Any political support to cushion the current fuel-price shock should be temporary and targeted at the households that need it most, according to a new report by the government’s economic policy analysis bureau.

The CBP report looked at the effect of higher oil and gas prices in three different scenarios, depending on the progress of the Iran war: a short war, which the financial markets currently expect, a greater peak in oil and gas prices lasting a short time, and a large peak in prices that carries on well into 2027.

“Higher energy prices lead to higher inflation and so to lower purchasing power and economic growth,” the agency said. “There is a large increase in fuel costs among households with low incomes.”

The Dutch government is currently drawing up policy to combat the higher fuel costs, but in a background briefing in The Hague, CPB experts cautioned against expensive “generic” measures and advised swift, targeted support to those that need it most.

“On average, the increase in fuel costs is acceptable for low-income households, but there are big differences,” the report said.

In the mildest scenario, the average fuel costs for low-income households will increase by €200 this year. In the worst-case scenario, the average increase will be €325.

But low-income households where people travel for their work, often in an energy-inefficient vehicle, could face a fuel cost rise of more than €1,000 this year.

“It is difficult to have targeted help, because the group that can really experience problems is very specific,” according to the report. “Dutch households and companies will be more resilient [to energy price shocks] by becoming less dependent on fossil fuels.”

In the briefing, experts suggested that employers could be allowed temporarily to offer low-income workers a higher tax-free fuel allowance. This is one of the measures in the package that ministers are currently working on.

Ukraine

Inflation is not expected to rise as much as with the gas shock after Russia’s invasion of Ukraine in 2022 – partly because of a change in the way inflation is measured.

Eva van der Wal, macro-economist at the CPB, said that the price rises are also likely to dampen consumer confidence – which impacts parts of the economy such as the housing market. “Before the last wave of high inflation, consumer confidence was low,” she said.

“We have seen that consumers are sensitive to energy price rises because they are costs that you are confronted with frequently – every time you fill up your car, you see higher prices.”