Cost-of-living measures: How much are they worth to you?

The impact of the cost-of-living crisis has differed from person to person and from household to household.

However, it is safe to say most people have been hit hard with everything from soaring energy bills to price hikes for food and services.

How bad is the crisis?

The general rate of inflation flirted with double digits for a period last year and while it has fallen back to closer to 7 per cent in recent times, it remains many multiples of what people had been accustomed to for decades.

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Percentages don’t mean that much to me?

They don’t mean that much to anyone apart from economists really. What most of us care about is money. A typical Irish household’s energy bills have climbed by more than €2,000 over the last 18 months while the annual grocery shopping bill is now more than €1,000 higher than it was in 2020. Then there is the higher cost of motor fuel, which has seen many motorists worse off by in excess of €800 over the last 12 months. Clothes, haircuts, holidays, alcohol and a whole lot more beside have also climbed in price.

And then there are interest rates?

Indeed there are. Successive interest rate hikes from the European Central Bank (ECB) since last summer – with more coming down the tracks – have seen the mortgage repayments of people on tracker rates and those with so-called vulture funds hit hardest and fastest. Someone with a tracker of €150,000 to repay over the next 15 years is worse off by around €2,500 a year, with those owing more having to pay more. Variable rates offered by banks are also being impacted, albeit at a slower pace.

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So, what difference have the Government supports made?

They made a difference for sure, but the impact very much depended on a person’s circumstances. Broadly speaking, the measures aimed at offsetting the worst impact of the crisis included energy credits for households that were worth €600, a reduced 9 per cent VAT rate on electricity and gas and a reduced VAT rate for goods and services, as well as a reduction in excise duty on petrol and home heating oil. There were also additional social welfare payments paid out and a moratorium on disconnections.

Was it expensive?

The Government line is that there was an €11 billion cost-of-living package announced in last autumn’s budget, including €4 billion for measures before the end of 2022 and €7 billion for increased social welfare payments and lower taxes this year.

Billions are almost as useless to me as percentages – how much were the cost-of-living measures worth to me?

Again, it depends on your circumstances. We can allow €600 in energy credits, as well as the €200 one that reduced bills in the early part of last year. If we assume a motorist burns through 1,100 litres of motor fuel each year, the cut in fuel excise will have been worth in the region of €200, while the VAT cut on domestic energy bills when spread over the course of year is worth about €150. A household with two children qualifying for child benefit will have received a further €280.

So how much is that?

All told, those reliefs were worth just more than €1,400 net over the course of the last 12 months to a typical Irish household. People on social welfare payments and those in receipt of the State pension will have received more in pure monetary terms, although it is this cohort that will have been hit hardest by the cost-of-living crisis, with a significantly higher proportion of their income going on heating and lighting their homes and buying even the most basic of food items. So the higher monetary value has to be viewed in that context.

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And if all these supports are being cut from the end of the month, does that mean a ‘typical Irish household’ will suddenly be worse off to the tune of nearly €1,500 over the next 12 months, on top of the ongoing cost-of-living crisis?

It would be a very brave government indeed that would take such a drastic step – and as anyone who is old enough to remember the peerless Yes Minister and Yes Prime Minister TV comedy shows knows, politicians tend to shy away from the “brave” decisions that might cost them votes.

What does that mean?

The Government will not cut all the measures it introduced last year in one fell swoop. Some will be phased out over several months, others will be shelved and some steps will be more targeted to ensure they reach the most vulnerable in our society first. What we do know is that the measures introduced in Budget 2023 cost billions of euro. The measures announced this week will be a fraction of that.

How bad will the cost of living crisis get?

Listen | 19:53

What is likely to go?

It seems very unlikely that there will be any further energy credits applied to all domestic energy bills beyond the credit that is planned for the next bill sequence, beginning next month. The Government will be hoping that this bad news will be offset by better news from providers in the weeks ahead.

What do you mean by that?

This week, Pinergy became the first of Ireland’s utilities to announce a price reduction since 2020. The company announced that it would reduce the standard rate it charges to its 27,000 customers by 9 per cent from the end of next month as wholesale inflation on European energy markets continues to ease.

Nine per cent? That’s a lot?

It’s not too bad. In fact, a cut of that size could be worth about €400 to a typical householder. But it is worth pointing out that the very same company announced a price hike of 19 per cent last month, so even the most basic maths tells us that its customers will be significantly worse off after the price cut comes into effect than they were last December.

And what about the other companies?

That is the big question. If the Government’s phasing out of the energy credits coincides with the companies cutting their charges, the impact will be lessened and – depending on the size of any potential cuts – possibly offset altogether. A glimmer of good news is that energy companies tend to move as one; when one hikes prices, they all tend to, and when one cuts them, the others look to follow suit. It is too early to say what the big players will do, mind you.

What about the excise cut on motor fuel?

According to the latest AA fuel prices survey, fuel prices remain relatively steady across the country. The average petrol price across the state is €1.65 per litre, 2.5 per cent more than in January 2023, while diesel has dropped slightly, with the average at €1.68 per litre, 1.7 per cent less than in January 2023. However, the AA has warned that if the excise cut is reversed as planned at the end of this month, it will add 15 cent on to the price of a litre of petrol and 20 cent onto the cost of diesel. That would see fuel close to the psychologically important €2 barrier again, so it seems likely the Government will baulk at that and may instead phase out the reduced excise rate for petrol and diesel in two or three stages over the summer and autumn.

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Will anything be done to offset the much higher interests rates faced by mortgage holders?

That seems unlikely. There have been calls to reintroduce mortgage interest relief – something which would benefit hundreds of thousands of homeowners – but the Government seems likely to resist such calls, at least for now.

What about social welfare payments and child benefit?

The Government has made it clear it wants to target relief at those who need it most, and that means there might be some good news for people in receipt of social welfare payments, living-alone allowances and working family payments, as well as an extra payment for those in receipt of child benefit.

Will it be enough?

Given that inflation is still running at more than 7 per cent, with grocery price inflation running at almost twice that in some cases, domestic energy prices still more than double what they were in two years ago and interest rates still going through the roof, many, many people will be struggling to make ends meet over the course of the year ahead, irrespective of what the Government announces this week.

The bottom line is that many people are still worse off by more than €4,000 when compared with just two years ago and – as that is a net figure – they would have to earn an additional €8,000 to close that gap. And there aren’t many people who can handily do that.