Summary:

The Housing and Utilities Subsidy (HUS) is a social transfer meant to assist low-income individuals in the payment of housing and communal services. However, and despite its heavy weight on the government budget, many poor households are not awarded the HUS (only 50% of poor households received the HUS in 2018, and only 28% in 2019). Moreover, the wealthiest households often receive the subsidy, and, due to its design, such households also often receive large amounts. More stringent exclusion criteria in 2018 led to fewer households receiving the HUS in 2019, yet such reduction in coverage was achieved at the expense of all households, including the poorest. Several of the exclusion criteria, hinging on debt accumulation and on the presence of individuals without (substantial) declared income, likely harmed the most vulnerable households.

The current payment of the HUS – detached from household specific energy consumption – means price increases, if significant, can incentivize energy efficiency measures, a central goal for Ukraine with short- and medium-term benefits to the most vulnerable. However, not all eligible households apply for the HUS. Easy access must exist for all, without harm to those possibly less informed.

Reduced electricity tariffs actively work against energy efficiency and are also not the answer to assist the poor, given they are regressive: a subsidy to the largest energy consumers, or, in other words, a subsidy for the wealthy. The HUS is as of now a lump-sum transfer to household income, but not sufficiently progressive and leaving out many households in need. In this sense, its heavy burden on the budget could be reformulated into another type of transfer, designed, for instance, on the basis of income directly, which would be able to protect the most vulnerable and still allow market prices to incentivize energy efficiency.