Windfall taxes and the ‘anti-Putin shield’: how Europe is tackling the energy crisis | Cost of living crisis
The debate over whether Britain should introduce a windfall tax on North Sea oil and gas companies has been reignited by BP’s windfall profits. The one-time levy is part of a series of measures that have been proposed to tackle the energy crisis, which has driven up household bills.
The war in Ukraine has exacerbated existing supply problems and forced governments across Europe to scramble to protect consumers from the crisis in the cost of living. The Center for Economics and Business Research has estimated that, without government intervention, energy costs could rise by 40% in the eurozone in 2022, compared to a rise of 13% in 2021. Sanctions deliberations on the Russian energy supply and measures to limit the fallout from the conflict continue in Europe.
In the UK, analysts said bills could rise to as much as £3,000 a year in October, when the price cap is expected to rise again, if wholesale gas prices do not fall. Here’s how different governments across Europe have reacted.
Chancellor Rishi Sunak has been repeatedly criticized for moving slowly in tackling the energy crisis. The government has so far resisted calls from Labor and the Liberal Democrats to introduce a windfall tax on the profits of North Sea oil and gas operators, arguing it would discourage investment in the national energy supply.
In February, Sunak said 28million households will get a £200 cut on their bills from October. The cost will be recovered over the next five years.
Ministers have rejected calls for a reduction in the 5% VAT rate on energy bills in favor of a one-off £150 rebate for households in England in AD council tax brackets. An additional £144million has been set aside to support vulnerable people and people on low incomes.
Italian Prime Minister Mario Draghi presented a €14bn (£11.8bn) support package on Monday to tackle energy costs. Its measures include grants for vulnerable families and a cash payment of €200 for pensioners and low-income people.
Draghi has also found additional funds for local governments and will provide tax credits for energy-intensive industries. These measures come on top of the 20 billion euros the cash-strapped nation has already spent to cushion the impact of rising energy prices.
The initiatives will be funded by a windfall tax hike in Italy, introduced in January. The levy on the profits of the energy industry will increase from 10% to 25%.
Economists have warned that a sudden shutdown of Russian gas would trigger a “sharp recession” in Germany.
Chancellor Olaf Scholz promised “tangible relief” to citizens and last week unveiled a €30 billion package of measures. These include a temporary reduction in fuel taxes and cheaper 90-day tickets to make public transport more affordable. The move builds on an existing €15 billion relief package that involved an increase in the tax-free allowance for long-distance commuters.
Berlin has also accelerated the overhaul of 1975 legislation aimed at managing energy shocks. The reworked bill will include measures to shut down businesses in the event of gas shortages and strengthen European regulations on security of supply. Rules introduced five years ago say EU members must help each other when gas supplies are limited.
The Spanish government was one of the first to take action to protect households against a sharp rise in energy bills.
He agreed last September to scrap taxes on household energy bills, which would instead be paid for by imposing a windfall tax on companies profiting from soaring energy prices.
A series of other measures followed, including a ban on raising gas bills by more than 5% for low-energy customers. Last week, the European Commission agreed to a gas price cap for Spain and Portugal for 12 months. Consumers have been helped by a reduction in VAT on energy bills and a reduction in a separate tax on electricity.
Emmanuel Macron has made energy policy a key pillar of his successful presidential re-election campaign. He said he would make France “the first major nation to abandon gas, oil and coal” before his victory last month.
In the short term, the French government has forced majority state-owned electricity supplier EDF Energy to cut costs. The operator, which is behind the UK’s Hinkley Point B nuclear power station, has told investors it will take an €8.4bn hit to the energy price cap, which meant that it lowered the cost of electricity below the market rate.
Electricity taxes have been reduced for households and businesses. French Finance Minister Bruno Le Maire has estimated the government’s cost-cutting efforts since the invasion of Ukraine to be worth around 25 billion euros.
The Polish government has urged its European counterparts to impose tough sanctions on Russia’s oil and gas industry after gas supplies to Bulgaria and Poland were cut last week by Russian energy giant Gazprom . Both countries said there was no immediate risk to supplies.
Polish ministers have intervened on several occasions since the end of last year to protect households from rising energy prices. Prime Minister Mateusz Morawiecki has introduced an “anti-inflation shield”, reducing VAT on food and gas to 0%. A broader economic package, dubbed the “anti-Putin shield”, is being rolled out to support businesses and jobs.
The Dutch government was quick to act when the energy crisis began to worsen last year. Last October, energy taxes were reduced for households and 150 million euros were allocated to improving the insulation of homes. In March, the government increased the single energy allowance for low-income households from €600 to €800.
The government also lowered the VAT on energy from 21% to 9% until the end of the year. Excise duties on petrol and diesel have been reduced for the remainder of 2022.
In December, the Norwegian government introduced a series of measures to help households totaling more than 8 billion crowns (£664 million). Last month, its parliament approved an extension of a support program to tackle high electricity prices, worth 850 million euros until March 2023. Support for students and widows has also been strengthened.
Sweden started putting in place policies to deal with the energy crisis at the beginning of the year. These extend to compensation for energy-intensive households and the reduction of fuel taxes. The government has also offered €6,700 in aid for the purchase of electric vehicles. Sweden should also devote 48 million euros to a housing allowance for families with children.