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How much can I save on my Spanish electricity bill now that VAT has been cut?

With welcome news that Spain will cut VAT on electricity from 10 percent to five percent to shield consumers from soaring inflation, how much can you expect to actually save?

SPAIN-ELECTRICITY-VAT
Spain's Tax Agency estimates that the government has so far spent €3.8 billion on all tax cuts to lower electricity bills. Photo: DANIEL BOSQUE/AFP

On Wednesday June 22nd Spanish Prime Minister Pedro Sánchez announced a further reduction in VAT on electricity prices.

Speaking to the Spanish parliament, Sánchez explained that the VAT reduction, from 10 percent to five percent, would be approved at a cabinet meeting this weekend.

But this isn’t the first time that the Spanish government has taken direct action to tackle skyrocketing electricity prices.

Last year it also slashed the VAT rate on electricity 21 percent to 10 percent to try and soften impact of rising electricity price rises on consumers facing price increases across the board.

Facing criticism for his government’s record on helping consumers, Sánchez blamed “a war at the gates of Europe” for the rises, and said the latest cut will form part of a package of measures to try and stem the effects of inflation, which hit a staggering 8.7 percent in May, the highest level in Spain for decades.

READ MORE: Spain to cut electricity tax by half to ease inflation pain

But how much can you actually expect to save on your electricity bill following the news?

How much will I save?

While a cut to the VAT rate paid on electricity is welcome, in reality it seems the difference to electricity bills will be minimal.

According to experts, lowering VAT from 10 to 5 percent will mean savings of around €4 a month for households with an average consumption (270 kWH per month and a contracted power of 4 kW) on the regulated market.

Let’s look at an example. A household with consumption at 270 kWH per month would have paid €95.43 in the last 31 days. If VAT had been applied at 5 percent, as it will be under the government’s proposed cut, their monthly bill would have worked out €4.30 cheaper.

For comparison, if the government had not stepped in at all and no tax reductions of any kind had been applied, that same receipt would have been €109.6. 

How much will it cost the government?

Cutting VAT, although welcome and much needed by most consumers at the moment, does come at a cost. Officials from the Hacienda believe that lowering VAT to 5 percent will cost the public coffers up to €460 million in the next three months alone. 

Hacienda estimates that the government has so far spent €3.8 billion on all tax cuts to lower electricity bills.

Is it enough?

Is another VAT cut enough to recoup the difference and negate rising prices? Simply put, if wholesale electricity prices (something the Spanish government has no control over) continue to rise at the rate they have been, the prices passed onto the consumer will most likely make the cuts to VAT negligible.

At the start of June, the daily price of electricity began at €210/Mwh, but by this week this Thursday it had already climbed to €272/mWH – a 29.5 percent spike since the beginning of the month equivalent to €62 extra on bills.

With no end to war in Ukraine or the volatility on the energy market in sight, the Spanish government is searching for ways to ease the burden on consumers. Labour Minister Yolanda Díaz recently proposed slashing the price of monthly public transit passes by 50 percent and offering €300 to people hit hardest by rising prices.

READ MORE: Spain eyes €300 handouts for most vulnerable and further fuel reductions

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BRITONS IN SPAIN

Can British people in Spain claim the UK’s winter fuel payment?

In the UK, there are various benefits available to help eligible people through the cold winter months – one of which is the winter fuel payment. But can Britons living in Spain claim this benefit to cover the cost of heating their Spanish homes?

Can British people in Spain claim the UK's winter fuel payment?

Energy costs are on the up in Spain, and with the winter fast approaching the added cost of paying for heating when the mercury drops can result in some very high bills.

Not all of Spain has freezing winters but there are often cold spells and many houses in the country tend to get even colder than it is outside.

READ MORE: Why are Spanish homes so cold?

The average winter temperature across Spain is 8C (1981 to 2010 average). That’s higher than the average in other European countries, but in Spain’s interior and mountainous areas it can be truly chilly from November to March.  

That means that overall, there’s a chance you’ll need to use a radiator or the central heating to keep your Spanish home warm.

So are some of the 400,000+ UK nationals who reside in Spain eligible for winter fuel financial support from the UK?

What is the UK’s winter fuel payment?

The UK’s winter fuel payment is a tax-free payment to help older people with heating costs during the cold winter months.

Those eligible must have been born before September 26th 1956, according to the UK government website.

How much people receive depends on their age and whether anyone else in the household is also eligible, but the amount is usually between £250 and £600.

I’m a UK national living in Spain. Can I claim the winter fuel payment?

The UK government states that those living abroad can benefit from the winter fuel payment if:

  • You moved to an eligible country before 1st January 2021
  • You were born before September 26th 1956
  • You have a genuine and sufficient link to the UK – this can include having lived or worked in the UK, and having family in the UK

While many EU nations are on the list of eligible countries, such as Austria, Germany, Sweden, and Italy, unfortunately Spain is not on the list.

This means that if you live in Spain, you will not be able to claim the winter fuel payment at all, even if you meet the age conditions.

Why isn’t Spain on the eligible list of countries?

The UK government services website nidirect states that “you cannot get the payment if you live in Cyprus, France, Gibraltar, Greece, Malta, Portugal or Spain because the average winter temperature is higher than the warmest region of the UK”.

This is despite the fact that some parts of Spain are a lot colder than the average UK winter temperatures. This includes cities, towns and villages near mountain ranges such as the Pyrenees or Sierra Nevada, or regions in the interior like Castilla-La Mancha, Aragón​​ and Castilla y León.

According to the British government, during winter the average temperature is between 2 and 7 C in the UK.

READ ALSO: Where are the coldest places in Spain?

Foreigners in Spain used to be able to claim this financial benefit, but it was scrapped in 2015 after many UK taxpayers were angry that UK winter fuel payments were going to help people that lived in countries that were generally warmer than the UK.

READ ALSO: Which UK benefits can Brits keep if they move to Spain?

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