Stormont's £100 home heating oil subsidy vouchers 'are pushing up the price of oil' says economist
The government’s £100 voucher scheme for buying home heating oil is helping to push up the price of that oil.
That is the analysis of economist Esmond Birnie, speaking after the latest weekly figures showed that the price of bulk-bought home heating oil is now back to close to £1 per litre.
Though the main thing driving up the cost is the ballooning global price of crude oil, Dr Birnie said that the Stormont subsidy is also having an effect.
The Ulster University academic and former UUP MLA was also speaking following news that over 50,000 applications had been made for the £100 vouchers within just a day of the system going live on Wednesday.
The vouchers take the form of pre-paid cards available to people on benefits, and also to single people or couples with a net annual income below £30,000 after tax.
They are administered by the Department for Communities, and were announced following the massive spike in the cost of home heating oil in spring in the wake of the US/Israeli attack on Iran.
Dr Birnie told the News Letter: “The basic economic theory we teach to first year students suggests that a subsidy to consumers is in effect equivalent to increasing their income.
"If income goes up, in almost all cases demand goes up and that in most cases implies higher prices.”
It is “almost impossible to say” what proportion of the rising price of oil is down to the voucher scheme, and how much is down to the fact the raw product – crude oil – is surging in price.
“My instinct is if heating oil costs are rising, I think the main reason for that is probably what’s happening to the global price,” said Dr Birnie.
"But a contributory factor – probably a lesser factor, but still there – is that very standard economic behaviour: you give people a subsidy, if you increase their income, people people will buy more of the good and the price will go up.”
He said he can now use this as a “real world” example of this principle when teaching his students, adding: “It’s somewhat disturbing that policymakers don’t recognise that their policies sometimes can have adverse results as well as good results…
"It may well be this is the best policy that the devolved government, particularly Gordon Lyons, the relevant minister, can apply in the circumstances.
"But I think we do need to be realistic: government interventions sometimes have counter-productive effects as well as the intended, positive effect.”
He stressed that the inflationary effect on prices would not be sufficient to wipe out the benefit of the £100 vouchers – consumers will still be better off with them, “but they may not be as well off as they imagined they were going to be”.
The voucher scheme will close for new applications on March 31, 2027.
According to the Consumer Council’s latest weekly survey data, published on Thursday, the average price of 900 litres of home heating oil now stands at £887.
That is up by £18 on last week.
Before the Iran war began, the average price of 900 litres had been about £516, before shooting up to £1,089 in April, then declining to as low as £615 in July before rebounding.
The price of a barrel of crude oil had fallen to less than $72 in July, about the same as its pre-war price.
Since then it has surged up to well over $100 a barrel.