Should Germany do more to support households with rising energy costs?

With the costs of energy set to rocket, there are calls for the German government to help households who need it.

A radiator in a Berlin flat.
A radiator in a Berlin flat. Energy costs are set to become even more expensive in Germany. Photo: picture alliance/dpa | Fabian Sommer

With the cold months ahead, many households in Germany are worried about how they can afford to heat their homes. 

Now the Association of Towns and Municipalities has urged the government to put in place higher heating cost subsidies for low-income households. 

“We are seeing an explosion in energy prices, especially for gas,” association managing director Gerd Landsberg told Bild.

“It’s clear that energy should not only be something for the rich. Therefore, the next federal government is called upon to support financially weak families and to mitigate the explosion in heating costs.”

At the same time, Landsberg warned of higher costs for local governments. 

The strong increase in gas prices will “hit many municipalities hard – through higher energy costs for buildings and higher heating cost subsidies for Hartz IV (unemployment benefit II) recipients”, he added. 

READ ALSO: How households in Germany can tackle rising energy costs

According to Landberg, municipalities expect a deficit of between €8-8.5 billion this year. Next year it could be similarly high.

“If the rise in energy and gas prices continues unchecked, there is a threat of a dramatic social imbalance,” Klaus Müller, head of the Federal Association of Consumer Organisations, told the Tagesspiegel.

Verena Bentele, president of the social association VdK, spoke out in favour of annually adjusting the housing allowance for people with low incomes in order to help people manage the rising energy costs.

In view of the immense price increases for energy, the state must create social compensation for those on low incomes, she said.  

It can’t be the case that almost half of all households in major German cities have to spend more than 30 percent of net income on rent, and for a quarter – at least 40 percent, Bentele told the newspaper.

“Politics must finally create framework conditions so that housing, electricity, heat, and also healthy food are affordable for everyone in the country,” she said.

Why are energy bills going up?

Gas prices on the European markets have reached a record high in the past weeks. It’s down to a number of factors including demand soaring again ahead of winter and after the Covid shutdowns. Limited supply is also contributing to the price increases.

READ ALSO: Why households in Germany are facing higher energy bills

Consumers in Germany, are already feeling it. Gas prices in particular have risen sharply, but electricity prices for households have also climbed to record levels.

The CEO of the energy company RWE, Markus Krebber, expects further price increases.

“I expect electricity and gas to become more expensive in the next few years. It is not yet possible to say how strong the increase will be. Nobody expected the current explosion in stock exchange prices,” he told the Rheinische Post at the weekend.

READ ALSO: Why German electricity bills are hitting record highs 

Households with low incomes have to spend proportionately significantly more of their cash on energy than households with medium or high incomes. 

This is why some EU countries have already initiated measures to protect consumers. France has announced a tariff brake for electricity and gas, and plans to give poorer households €100 each towards the bills.

Italy plans to spend three billion euros to relieve households of part of their electricity and gas bills, for example through tax cuts.

Spain has called for measures at the EU level, such as a common platform for gas purchases.

Luxembourg blames speculation in the gas market for the price increase and proposed a revision of the EU directive. “We have to stop the extremely speculative behaviour of some traders,” said Luxembourg’s Energy Minister Claude Turme.

Rising energy prices also have other undesirable side effects: inflation has been rising sharply for months. In September, it rose above the four-percent mark for the first time in Germany in almost 28 years.

According to the Federal Statistical Office, goods and services in Germany cost an average of 4.1 per cent more than a year earlier. As a result, the spike in energy prices can lead to other products also becoming more expensive.

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German government announces fresh relief package for high energy costs

With Russia's invasion in Ukraine exacerbating high energy and petrol prices, Germany is set to introduce a second relief package to limit the impact on consumers.

German government announces fresh relief package for high energy costs

The additional package of measures was announced by Economy and Climate Protection Minister Robert Habeck (Greens) on Sunday.

Speaking to DPA, Habeck said the wave of price increases throughout the energy sector were becoming increasingly difficult for households to bear.

“Extremely high heating costs, extremely high electricity prices, and extremely high fuel prices are putting a strain on households, and the lower the income, the more so,” he said. “The German government will therefore launch another relief package.”

The costs of heating and electricity have hit record highs in the past few months due to post-pandemic supply issues. 

This dramatic rise in prices has already prompted the government to introduce a range of measures to ease the burden on households, including abolishing the Renewable Energy Act (EEG) levy earlier than planned, offering grants to low-income households and increasing the commuter allowance. 

READ ALSO: EXPLAINED: What Germany’s relief package against rising prices means for you

But since Russia invaded neighbouring Ukraine on February 24th, the attack has been driving up energy prices further, Habeck explained.

He added that fears of supply shortages and speculation on the market were currently making the situation worse. 

How will the package work?

When defining the new relief measures, the Economics Ministry will use three criteria, Habeck revealed. 

Firstly, the measures must span all areas of the energy market, including heating costs, electricity and mobility. 

Heating is the area where households are under the most pressure. The ministry estimates that the gas bill for an average family in an unrenovated one-family house will rise by about €2,000 this year. 

Secondly, the package should include measures to help save energy, such as reducing car emissions or replacing gas heating systems.

Thirdly, market-based incentives should be used to ensure that people who use less energy also have lower costs. 

“The government will now put together the entire package quickly and constructively in a working process,” said Habeck.

Fuel subsidy

The three-point plan outlined by the Green Party politician are not the only relief proposals being considered by the government.

According to reports in German daily Bild, Finance Minister Christian Lindner (FPD) is allegedly considering introducing a state fuel subsidy for car drivers.

The amount of the subsidy – which hasn’t yet been defined – would be deducted from a driver’s bill when paying at the petrol station. 

The operator of the petrol station would then have to submit the receipts to the tax authorities later in order to claim the money back. 

Since the start of the war in Ukraine, fuel prices have risen dramatically in Germany: diesel has gone up by around 66 cents per litre, while a litre of E10 has gone up by around 45 cents.

READ ALSO: EXPLAINED: The everyday products getting more expensive in Germany

As well as support for consumers, the government is currently working on a credit assistance programme to assist German companies that have been hit hard by the EU sanctions against Russia.

As reported by Bild on Saturday, bridging aid is also being discussed for companies that can no longer manage the sharp rise in raw material prices.

In addition, an extension of the shorter working hours (Kurzarbeit) scheme beyond June 30th is allegedly being examined, as well as a further increase in the commuter allowance.