Tuesday, February 7

Windfall taxes, price caps and VAT cuts: how nations are addressing Europe’s 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 bumper profits at BP. The one-off levy is among a suite of measures that have been proposed to tackle the energy crisis, which has sent household bills soaring.

The war in Ukraine has exacerbated existing supply issues and left governments across Europe scrambling to protect consumers from the cost of living crunch. The Center for Economics and Business Research has estimated that, without government intervention, energy costs could increase by 40% across the eurozone in 2022, up from a 13% rise in 2021. Deliberations over sanctions on Russian energy supplies and measures to limit the fallout of the conflict continues in Europe.

In the UK, analysts have warned bills could reach as much as £3,000 a year in October, when the price cap is due to go up again, if wholesale gas prices do not fall. Here is how different governments across Europe have reacted.

Great Britain

The chancellor, Rishi Sunak, has been repeatedly criticized for acting slowly on 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 domestic energy supplies.

In February, Sunak said 28 million households will receive a £200 discount on their bills from October. The cost will be recovered over the next five years.

Ministers rejected calls for a cut on the 5% VAT rate on energy bills in favor of a one-off rebate of £150 for households in England in council tax bands AD. A further £144m has been set aside to support vulnerable people and those on low incomes.

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The Italian prime minister, Mario Draghi, laid out a €14bn (£11.8bn) support package to tackle energy costs on Monday. His measures include subsidies for vulnerable families and a €200 cash payment for pensioners and those on low incomes.

Draghi also found extra funds for local governments and will offer tax credits for energy-intensive industries. The measures come on top of the €20bn the cash-strapped nation has already spent on cushioning the impact of the energy price rise.

The initiatives will be funded by a hike in Italy’s windfall tax, introduced in January. The levy on energy industry profits will rise to 25% from 10%.


Economists have warned that a sudden halt to Russian gas would trigger a “sharp recession” in Germany.

The chancellor, Olaf Scholz, has vowed to provide “tangible relief” to citizens and last week unveiled a €30bn collection 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 €15bn relief package which involved an increase in the tax-free allowance for long-distance commuters.

Berlin has also fast-tracked a revamp of legislation since 1975 aimed at handling energy shocks. The reworked bill will include measures to shut down companies during a gas shortage and strengthen EU security of supply regulations. Rules brought in five years ago state that EU members must help one another when gas supplies are tight.


Spain’s government was one of the first to take action to protect households against a sharp rise in energy bills.

It agreed last September to remove taxes from home energy bills, which would instead be paid by enforcing a windfall tax on companies profiting from the surge in energy prices.

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A string of other measures have followed, including a ban on increasing gas bills by more than 5% for customers with lower energy consumption. Last week the European Commission agreed to a price cap on gas for Spain and Portugal for 12 months. Consumers have been helped by a cut to VAT on energy bills and a reduction in a separate tax on electricity.


Emmanuel Macron made energy policy a key pillar in his successful presidential re-election campaign. He declared he would make France “the first major nation to abandon gas, oil and coal” ahead of his win last month.

In the short term, the French government has forced majority state-owned electricity supplier EDF Energy to lower costs. The operator, which is behind the Hinkley Point B nuclear power plant in the UK, warned investors it would take a €8.4bn hit from the energy price cap, which meant it lowered the cost of electricity below the market rate.

Electricity taxes have been reduced for households and businesses. The French finance minister, Bruno Le Maire, has estimated government efforts to curb costs since the Ukraine invasion are worth about €25bn.


The Polish government has urged 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 have said there is no immediate risk to supplies.

Polish ministers have repeatedly intervened since late last year to protect households from the energy price hike. The prime minister, Mateusz Morawiecki, introduced an “anti-inflation shield”, cutting VAT on food and gas to 0%. A wider economic package, dubbed the “anti-Putin shield”, is being rolled out to support companies and jobs.

The Netherlands

The Dutch government was swift to act as the energy crisis began to escalate last year. Last October energy taxes were cut for households while €150m was allocated to boosting home insulation. In March, the government raised a one-off energy allowance for low-income households by €600 to €800.

The government has also lowered VAT on energy from 21% to 9% until the end of the year. Excise duties on petrol and diesel have been cut for the rest of 2022.


In December, Norway’s government set out a series of measures to help households totaling more than 8bn kroner (£664m). Last month its parliament agreed an extension to a support scheme to tackle high electricity prices, worth €850m through to March 2023. Support for students and widows has also been ramped up.


Sweden began introducing policies to tackle the energy crisis at the start of the year. These extended to compensation for households with high energy usage and fuel duty cuts. The government has also offered €6,700 in support for buying electric vehicles. Sweden is also expected to spend €48m on a housing allowance for families with children.


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