It’s quite something when even a full blown corporate mouthpiece like the Executive Director of Electric Ireland is saying that her company’s decisions will cause such hardship to people that she feels the need to advise them to seek help from the St. Vincent de Paul society, but, well, here we are. The energy price crisis is deepening, and, whether the Government knows it or not, will soon be a major political problem:
On Friday, Electric Ireland said that, from November 1st, it would boost residential electricity prices by 9.3 per cent, adding €9.02 a month to the average bill, while it intends adding 7 per cent, or an average of €4.85 a month, to household gas charges.
Electric Ireland executive director Marguerite Sayers said the move was needed to “offset the unprecedented rise in wholesale energy costs this year”.
She added that families facing difficulties with their energy bills should contact the company, charity St Vincent de Paul or the Money Advice and Budgeting Service. Electric Ireland works with both organisations, she noted.
Electric Ireland last increased its prices in August, when it upped the price of its electricity by 9 per cent and its gas by 7.8 per cent.
That’s a 9% price hike in August, and another 9% price hike in September. If this continues, by about march, it’ll take a modest national lottery win just to keep the heating on.
It’s not, in truth, really the fault of electric Ireland. To generate power, they need to buy gas, and the price of gas has surged to record levels because of record demand. And that demand, in large part, is as a result of the utter failure of European politicians to realise that there might, at some stage, be a year with below average wind. The wind has not blown, and the tens of billions spent on wind energy has resulted, this year, in an energy crisis that was easily foreseeable, but went entirely unforeseen by the geniuses who we elect to run our countries.
But, to coin an old, and well-remembered phrase, we are where we are. The question now is what should be done about it.
It should be blindingly obvious to everybody that the fastest thing the government can do to reduce surging energy prices is to reduce the taxes on energy prices.
Remember, energy is taxed twice: You pay VAT, which is 13.5% of your total bill. In the UK, VAT on electricity is just 5%. When the price goes up 9%, you pay an additional 13.5% of that 9% increase as well. The higher the price, the more the Government gets. But also, the bigger the impact of a tax cut becomes.
Consider that a monthly electricity bill of about €100 will work out at €113.50 once VAT has been added. A 9% increase brings the bill to €109, and the VAT is charged on that full total. So, the total payable goes to €123.7, an increase of 12 euros. The Government could alleviate energy bills in the morning by introducing a special VAT rate on electricity and other fuels – similar to what it did for the hospitality sector, when it introduced a 9% VAT rate which endured for some years.
Reducing the VAT on electricity to 9% would reduce that €123 bill to €118 – which would provide some insulation against price hikes. Reducing it to 5%, as it is in the UK, would all but eliminate the price hikes altogether.
But wait! There is also another tax on your electricity – the PSO levy. And, there is a tax on the PSO levy – that’s right, you pay VAT on the tax itself. They rob you twice, arguably three times, and most of us do not even notice. (Incidentally, this is widespread: VAT is charged on a range of taxes, like Carbon Tax, VRT, and so on. But nobody notices, even though they are being taxed through the nose).
There should, therefore, also be a removal of the PSO levy from VAT consideration, if the tax itself is not to be abolished.
Those are two short term things that the Government can, and should do, to alleviate the crisis.
In the longer term, though, lessons must be learned.
This national experiment with wind energy has – to put it mildly – failed. It has left the country, and other countries in the west, vulnerable to peaks and troughs in energy supply, which in turn leads to massive price volatility, and economies badly exposed to energy shocks.
The state needs, as a matter of urgency, if it is not willing to build a nuclear plant, to secure access to the energy generated by nuclear plants in the UK and France. It also needs to cease spending billions of euros annually subsidising the wind power which has gotten us into this mess.