Ending of electricity credits will bite hard this winter
Government
legislation on the triple lock and Occupied Territories Bill last week, the agenda was deathly quiet.
In the midst of that August haze, it can be hard to believe that the weather will ever turn again. Inevitably, however, it will – this is as true of politics as it is of climate. And there are signs that as the days shorten and the weather turns, the old truism will be borne out – winter will be much trickier for the Government.
Earlier this week, figures released to
Sinn Féin
MEP
Lynn Boylan
showed that 301,000 households are now in arrears on their electricity bills. One of the significant things about this is that the arrears figures appear to be creeping up even when the weather is mild – and doing so as the last of the previous government's electricity credits wash out of the system. It seems likely that the credits suppressed a rate of electricity arrears that would otherwise have emerged given the still-elevated cost of power.
The electricity credits were a blunt, expensive – and politically expedient – tool to address a genuine crisis. In September 2022, as the country faced its first post-Ukraine invasion winter (and budget), a senior government figure texted me to say that modelling suggested energy bills over the winter would be more like mortgage payments. Cabinet had been warned earlier that week that household bills could hit €6,000 annually. That was both economically and politically unsustainable, and the Coalition applied €600 worth of electricity credits to household bills between November that year and March 2023, costing a little over €1.2 billion. From April 2022 until February this year, households got nine payments worth a total of €1,500 – costing almost €3 billion. It was a stark summation of two things: the scale of the crisis and the political willingness to cure – or at least ameliorate – it with exchequer spending.
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Both those things have changed in important but different ways. Firstly, the cost of electricity has come down in line with reductions in wholesale gas prices – the main input into Irish electricity prices. However, it has not returned to pre-crisis levels, and energy boffins who understand these things expect that utility bills this winter will be about the same as last winter (or maybe even a little higher). The second important change is that while the situation has improved, the Coalition has resolved to turn off the tap completely on electricity credits. From a policy point of view, given the economic backdrop and the constant refrain over State spending, there is a strong case to be made for this – and it is one that has been made early and often by Minister for Finance
Paschal Donohoe
and Minister for Public Expenditure
Jack Chambers
. Both have been backed up by their respective party leaders. But the politics of this has a hard edge: the simple fact is that voters up and down the country are likely to be exposed to a more expensive winter in real terms than they have been for many years. As universal once-off payments are rolled up, they will get a delayed – but real – shock. This also comes against the backdrop of ever-higher grocery costs. More expensive turkey and electricity bills (or colder homes) beckon for the festive period. That does not sound like a recipe for a happy electorate.
It is often said that inflation kills governments, but the last coalition was returned to power at least in part because it insulated households to an extraordinary degree as the election beckoned – not just the electricity credits, but recall two double payments of child benefit, either side of polling day.
Against this backdrop, there is a compelling logic to intervene to protect lower-income households – and this is something I would expect the Government to do in the budget. Ditto extending the lower
VAT
rate on electricity bills. Meanwhile, Minister for Energy
Darragh O'Brien
has convened an energy affordability task force, which is to sketch out support measures for Budget 2026 some time soon. The Government's actions suggest it knows it has an issue – but all the steps the Coalition is minded to take – targeted measures, structural reforms, investment in the grid – are either partial or much more long-term in nature. They lack the raw retail politics of the once-off payments.
Meanwhile, the Opposition's actions are equally as instructive. Before the Dáil rose for summer, the cost of living seemed to be the issue they most routinely raised in the Dáil.
During his meeting with UK prime minister Keir Starmer this week, US president Donald Trump riffed on how politics is pretty simple, at the end of the day. The politician who wins out, he opined, is generally the one that cuts taxes the most, who keeps you out of wars – and 'the one who gives you the lowest energy prices'. Say what you like about him, he is an operator with extraordinary instincts for the prevailing politics of the day.
It is possible that higher energy costs – and the price of the low-carbon transition – will become baked into economies in the time ahead. That suggests that energy politics may become a feature of the system here and elsewhere, not a passing storm.
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