The cabinet is cutting energy taxes by an average of €400 per household per year, to compensate for the sharp rise in energy bills, ministers decided at Friday’s cabinet meeting.

In addition, some €150m is being set aside to boost home insulation. The money will be distributed by local authorities in the form of vouchers which people can use to buy draught excluders and install smart energy meters.

A further €500m will be used to compensate small firms in the form of lower energy taxes.

In total, the measures will cost some €3.2bn. The tax cuts will come in on January 1 and run for one year.

The rise in gas prizes had threatened to put up some household bills by up to €50 a month.

Between 8% and 10% of Dutch households have an energy contract which will expire in the next three months and a further 44% have a flexible contract, which means their payment rises and falls in line with energy prices – usually twice a year, in January and July.

The rest pay a fixed monthly fee which has been fixed in advance for between one and three years.

Around half a Dutch energy bill is made up of government levies – a basic energy tax, a tax to boost sustainable energy production and value added tax. Transport costs also account for a large proportion of the total bill.

The government has been steadily increasing energy taxes, particularly on gas, to stimulate consumers to cut back and make their homes more energy efficient.