Energy poverty at record levels in Ireland

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 found that recent energy inflation has increased the estimated number of households in energy poverty to 29%. 

This leaves the share of households in energy poverty – defined as spending more than a tenth of their net income on energy including electricity but excluding motor fuel.

The previous highest recorded rate was in 1994 and 1995, when 23% of households were in energy poverty.

The estimate is based on energy inflation observed from January 2021 to April 2022, with a further 25 per cent rise in energy prices increasing this share to 43 per cent.

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. Should energy prices rise by a further 25 per cent,

The ESRI estimates, this would increase by an average of €36.57, excluding motor fuels, or €67.66 if they are included.

It is also estimates that recent increases in energy costs (including motor fuels) amount to 5.9 per cent of after-tax and transfer income for the lowest-income fifth of households compared to 3.1 per cent for the highest income fifth. This is because a larger share of lower-income households’ spending is 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.

About half of the aggregate gain from such tax cuts – and so cost incurred – goes to the highest-income 40 per cent of households compared to less than a third to the lowest-income 40 per cent who have been more adversely affected by rising energy prices.

Instead, increases to welfare payments, the fuel allowance, and even lump-sum payments like the household electricity credit are 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. 

Niall Farrell, one of the authors of the report, said, “Rising energy prices are having a substantial impact on households, many of whom were already experiencing energy poverty or deprivation. Our research finds that, on average, these changes are more burdensome for lower income households, rural households and those at risk of poverty. This is because energy expenditures tend to comprise a larger share of income for these households.”

%d bloggers like this: