Rising energy costs set to drive increase in winter fuel allowance

Tánaiste promises budgetary measures to alleviate impact of increased heating bills

The price of fuel and heating is set to become a significant political issue this autumn. Photograph: Leon Neal/Getty Images

The price of fuel and heating is set to become a significant political issue this autumn. Photograph: Leon Neal/Getty Images

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Growing concern in Government about rising energy costs will drive increases in social welfare payments and the winter fuel allowance in the forthcoming budget, Tánaiste Leo Varadkar signalled on Tuesday.

Fears mount in Government that inflation, especially in the price of fuel and heating, will become a significant political issue this autumn.

Several Opposition parties raised the issue in the Dáil yesterday, prompting Mr Varadkar to promise budgetary measures to alleviate the impact of rising heating bills.

Mr Varadkar also did not rule out imposing caps on energy prices, but warned that as suppliers still have to pay high wholesale prices, introducing price caps could simply force companies out of business, as was happening in the UK.

However, there are also concerns in Government that inflation is emerging as a significant political issue as the economy recovers. Mr Varadkar signalled that the Coalition’s response will be to put more money into people’s pockets in the budget, though some Government sources fear this will fuel further inflation.

He said the Government would prepare a welfare package, pay increases, a tax package and increases in the fuel allowance. Sources later added that increases in the living alone allowance and the qualified child payment would also form part of the welfare increases in the budget. However, the Government is also committed to increases in the carbon tax.

Ministers have been told that the worst of the energy price increases will have eased by next spring, when supplies of gas will increase. Much of the price pressures have been as a result of movements in the international energy and commodity markets, while Russia has also been restricting supply to the European market as part of a dispute over future pricing. “International gas prices are about four times what is normal,” one official said, “and that feeds into domestic prices.”

Price spike

But while Ministers have been briefed that the problem is a “short-term price spike” there is little doubt in Government that a response in the budget is required.

Speaking in New York yesterday, Taoiseach Micheál Martin said that the Government is “concerned” about energy prices which he said were rising as part of a global “inflationary spike”.

Mr Martin added: “In the forthcoming budget we will seek to try and protect the lowest income groups and those most impacted by an increase in fuel prices.”

But as expectations mount for a giveaway budget, there is also concern in Government that the gains will be spread too thinly. Minister for Public Expenditure Michael McGrath warned yesterday that while the Government would respond to the increased cost of living, the room for new spending measures in next month’s budget is limited.

Price cap

“I have pointed out to Cabinet during our meetings in recent weeks just what the overall constraints are, and there will be limited resources.”

Mr Varadkar said Government has not ruled out maximum price orders for the surge in gas and electricity prices but he warned of the potential for energy companies to go out of business as was happening in the UK because of a cap on prices.

He said that if they imposed a price cap the retailers still had to pay for the energy and, in the UK, companies were going bust as a result.

“So it’s not necessarily an example to follow but certainly not something that we rule out,” he said.

Labour leader Alan Kelly had warned Mr Varadkar in the Dáil that “your Government is genuinely faced with a winter of discontent, unless you really genuinely act on these issues that really affect people’s everyday lives and living standards” as he highlighted an increase of €400-€500 in energy prices this winter.