Industrial relations and social dialogue

First responses to cushion the impact of inflation on citizens

Although the worldwide pandemic situation had already disrupted supply chains and triggered increases in energy and food prices in 2021, the situation deteriorated in 2022 with the Russian invasion of Ukraine. Ahead of coordinated action at EU level, governments throughout the EU had already started to intervene with policy measures in a bid to cushion the impact of rising fuel and energy prices on citizens, but the situation demanded further responses. This article summarises these first policy responses, as reported in Eurofound’s EU PolicyWatch database, up to the end of May 2022. While it provides a snapshot of measures implemented to date, it is not exhaustive, as the situation is developing rapidly. This article complements two other Eurofound articles that summarise the first policies to support refugees from Ukraine and businesses in the EU. It is based on an analysis of policy initiatives compiled by the Network of Eurofound Correspondents and recorded in Eurofound’s EU PolicyWatch database. Readers of this article can also refer to the database, which will be updated later this year.

Introduction

The support measures for citizens in the EU are predominantly actions taken to cushion the effects of soaring prices and rising inflation. Given the recent huge increases in energy prices, it comes as no surprise that most of the reported measures relate to policies that will help to make energy bills (electricity, gas and oil) and fuel costs more affordable to citizens.

The initial findings are as follows:

  • Most of the reported policies are temporary, ad hoc measures – very few policy actions are of a permanent nature
  • One-off, lump sum payments are more common than monthly supports
  • Most policy measures apply to the general population or specific groups, such as all employees or everyone save those on higher incomes
  • As governments can influence prices most directly via taxes, they have mainly resorted to tax cuts or credits, but they also provide subsidies; few countries have resorted to price controls
  • Several measures also have socially targeted scales for those on lower incomes or belonging to certain vulnerable groups (for examples, families, students, pensioners or those receiving social benefits), while some countries just provide direct financial support to these more vulnerable groups
  • Measures targeted at vulnerable groups are more likely to take the form of general financial support, so that the individuals can choose themselves what to purchase; non-targeted measures are mainly confined to energy bills and fuel prices
  • The measures mainly aim to cushion the impacts of rising prices as a short-term response; very few take a medium- to longer-term view in the context of the green transition (such as promoting energy saving or promoting the transition to renewable energy sources)

General measures aimed at the broad population

Many countries have opted for measures that provide ad hoc, one-off support to the whole population (or specific targeted groups). In some cases, this is provided as general financial support, while in most cases the subsidy or tax cut is closely related to escalating energy bills or fuel costs.

General financial support

Luxembourg was the only country where a permanent measure targeting all employees was reported. Here the government, following consultation with social partners, advanced the indexation-based increase of wages from August to April 2022 to address the rise in prices. This increase applies to all employees. Another general measure was introduced in Malta, where cheques of €100 (for workers and students) and tax refunds for workers earning less than €60,000 a year were issued.

Energy bills

Support for energy bills in the form of direct subsidies was reported in the following countries: Belgium (Flemish Region: €100 federal heating bonus and €200 heating oil voucher), Greece (monthly subsidies ranging from €30 to €180 per megawatt-hour (MWh) consumed), Ireland (€200 per household), Norway (a variable benefit rate of 55-80% of the difference between the market price and a predefined threshold) and Germany.

The German scheme – the ‘energy price lump sum’ (EPP) – is an interesting example of the introduction of a non-targeted scheme, which results in higher allowances for those on lower incomes. The gross sum of €300 will be paid to employees via the salary paid by their employer (who will be compensated by the federal state) and the scheme is also extended to other people (such as self-employed people, pensioners and students). As the EPP is taxable, the net benefit is dependent on the overall yearly income of the receiver and – due to tax progression – is higher for those with a smaller taxable income.

Several countries opted for tax cuts or credits to lower the price of energy. Austria suspended the ‘green electricity contribution’, which was earmarked to finance the transition to renewable energy sources to support the country’s high energy prices (with estimated annual savings of €90 to €100 per household). The Flemish Region in Belgium reduced the value-added tax (VAT) on electricity and natural gas from 21% to 6%; the Netherlands likewise reduced VAT on energy from 21% to 9%, and provided additional discounts on energy taxes (with estimated annual savings of €400 per household). Luxembourg introduced an energy tax credit based on income level (ranging from €0 for those with an annual income of over €100,000 to €84 for those with an annual income below €44,000). Latvia suspended two charges related to electricity bills and will cover the difference up to an approved tariff (€68 per MWh) for customers facing an extreme increase in heating costs. Finally, Malta and Romania controlled the price of energy by imposing price caps on suppliers for the benefit of consumers. Malta set aside €200 million of public funds for its national energy provider, Enemalta, and Romania has extended a tax on the additional income of energy producers to finance the cap.

One more permanent measure was reported in the Netherlands, where the government earmarked €300 million for citizens to make their homes more sustainable and to carry out energy-saving measures.

Fuel costs

Given the soaring price of fuel throughout the EU in recent months, several countries have reacted to support either consumers of fuel (including private persons and/or companies) in general, or commuters in particular. In four countries, the introduction of subsidies for vehicle fuel has been reported. In France, private and business consumers of fuel receive a discount of 15 cent per litre, while in Luxembourg, the discount is 7.5 cent per litre. In Spain, a similar discount amounts to 20 cent per litre: 15 cent is refunded by the government and 5 cent is borne by the distributor. Portugal initially began with a discount of 10 cent per litre, but increased it to 40 cent per litre in March and April 2022, with a maximum amount of 50 litres per month. Meanwhile, Sweden is discussing a legal proposal to subsidise the owners of private cars with a lump sum of SEK 1,000 to SEK 1,500 (€96 to €145) per year.

In Cyprus, Germany, the Netherlands and Slovenia, tax cuts were introduced. Slovenia resorted to price caps, as did Hungary, with the latter limiting prices to HUF 480 per litre (about €1.23).

Austria, France and Germany responded with measures to support commuters, such as allowances and fare cuts. In France, the distance-related subsidies for health professionals visiting their patients’ homes have been increased. As part of their relief package for citizens, workers and companies, the German government introduced a €9 ticket for local public transport for three months over the summer, which was available to all citizens, but intended primarily for commuters. Austria raised the regular commuters’ allowance between May 2022 and June 2023 for users of both private cars and public transport.

Other basic consumer items

In addition to the cap on fuels, the Hungarian government introduced fixed prices of several basic food items between February and July 2022. This includes the price of sugar, flour, sunflower oil, pork chops, chicken parts and milk. Retailers are obliged to ensure such items remain in stock. In Luxembourg, rent payments are temporarily frozen until 31 December 2022, while in Spain rent increases are limited to 2%.

Targeted measures aimed at vulnerable groups

People with lower incomes are more negatively affected by rising prices, as they must spend a larger proportion of their income on basic goods such as rent, utilities, food and transport. In this regard, several of the policy measures described above have additional provisions for certain vulnerable groups. In addition, as a response to inflation, some countries have modified existing measures or introduced new measures targeted at those on low incomes.

General financial support

As with the measures addressing the broad population, the targeted measures are mainly of a temporary nature. The policies in Estonia and Finland are among the few cases having a more permanent effect on people’s income. Estonia increased the subsistence level at which people are eligible to receive social benefits, and now includes the cost of mortgages in the calculation of this level. The Finnish government proposed raising a number of benefits by 3.5%, including pensions, unemployment payments, student allowances and other benefits. One-off payments are the dominant form of support among the temporary measures, with only Spain increasing the minimum living income by 15% for three months. The amount of support varies between €100 and €300. Estonia, Germany and Greece have reported that additional child benefits were paid to families. Table 1 provides an overview of the reported measures by country, amount and target group.

Table 1: Overview of temporary financial ad hoc support for vulnerable groups

Country

Amount

Target group

Austria

€150, doubled to €300 for specific groups

Low-income pensioners, unemployed people, people on social benefits, long-term recipients of sick leave benefits, students in receipt of grants

Estonia

€50

Low-income pensioners and people unable to work

Germany

€100

Recipients of unemployed benefits

Germany

€200

Recipients of social assistance and unemployment assistance

Greece

€200

Low-income pensioners, uninsured elderly people and people with disabilities

Greece

One extra monthly payment

People on the national minimum income

Italy

€200

People with an annual income below €35,000, including domestic workers, seasonal workers, pensioners, self-employed people, and those receiving citizenship income or unemployment benefits

Malta

€200

Pensioners and people on a low income

Spain

Increase of monthly minimum living income by 15% for three months

Recipients of the national minimum living income

Estonia

€50 per child

Families with children

Germany

€100 per child

Families with children

Greece

1.5 additional monthly child benefit payments

Families with children

Source: EU PolicyWatch database, as reported at the end of May 2022

Energy bills and fuel

As part of the regular cost of basic needs, rising energy bills affect people on lower incomes more – not least because they are often living in less well-insulated houses and their heating sources are likely to be less energy efficient. To prevent the rise of energy poverty due to the substantial increases in energy costs, many governments have specifically targeted low-income groups, either as part of the general measures (described above) or through special schemes.

A more long-term perspective was reported in Luxembourg, as the government included a ‘social top-up’ in a subsidy programme for new heating and energy-efficient housing. The poorest households, those receiving Luxembourg’s social minimum income, will be able to receive up to double the subsidy. The other reported measures are one-off contributions to energy bills in the form of either subsidies (Belgium (Flemish Region), Czechia, Denmark, Luxembourg and Slovenia), or tax cuts or credits (Luxembourg and the Netherlands). Austria offers an additional lump sum payment to support low-income commuters and has reintroduced the COVID-19-related practice of not shutting off the energy supply of those in arrears. Table 2 provides an overview of the reported measures by country, amount and target group.

Table 2: Overview of energy bill relief measures for vulnerable groups

Country

Measure

Amount

Target group

Austria

Additional commuter allowance (lump sum payment)

€100

Commuters with a low income

Austria

No shut-off of energy supply

People in financial distress who are in arrears with energy bills

Belgium (Flemish Region)

Winter discount on social rate of energy, plus lump sum payment

€80 one-off payment and extension of discounted social rate

Recipients of increased healthcare allowances

Czechia

Simplified access to support

Case dependent

People in material distress

Denmark

Increased heating subsidy

From €500 to €800, tax free

Households living in areas using a high share of gas, or those with electricity as primary heat source

Lithuania

Energy and hot water relief for increased costs

If bills are 10% above a set threshold, the excess is covered

Low-income households

Luxembourg

Energy tax credit

€84 per month

Pensioners and recipients of the social inclusion income and severely disabled allowance

Netherlands

Extra allowance for energy costs

Originally €200, but raised to €800

Recipients of social assistance (e.g. older unemployed people, low-income pensioners and self-employed people)

Slovenia

Energy voucher

€150 (or €200 for households with more than three children)

Recipients of social benefit or care allowance, or child benefits; low-income pensioners and people with disabilities; large families and foster parents

Source: EU PolicyWatch database, as reported at the end of May 2022

The following Eurofound report outlines measures that target those on low incomes in more detail, and includes policies introduced since 2020.

Other basic consumption items

Only a few targeted policy measures were reported in relation to the price increases of other basic consumption items. The Romanian government introduced social tickets for food. Vulnerable groups (including, for instance, low-income pensioners, people with disabilities, low-income households, single parents and homeless people) can obtain food vouchers amounting to RON 250 (€50) every two months. Czechia and Luxembourg have both increased the eligibility for the housing allowance and also the level of the allowance.

Conclusion

The current level of inflation has not been seen since the 1970s. Following the pandemic, many governments have designed stimulus packages aimed at restarting consumer spending and investments – policies that, in some cases, have been reoriented to compensate people for their loss in purchasing power. The inflation is ‘imported’, as it has its origin in rising energy prices and disrupted supply chains. However, it has exerted its impact across the economy, as energy and foods are basic items for production and consumption.

Regarding the first responses to mitigate the effect on citizens’ purchasing power, mainly temporary and one-off measures were issued. In contrast to the first responses to cushion the impact of the pandemic, social partners have been less involved in the design of the measures. Although some of the few reported statements show that there is an appreciation for governments’ measures to support citizens, trade unions in some countries (including, for example, France, Germany and the Netherlands) are critical of the more general measures for relief of energy costs, wishing them to be more targeted at those on lower incomes and/or more permanent, rather than ad hoc. Where targeted measures were applied, governments also opted to enlarge the group of eligible recipients (for example, in Czechia, Denmark, Estonia and Luxembourg), as inflation pressures are being felt by wider groups, and by those further up the income distribution ladder.

It is also noticeable that the first reactions to addressing inflation of energy prices include measures that could be regarded as countervailing the agenda to transition to renewable energy sources or to save energy. Examples are the subsidies on fuel for private cars (for example, in Portugal, Spain and Sweden), the reduction of taxes earmarked to finance the transition (in Austria), or benefit schemes that do not necessarily encourage energy-saving measures (such as price caps). Only a few of the reported measures that respond to inflation also take a longer-term view to advance the green transition. It remains to be seen to what extent further rounds of policy responses will seek to address these two objectives simultaneously. The coordinated action at EU level, as agreed by EU energy Ministers on 9 September 2022, is an important step in this direction, as it includes a coordinated reduction on electricity use.

Image © Solarisys/Adobe Stock

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