broader in the community that what is required is not a month by month approach to the energy bills crisis, but some sort of a cap that could be put on the final electricity or gas bill account next April or May when most people know they can hopefully turn off the heating again and relax for a few months over the summer without the fear of a whopper of an ESB bill coming in.
There is no energy price cap as it stands in Ireland. In the UK, however, the energy regulator Ofgem introduced an energy price cap in 2019 to help protect households from excessively high prices and to ensure people who didn’t switch supplier regularly weren’t charged an excessive ‘loyalty premium’. The cap used to be reviewed twice a year (but was then scheduled to be reviewed every three months) and was set to increase by 80% to £3,549 from 1 October following the most recent review – but the new UK price cap, introduced this week, puts a limit on the unit price of gas and electricity.
On average, it is reckoned that the price increases announced so far here in Ireland have added around €2,200 a year to the average household’s energy bills, so most want to know if this figure can effectively be capped now by the Government – instructing the energy companies to hold the overall cost below 3000 euro or 4000 euro by the end of the winter.
The problem for us is that we don’t have the control on the energy providers who are charging the customers here. Ireland is a huge importer of coal, oil, and gas and we have very few natural energy resources of our own – apart from the controversial Corrib gas field off Mayo. That effectively means that we have no major power to cap the price of these fossil fuels as we’re buying them from other countries.
So if we really want to cap prices, someone (i.e. the taxpayer) would have to pay for the difference between the wholesale or market price of the fuel that we buy and the cap that’s been set.
All of this brings us back to the UK economic crisis and the decision by the new PM Liz Truss to borrow a staggering £100bn over just one year to cover the cost of capping the energy prices over there. The huge level of borrowing has led some analysts to forecast a collapse in the value of sterling over the coming months, which in turn would make imports such as food and clothes more expensive for British consumers. We saw evidence of this only this week with the instability in the markets. If something similar were to be implemented here, economists say it could cost up to €10bn over one year and would have left the Government with no room for any other type of social welfare measures, public pay increases or tax cuts, such as we saw in the Budget this week.
Other options
There could, of course, be other ways of approaching this issue. In Ireland, we know from recent publication of annual accounts that the ESB is not a loss-making operation. Readers will remember I argued in a column here last February that the Government should ask them to take the hit with the price of oil and coal going up, etc. It seems somebody may have been listening to me after all as there was a lot of this going on in the last few weeks with the increased government dividend from the ESB’s accounts apparently going to pay for some of the measures we saw in the Budget this week.
The bottom line, however, is that hefty electricity and energy bills are on the way to every home and business in the country next month – and while the government subsidy in the Budget will help to take the sting out of it in some places, there are others who will not be able to pay the bills. That doomsday scenario is going to be a reality for many people – which is why there really is a need to revisit this situation on a month by month basis in the coming months.
People who are vulnerable cannot be left alone to suffer. They must be carefully monitored and supported this winter.
