Inflation is plunging record numbers of households into energy poverty with warnings that household bills could now rise by as much as €2,000 a year and over €3,500 when the cost of filling your car is included.
A new report by the ESRI has suggested the possibility of a Christmas bonus-style double welfare payment to offset rising energy bills after finding that the weekly cost of household energy consumption rose by more than €21 a week in the first four months of this year and could rise by over €36 a week if energy prices go up by another 25pc.
When motor fuels are included, the ESRI estimates that energy inflation between January and April pushed household consumption up by over €38 a week and a further rise of 25pc would increase household consumption by just over €67 a week.
The number of households in energy poverty – where more than 10pc of a person or household’s net income is spent on energy bills – has already hit a record high of 29pc, above the previously recorded high of 23pc in the mid-90s.
The ESRI paper warns that further increases in energy costs this year could push as many as four out of 10 households into energy poverty.
The research on energy poverty and deprivation published today by the State’s leading economic think-tank also finds that the Government’s recent cuts to VAT and fuel duty were poorly targeted responses, and that cutting carbon tax would also be the wrong approach.
Less than a third of the 40pc of households that are at the lower end of the income scale, which have been more adversely affected by rising energy prices, would benefit from such measures.
“If the objective is to protect those most affected by rising energy prices, cutting indirect taxes is a poorly targeted response given that most of the revenue is spent compensating high-income households who have been least affected,” the paper states.
Instead, the paper identifies increases in welfare payments, the fuel allowance and lump-sum payments like the household electricity credit of €200 that was recently applied to people’s electricity bills as more effective. It also suggests a Christmas bonus-style double welfare payment to offset rising energy bills.
The paper states that a lump sum or a double weekly welfare payment would result in gains that are larger in both cash terms and as percentage of income for lower than higher-income households, as well as those at risk of poverty.
A doubling of the fuel allowance would also have this effect, although the paper notes that this would be restricted to longer-term beneficiaries of welfare payments and exclude those recently unemployed.
The paper also states that increasing PRSI credits from €12 to €33 and increasing the main income tax credits by €50 a year would increase household incomes by about €2.30 and positively offset energy costs for lower-earners and those who are renting.
By contrast, increases to income tax credits alone would primarily benefit higher- and upper-middle-income households.
The paper also argues that in the long term cutting taxes on energy weakens the incentive to invest in energy-saving technology and behaviour, which is a key priority of the Coalition in a bid to meet its climate action targets of more than halving greenhouse gas emissions by 2030.
“Cutting indirect taxes on energy exacerbates existing effective subsidies to burning fossil fuel, with, for example, reductions to VAT on electricity and home-heating fuels further distorting consumption decisions towards such services and away from goods or services subject to the standard rate,” the paper states.
“Lower income households spend more of their total expenditure on energy and fuel, so as a result increases disproportionately affect their incomes,” paper co-author Barra Roantree said.
“The relative loss from the recent increases is more than twice as big for the lowest income fifth than the highest income of fifth.”
He added: “Our 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.”
Denise Charlton, CEO of the Community Foundation for Ireland, which funded the research, said: “In rapidly increasing numbers, households are facing the choice between putting food on the table, buying back-to-school clothes or heating their home.
“The increases in bills are already alarming. The potential for further increases risks creating a sense of desperation which requires assurances from policymakers that action will be taken before winter arrives.”