Consultation between six ministers including Prime Minister Mark Rutte, ministries that charge new purchasing power figures and ministers who say in front of the cameras that the problem is “serious” and “complex”. The cabinet has been looking for a solution for the explosively increased gas price and its consequences for households for days.
“We must ensure that people can continue to pay the bill next winter,” said outgoing minister Stef Blok (VVD, Economic Affairs and Climate) on Tuesday after consultation with the other ministers. What the government is aiming for: ‘that part of this will be compensated for households and SMEs, who are faced with a sharp price increase’. The government believes that this must be done in a targeted manner. So that it “goes where it is really needed”, Blok said. Because in the case of compensation for everyone, “it quickly involves very large amounts.”
The half a billion euros that was set aside immediately after Budget Day to soften the rising energy bill is no longer enough, according to many political parties. During the General Political Reflections, the House of Representatives decided to lower the tax on energy bills. But now the gas price has risen further. And the cabinet is developing a way to help households and SMEs that can easily cost billions of euros.
Low incomes duped
The high prices hit households in poorly insulated houses and people with low incomes even more. According to the budget institute Nibud, hundreds of thousands of Dutch people are experiencing financial difficulties. Before 1 November, outgoing ministers Wopke Hoekstra (CDA, Finance), Blok, Kajsa Ollongren (D66, Home Affairs) and State Secretary Dilan Yesilgöz (VVD, Climate) must come up with a plan from the House of Representatives. The decision could already be made on Friday in the Council of Ministers, but it could also come after the autumn recess next week, government sources say.
In any case, it is clear that a high energy bill is politically sensitive. Certainly if it falls on the doormats of many households this winter just before the municipal elections in March. The government also intervened in 2019 when energy prices suddenly rose more than expected, by 172 euros for an average household. The rising tax on the energy bill added another 162 euros. Then the tax hike was softened.
Now the bill could be much higher. Exactly how much varies per household and is not yet clear in general; the gas price is still very high, but has fallen again in recent days compared to the sky-high prices last week. That may be a reason for the cabinet to wait a little longer with a solution: prices may fall further.
At first glance, the solution seems simple: reduce the tax. Before prices rose, the energy bill for a household with average consumption was about 40 percent tax, the Treasury Department estimates. Lowering the tax is of course possible, but everyone benefits from it. Also households that can afford the increased prices, or have fixed a fixed energy price in their contract for years to come, or who live in well-insulated houses. And does it help households that really get into trouble enough? “I think the cabinet has a duty of care for people who are flooded,” says Member of Parliament Henri Bontenbal (CDA). “But if you compensate untargeted, it becomes very expensive. That is a cigar from its own box, because all Dutch people pay for it themselves.”
Lowering the tax is inevitable shooting a cannon at a mosquito
The same problem applies to a reduction in income tax for people with a low income, which the government is also considering. “Not all low-income households are also energy-poor, because some of them do have well-insulated houses,” says Peter Mulder, energy economist at research organization TNO. Reducing the energy or income tax is therefore almost inevitable shooting a mosquito at a mosquito. Mulder: “It also does not solve the problem of drafty houses.”
Actually, Mulder says, the problem is quite clear. The high gas prices naturally affect many households, but the group that really gets into trouble is smaller. He recently estimated for TNO that more than half a million households are struggling with energy poverty. That was based on figures from 2019. It concerns people with a low income who either have high energy costs or a poorly insulated house, or both. They are often on welfare or pensioners. The vast majority live in a rented house of a housing association. They are therefore unable to make their own homes more sustainable.
Mulder applied the current gas price to his data on households in a very rough calculation. And the impact is huge, he says with many blows up his sleeve. If the gas price remains so high in the coming years, houses are not insulated and the cabinet does not compensate households, the number of households in energy poverty will increase significantly, especially in large and medium-sized cities. This will add about 130,000 to 170,000 households. “This is not an estimate of energy poverty this winter, but it shows how many households are vulnerable.”
The half a million households that TNO previously qualified as energy-poor were located just outside the Randstad conurbation, especially in the northeast of the Netherlands. Mulder: “Especially in the cities there are relatively many people who are just above the energy poverty line. That is where the high gas price hits hard.”
Insulate houses better
This entire group of households could help the cabinet very specifically by insulating their houses. The TNO study identifies specific neighborhoods where the need is greatest. Mulder: “But of course you can’t do that before Christmas.”
What can the government do quickly? Maybe municipalities can help. They could hand out a voucher or voucher to people who have a low income and live in a poorly insulated house. This voucher can be used as income support or to insulate the house. “But this route is not easy either. It demands a lot from municipalities and there are all kinds of practical problems: how do you reach the target group, who exactly is entitled to support, and so on.”
Also read: You can do this as a citizen to limit the damage of the high gas price
A version of this article also appeared in NRC on the morning of October 14, 2021