More protection for lower incomes
Experts are calling for the energy price brakes to be extended
October 9, 2023, 2:58 p.m
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Higher energy costs hit low-income households particularly hard. According to the Expert Council for Consumer Affairs, it would make sense to continue to cap energy prices. Meanwhile, the Monopolies Commission is demanding direct help.
The massive increase in energy prices as a result of Russia’s war of aggression against Ukraine is putting a significant strain on households in Germany. The monthly advance payments for electricity and heating have increased by an average of 52 euros since March 2022, as the Expert Council for Consumer Affairs announced. This has consequences particularly for poorer households. The experts spoke out in favor of extending the energy price brakes.
In the lowest-income households, the burden of energy costs has “increased particularly sharply,” emphasized the Council of Experts (SVRV). This can be explained, among other things, by the fact that poorer households are more likely to rent and live in poorly insulated apartments. This is why the lowest-income households are heating more often with energy sources such as oil and gas, which have become particularly expensive during the energy crisis. The running costs of heat pumps, on the other hand, are “significantly lower per square meter”.
According to SVRV, data for a total of 4,444 households show that monthly payments for electricity and heating have increased by a median of 33 percent since March last year, which corresponds to around 52 euros. Median means that 50 percent of households are above and 50 percent below.
A large part of the income goes into energy
For middle incomes, the increase was particularly high at 57 to 60 euros. However, the lowest-income households recorded a similar increase in costs at 45 euros as the wealthiest households at 50 euros. “The latter have a significantly larger living space – with correspondingly more living space to be heated,” explained the Advisory Council.
This has led to the energy cost burden increasing “particularly sharply” among the lowest-income households. In the lowest-income fifth of the population, the share of energy costs in household income was 16 percent in June 2023 – after 12 percent in the previous year. In the second poorest fifth, the proportion rose from eight to eleven percent.
For comparison: According to SVRV, the wealthiest fifth of households “spend just four percent of their household income on energy costs”. A common rule of thumb is that energy costs can lead to financial overburden for a household if they amount to more than ten percent of its net income, explained the Council of Experts.
“Although the wave of cost increases is slowly ebbing and the federal government’s relief packages are working, lower incomes must be strategically better protected from high energy prices,” demanded the Council of Experts. SVRV member Veronika Grimm spoke out in favor of extending price controls for electricity and gas over the coming winter until the end of April 2024.
Changing contracts to save costs
In addition, households should be “more informed again about individual options for reducing energy costs,” demanded Grimm, who is also a member of the so-called economic experts. “The review and possible change of current contracts can also save costs,” she added.
In the medium term, emissions trading should also be strengthened, which would create greater incentives for landlords to modernize residential buildings to make them more energy efficient. “A flat-rate per capita return of the income from CO2 pricing in the form of the planned climate money would at the same time expand financial scope for low-income households,” explained Grimm. Because of their typically low CO2 footprint, they would receive more reimbursement than they incur in additional costs due to CO2 pricing.
Meanwhile, the Monopolies Commission takes a different position. She is in favor of expiring the energy price brakes at the end of this year. As a social policy measure, direct transfers for needy households are more suitable than interventions in the price system in the form of “subsidized basic requirements,” according to an energy report. Direct transfers could be designed “accurately” and would not lead to false incentives. The Monopolies Commission is an independent body that advises the federal government on competition and regulation issues.
With the electricity and gas price brakes, the price for a large part of the consumption of private households is capped. The limit is 40 cents per kilowatt hour for electricity and 12 cents per kilowatt hour for gas. At the moment the prices for new customers are generally lower.