Presentation of the new cost-of-living benefit and social measures for low-income households following the reduction in the energy price cap

As part of a general government policy to boost household purchasing power, new tax breaks have been announced, such as indexation of the tax scale, tax exemption for the social minimum wage and an increase in the single-parent tax credit.

For the Ministry of Family Affairs, Solidarity, Living Together and Reception of Refugees (MFSVA), it is vital to continue to strengthen efforts to provide targeted support to disadvantaged households. To achieve this goal, targeted measures will be implemented as part of the fight against poverty, and in particular against the non-use of social benefits. Not only will the cost-of-living benefit and the energy allowance be substantially increased, but access to these benefits will also be considerably facilitated.

Added to this are specific measures to accompany the gradual expiry of the energy price cap. The consequent increase in the energy allowance and the widening of the circle of beneficiaries represent elementary measures to prevent vulnerable households from facing new financial difficulties and more people from being affected by the risk of poverty.

'Luxembourg has a fairly effective welfare system, but it is important that we continue to adapt it to the needs of the target populations in times of economic difficulties and inflationary pressures. But above all, as a government, we must ensure that existing benefits reach the households that need them, in particular through administrative simplification’, Minister Max Hahn stressed.

An important social benefit designed to provide targeted support for the most vulnerable households, a number of major changes will be made to the cost-of-living allowance from 2025:

10% increase in the cost-of-living benefit

To take account of general price trends, the cost-of-living benefit will be increased by 10% on a permanent basis. By way of example, this means in concrete terms:

• A one-person household (maximum gross income of €2,710) will receive €1,817 instead of €1,652;
• A two-person household (maximum gross income of €4,065) will receive €2,272 instead of €2,065;
• A four-person household (maximum gross income of €5,692) will receive €3,182 instead of €2,891.

Automatic payment of the cost-of-living benefit and energy allowance to recipients of the inclusion allowance

Since, according to the latest estimates, more than 30% of recipients of the inclusion allowance, who are also eligible for the cost-of-living allowance and the energy allowance, do not apply for them, the automatic payment of these two benefits is not only an important step towards simplifying administration, but also helps to combat non-use.

Automatic exchange of information with municipalities

In order to combat the failure to claim social benefits from local authorities, the Fonds national de solidarité (FNS) will henceforth automatically provide local authorities with details of recipients of the cost-of-living benefit who are resident in their area. In this way, local authorities will also be able to introduce automatic payment of local subsidies modelled on the cost-of-living benefit.

Substantial increase in the energy allowance

A sudden rise in energy prices as a result of the reduction in the energy price cap could lead to financial difficulties for a number of low-income households. To avoid putting a further strain on an already vulnerable population, the amount of the energy allowance will be increased substantially, by a factor of three. The gross monthly income threshold is 25% higher than that for the cost-of-living benefit, thus reaching a considerably larger number of households. By way of example, this means in concrete terms:

• A one-person household (maximum gross income of €3,388) will receive €600 instead of €200;
• A two-person household (maximum gross income of €5,082) will receive €750 instead of €250;
• A four-person household (maximum gross income of €7,115) will receive €1,050 instead of €350.

As a result, depending on the composition of the household, recipients of the cost-of-living benefit and the energy allowance may benefit from a cumulative increase in these benefits next year compared with the current year: 

• 1,817 euros+ 600 euros= 2,417 euros, i.e. +565 euros (one person),
• 2,272 euros+ 750 euros= 3,022 euros, i.e. +707 euros (two people),
• 3,182 euros+ 1,050 euros= 4,232 euros, i.e. +991 euros (four people). 

Introduction of a reduced energy allowance and widening of the circle of beneficiaries

In order to ensure that the energy allowance is degressive to some extent, and to prevent households with incomes slightly above the threshold from being excluded altogether, a reduced energy allowance has been introduced. This corresponds to half the amount of the energy allowance and benefits households with a monthly income between 25% and 30% above the cost of living allowance threshold:

• A one-person household with a maximum gross income of €3,523 will qualify for a reduced energy allowance of €300;
• A two-person household with a maximum gross income of €5,285 will receive €375;
• A four-person-household (with a maximum gross income of €7,399) will receive €525.

Other changes to the cost-of-living benefit arrangements

A number of changes will be made to the procedural aspects and the criteria for qualifying for the cost-of-living benefit and the energy allowance. To facilitate access to these benefits, the deadline for submitting applications has been extended from 31 October to 31 December. It will also be possible for an applicant to submit a second application in the same year. Until now, this was not possible, which meant that people whose applications had been refused because they did not meet the conditions, but who were likely to meet them at another time, were excluded.

In addition, the reference period during which the applicant must be resident in Luxembourg in order to qualify for the cost-of-living benefit and the energy allowance has been reduced from twelve to three months. Another new feature concerns allowances or benefits paid by a public or private body, which from 2025 will no longer be taken into account as income when determining entitlement to the benefits in question.

While some allowances are already excluded, such as family allowances, in future all kinds of allowances or benefits will be excluded, including interest subsidies, rent subsidies and grants from charities.

Finally, in order to support young workers who are staying longer and longer in their parents' home community for want of increasingly complicated access to affordable housing, the professional income of people under 30 will no longer be taken into account either.

In addition, with the aim of facilitating access to social benefits and reducing the rate of non-usage, the FNS, in collaboration with the MFSVA, will be implementing, or has already implemented, various measures:

• A calculator to determine eligibility has been put online on the SNSF website;
• Pre-filled forms sent to previous year's beneficiaries;
• Creation of explanatory leaflets and videos in seven languages.

Increasing and perpetuating the tax credit equivalent (ECI)

The equivalent tax credit (ECI) is perpetuated for recipients of the basic flat-rate amount per adult due under the Act of 18 July 2018 on the social inclusion income, as well as for recipients of the income for the severely disabled. The amount of the ECI will be increased to €90.

Financing additional energy costs for accommodations for the elderly

The State's contribution to financing the increase in energy costs for retirement homes has been renewed for 2025. In return, the service providers benefiting from this contribution undertake not to apply any price increases during the period in question, with the exception of increases due to the adjustment of rates to the cost of living index.

Press release by the Ministry of Family Affairs, Solidarity, Living Together and Reception of Refugees