It may be time to look closely at capping energy price increases, given the way they have rocketed in recent months. Other countries have already moved to introduce some form of price cap in the face of huge price increases.
One of the first to move was France, where final price increases in early October were let through – but the government said no more, until April of next year.
Interfering in energy prices is a tricky business, especially given there is competition in gas and energy supply, with private-sector operators tied to their own cost bases, and wholesale prices, etc. It isn’t like the old days of state monopolies.
The mechanism to cap prices might not be straightforward either – unless it was done on an EU-wide basis. The French have decided to cut the taxes they charge on energy.
In Ireland we are paying well above the EU average for energy. According to Eurostat, taxes here are relatively low compared to places like Denmark, Germany and Belgium. Electricity prices for Irish households are the fourth-highest in the EU. But when taxes are stripped out, we have the highest. This raises questions about the efficiency and competitiveness of the market. We may be on the end of any European supply pipeline for gas, or indeed for electricity through an interconnector, but it still does not reflect well on the mechanics of the industry.
Back in the days of an ESB monopoly, questions were asked about its own efficiencies, whether there were far too many staff, and what their rates of pay were. The ESB always paid its staff very well.
Figures for the ESB are not as important now as they were, because it is in a competitive regulated market. But the figures are illustrative none the less. Back in 2007 it had revenues of €3.4bn and it had 7,835 staff. By 2015 revenues were €3.35bn and it had 4,963 staff.
In 2019, just before Covid, its revenues were €3.7bn and it had 6,101 staff – a sizeable jump in four years. Average salaries in ESB, including pension contributions from the company, allowances and expenses, came in at €86,000 in 2020.
With gas prices, the market is supposed to take care of prices, given that the main gas supplier is a private sector company – Centrica. The gas infrastructure is owned by state company Gas Networks Ireland, which is part of Ervia.
Average salaries, including pension contributions, at Gas Networks Ireland amounted to €87,699 last year.
A sizable part of the levy paid by consumers for electricity relates to public service or a contribution towards green renewable energy generation. It would be very controversial to consider reducing it – even temporarily – because it feeds into a market price for providers of renewable energy.
The only temporary option available would be a reduction in other taxes. The Government has argued that it is already doing its bit for those suffering from higher energy prices, by changing the income tax bands in the Budget for next year. That should deliver a small increase in after-tax income for everyone.
Perhaps, but surely it is nicer to know energy bills will not keep rising.
Inflation is everywhere it seems. Barely a year ago, reputable economists talked about the end of inflation as part of a new monetary policy paradigm. Well, it’s back with a vengeance.
Unilever in the UK announced that its prices had gone up by over 4pc. The consumer goods giant said it was caused by inflationary pressures within its own supply chain.
The biggest conundrum about the wave of price rises is when they will stop. Minister for Finance Paschal Donohoe is insisting price rises will be temporary, but he thinks it will be well into next year before they settle down.
Outgoing head of the Bundesbank Jens Weidmann warned about inflation risks in his farewell message to Bundesbank staff last Wednesday.
“It will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either.”
Weidmann is of the view that timing is everything when it comes to inflation. Letting it rip on the basis that it will ease off by itself in a few months’ time could be dangerous.
Unilever warned that inflation was likely to accelerate next year and its prices would have to rise further as consumer goods companies battle to offset surging energy and other costs.
One problem with all of the assumptions about short-term inflation is that it sets a corporate tone for price rises. The ‘everybody is at it’ mentality can become a self-fulfilling prophecy.
Unilever finance director Graeme Pitkethly saw little let-up in inflationary pressures – a potential blow to central bankers, who are hoping the current spike in prices will be transitory.
If inflation really does take off, and central bankers have to respond with higher interest rates, the economic landscape could change quite quickly.
The fact that rates would be moving from such historic lows gives plenty of room – at least for another while.
New Zealand prime minister Jacinda Ardern sort of rubbed Boris Johnson’s nose in it after she agreed a new UK trade deal with the British prime minister.
Johnson was full of his usual vacuous colour in a video of the deal being struck: “We’ve scrummed down, we’ve packed tight, and together we’ve got the ball over the line and we have a deal. And I think it’s a great deal.”
Ardern replied that she loved Boris’s use of rugby metaphors, “but if we were going to continue that on, then naturally it would conclude with the All Blacks winning… And I know that New Zealand feels that way with this free-trade agreement.”
In fact, this is another rubbish trade deal concluded by Johnson’s government after 16 months of discussions.
The deal will not add anything substantial to UK economic growth, but will allow greater access to the New Zealand market for things like diggers. It should also facilitate more UK professionals in emigrating to New Zealand, because they will experience lower barriers to taking up professional jobs there.
Meanwhile, the UK will drop tariffs on New Zealand wine and provide greater access to the UK market for lamb products. The deal was slammed by British farming groups. The cost base for lamb production is lower in New Zealand.
UK international trade secretary Anne-Marie Trevelyan said British farmers should not be concerned about increased lamb imports because the lambing seasons were different in the UK and New Zealand.
This deal could also spell bad news for Irish exports to the UK. Irish lamb exports have been around €60m per year to the UK. Big Irish meat groups have already moved to shore up more production for the UK market by using their British factories.
However, labour shortages in the UK will have impacted on that plan.