THE NUMBER OF households in energy poverty in Ireland has risen to the highest rate ever recorded, according to a new report by the Economic and Social Research Institute (ESRI).
The report, published today, found that recent energy inflation has increased the estimated number of households in energy poverty to 29%.
The previous highest recorded rate was in 1994 and 1995, when 23% of households were in energy poverty.
A person who spends more than a tenth of their net income to heat or power their home is defined as being in energy poverty.
The estimate is based on energy inflation observed from January 2021 to April 2022, with a further 25% rise in energy prices increasing this share to 43%.
The report also found that energy inflation between January 2021 and April 2022 increased the cost of estimated households’ consumption by €21.27 per week, on average. This rises to €38.63 per week when motor fuels are included.
The ESRI estimates that should energy prices rise by a further 25%, this cost would increase by an average of €36.57, excluding motor fuels, or €67.66 if they are included.
It also estimates that recent increases in energy costs amount to 5.9% of after-tax and transfer income for the lowest-income fifth of households, compared to 3.1% for the highest income fifth. This is due to lower-income households’ spending more on energy, particularly home heating and electricity.
The report states that cutting indirect taxes on energy, like VAT, fuel duty or the carbon tax, is a “poorly targeted response” to protect those most affected by rising energy prices.
This is because around half of the aggregate gain from such tax cuts – and so cost incurred – goes to the highest-income 40% of households compared to less than a third to the lowest-income 40%, who have been more adversely affected by rising energy prices.
According to the report, increases to welfare payments, the fuel allowance, and even lump-sum payments like the household electricity credit would be better targeted at those most affected by energy inflation.
“For example, a Christmas Bonus-style double welfare payment would result in gains that are larger in both cash terms and as percentage of income for lower – than for higher-income households, while avoiding blunting the incentive to invest in energy-saving technology,” it says.
Barra Roantree, one of the authors of the report, said the findings have important implications for policy.
“If the objective is to protect those most affected by rising energy prices, cutting indirect taxes is a poorly targeted response. This is as most of the revenue is spent compensating higher-income households who have been less affected,” he said.
Furthermore, trying to address the impact of rising energy prices by cutting indirect taxes on fuel can have other undesirable effects, such as blunting the incentive to invest in energy-saving technology.
Denise Charlton, CEO of The Community Foundation for Ireland who funded the research said: “Many of the 5,000 voluntary, community and charitable groups we work with will be looking at this report and no doubt will reflect on it as they make pre-Budget submissions to government.
“The options assessed by the ESRI need urgent government attention.”
On Tuesday, the Government approved a package of measures that includes setting the PSO levy on domestic electricity bills to a minus figure, meaning people will save €75 on electricity annually.
The coalition also approved the final results of the second onshore Renewable Electricity Support Scheme (RESS 2) auction. This will bring “significantly more Irish wind, solar and hydro-electric energy onto the National Grid”, the statement from the Government reads.
This, they said, will reduce our reliance on increasingly expensive imported fossil fuels.
Over 371,000 households also received an Extra Fuel Allowance payment of €100 last month.
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