Fuel price rises crystallise mounting difficulties facing Coalition

Siptu and Ibec lose no time in setting out stall in wake of escalating cost of living increases

The scale of problems facing this Government in tackling the economic emergency caused by rising fuel prices was thrown into sharp focus on Friday.

First, Siptu came out calling for a review of the current public sector pay agreement, Building Momentum, which runs until the end of this year. Then it was Ibec's turn, calling for urgent assistance for businesses, now facing massive increases in fuel costs.

The two budget Ministers, Paschal Donohoe and Micheal McGrath, had hoped to gradually run down borrowing this year and start to get the public finances back in order after Covid-19. Now they face new spending demands against an uncertain backdrop and threats of a drop of in tax revenue as economic growth takes a hit.

Fortunately, there is significant leeway built into the budget sums. Donohoe and McGrath are likely to play for time in answering the demands of both unions and business. But the extent of the inflationary surge will put this strategy under pressure – the inflation rate could easily rise to 8.5 per cent or 9 per cent over the coming couple of months, intensifying the squeeze both on households and businesses.

What about the less well off?

There is no right answer here, but the Government has to set up an order of priority. Refugees from Ukraine must be looked after properly. Less well-off households will be heavily squeezed and may need help, though as we are coming out of the winter months, energy pressures will ease a bit. How to support businesses and save jobs is likely to depend in large part on what plans emerge from the EU.

The Siptu demands , meanwhile, reflect calls which will come from across the economy for higher pay. The Government will want to hold on as long as possible here to see what the inflationary outlook looks like beyond this year, with McGrath indicating on Friday that he would take price growth into account in the next pay deal (from 2023 on) rather than in the current one. In the meantime it may have to consider some measures to protect lower paid people, though how this is best achieved is open to question. The problem it faces, as will all employers, is that these demands come at precisely the time there is less cash to pay for them.

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