VAT to quadruple on gas and electricity, will your energy budget explode ?

© Unsplash/Nikola Johnny Mirkovic

The news came as a bombshell: VAT on gas and electricity subscriptions will increase from 5.5% to 20% on 1 February 2025.

A spectacular increase that raises many questions about the real impact on the French wallet. As the government tries to reassure, let's take a closer look at this controversial reform.

A VAT increase justified by Europe

The draft finance bill (PLF) for 2025 provides for the end of the reduced VAT rate on energy subscriptions. This decision is not a government whim, but rather a step towards compliance with European regulations. So the preferential rate of 5.5% is over, replaced by the standard rate of 20%.

This increase represents a considerable leap. For an average household, this will translate into an increase of around €21 per year for the electricity subscription and €14 for gas. Amounts that may seem modest, but which add to already substantial bills for many households.

The government promises neutralization, but…

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Faced with legitimate consumer concerns, the government is playing the appeasement card. It assures that this increase will be “neutral for the consumer” thanks to an equivalent reduction in other energy taxes. A promise that raises eyebrows among many observers.

Indeed, the sleight of hand proposed by the executive is based on a reduction in ” excises (indirect tax) on energy “. But there you have it, these same excise duties must also increase sharply next year. The government is actually taking advantage of the drop in wholesale prices on the markets to raise taxes above their pre-crisis level.

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A real loss of income for consumers

Contrary to government claims, this reform will indeed represent a cost for households. The drop in electricity prices on the markets should have resulted in massive savings for consumers. Instead, the drop in bills will be limited to 9%.

The rest of the potential savings will be captured by the State. The increases in excise duty and VAT should bring in 6.8 billion euros in 2025, or around a quarter of the new levies planned to slow the slippage of public accounts.

Gas: a questionable neutralization

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For gas, the promise of neutralization is even more questionable. The government is talking about offsetting the increase in VAT with an equivalent reduction in excise duty. However, the budget documents provide for 200 million euros of additional revenue from gas excise duty in 2025. We are therefore far from a real neutralization.

An explosive subject in Parliament

This reform of energy taxation is set to be a hot topic in parliamentary debates. The National Rally, which had made the reduction of VAT on energy a central element of its program, will not fail to vigorously oppose this increase.

But the protest could come from all political sides. On the left as on the right, and even within the majority itself, voices are being raised to denounce a measure which risks weighing heavily on the purchasing power of the French.

• VAT on gas and electricity subscriptions will increase from 5.5% to 20% on February 1, 2025
• The government promises to neutralize the impact, but this promise is contested by many observers
• This reform is part of a broader context of increasing energy taxes, which should bring in 6.8 billion euros to the State in 2025

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