Governments all over Europe are facing challenges comparable to the financial crisis and the pandemic as they struggle to deal with rising energy costs and the prospect of gas shortages this winter.
In the UK, the new prime minister, Liz Truss, is expected to unveil a price freeze as one of her first policy decisions this week. Tackling the cost of energy is being widely touted in London as a make-or-break issue for her premiership, and the suggestion that she will spend £100 billion on a package of measures has been leaked in recent days.
The political pressures, and the imperative to act, are being felt just as keenly by the Government in Dublin. Ministers and senior officials have been talking about the autumn energy squeeze since before the summer. Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath were successful in fending off demands for an emergency budget in July, but have made clear their intention to introduce a further package of cost-of-living supports with the early budget, now just three weeks away.
That budget will contain — Ministers have already decided when agreeing the summer economic statement — spending increases of €6.7 billion (including a tax package that costs €1 billion). Notwithstanding the fact that €3 billion is accounted for by demographic and other baked-in costs, and a further €1.4 billion in public sector pay increases (assuming the deal is ratified by the unions), this is already a big giveaway budget.
But it will be supercharged by a package of cost-of-living measures that senior Government figures now say could cost as much as €2 billion in total, though it’s understood that no decisions are yet made. These measures — expect a further energy credit, for a start — are intended to be a “once-off” and will be largely paid out to people in the current year, with no commitment from the Government that they will be repeated next year. As such, they don’t count as part of the recurring spending increases in the budget — though there is some scepticism in the Department of Finance about just how once-off they turn out to be.
All in, the budget day spending announcements are likely to be the biggest ever, excepting the pandemic budgets. And while Ministers know that they will be accused by the Opposition and many others of not doing enough, there is some confidence that they will have a defensible position: a package of supports that will make a difference to a lot of people, even if it doesn’t mitigate the price rises entirely.
Some sort of windfall tax on energy companies — which would be popular — is also likely to be considered by the Government, despite Fine Gael’s misgivings. There is also likely to be action by the EU to exert some control on prices, which the Government would row in behind. Governments in EU countries are likely to use whatever means are necessary to ensure that their citizens can keep themselves warm during the coming winter; they know that the alternative is a recipe for social unrest.
So while price rises will be disruptive and expensive — both for consumers and governments — politicians here and in the EU have some tools at their disposal. There is a clear response on the way from politicians.
The prospect of power shortages, however, may bring with it more severe political consequences. Green Party leader Eamon Ryan has repeatedly said that he does not believe there will be power cuts this winter, and there has been extensive contingency planning to manage demand and eliminate the risk of blackouts, even when fuel supplies are greatly curtailed. But Ryan knows he can’t guarantee that — otherwise he would have said “I guarantee it”.
Keeping the lights on is a basic test of competence for any government. Should cuts to gas and fuel supplies lead to rationing or power blackouts, the Government will inevitably be targeted for failure to prepare adequately in recent months. The Greens especially will ship heavy political flak for their determination to decarbonise the energy sector and the broader economy while replacement sources of energy are uncertain, or underdeveloped.
If the lights go out, it is likely to be seen as evidence that the Government can’t fulfil the basics of running the country. It would be a blow to its political credibility from which there might be no return.