The impact of rising energy prices on the household

A study by the Idea Foundation examines the impact of government relief efforts.

Luxembourg households

A study by the Idea Foundation examines the impact of government relief efforts.

(mm with Nadia DI PILLO) – The situation on the energy markets is extremely tense. Private households have to pay more and more for heating, fuel and even electricity, which leads to a significant increase in bills.

The new index level was triggered on April 1st and applies to all income in Luxembourg.

The average price of energy rose by almost 41% between August 2021 and March 2022, i.e. in six months, “with particularly significant increases in gas and heating oil”, the Idea Foundation notes in its latest study “Decryption”.

Different effects depending on income

The Luxembourg think tank, which focuses on socio-economic issues, examined the impact of rising energy prices on the budgets of five model households.

The study shows that low-income families earning around €35,000 per year will lose around €1,000 or 2.9 percent of their disposable income in 2022 due to inflation. If at least the energy prices remain stable until the end of the year. On the other hand, a household with an income of $120,000 suffers a total loss of $1,300, or 1.1 percent of its total budget.

Another observation: the 2022 indexation only “incompletely and unfairly” compensates for the increase in energy costs. The first household, rather “disadvantaged”, loses 364 euros net in 2022, while the wealthy household gains 214 euros net after taking into account the indexation level. “The other households in an intermediate situation will also lose out,” writes Muriel Bouchet, author of the study. An example calculation shows that a household with an income of 65,000 euros loses around 185 euros.

A package of measures

In order to relieve consumers and companies in the face of rising energy prices, the government has launched various packages of measures. In January 2022, the cost-of-living surcharge was increased. On February 28, 2022, the energy bonus was presented at a press conference. Depending on their composition, households receiving housing benefit receive a supplement of at least 200 euros and a maximum of 400 euros.

Finally, a comprehensive package of measures was presented at the end of March. Overall, the trio have agreed to postpone the index tranche, which is expected to expire in August, to 2023. If another tranche is due in 2023, this would also have to be postponed by one year. In return, taxes on fuel and heating oil will be temporarily reduced by 7.5 cents and needy households will be helped with tax credits.

From 660 euros more to 892 euros less

The aid packages must be implemented now, but how will these measures affect budgets? According to calculations by Idea, a household with an income of 35,000 euros will ultimately benefit from the targeted measures of 660 euros. A household with an income of 65,000 euros should earn 23 euros.

On the other hand, a family with an income of 120,000 euros suffers a loss of 892 euros. The shifting of the indexing tranche to 2023 has a particularly negative effect here: the loss is EUR 1,313. For other categories of households, the shift is likely to have mainly negative consequences. A household with an income of 35,000 euros loses 383 euros, a family with 85,000 euros 930 euros.

In general, the Ideas Foundation notes that two measures in particular – the cost of living subsidy and the energy bonus – are “targeted”. Their impact is greater on the least advantaged households. Conversely, the reduction in the price of fuel by 7.5 cents per liter will benefit the wealthiest households. However, as Muriel Bouchet points out, the situation can change quickly as energy prices continue to rise, explaining that the study is “just a snapshot”.

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