Joint memorandum by the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs
1. A priority for the Government since it was first elected in 1997 has been to reduce social exclusion in all its forms. Tackling fuel poverty is one important part of that work. There are many different Government policies and programmes which relate to fuel poverty, and they have recenty been drawn together, providng a coherent approach to tackling this problem.
2. A Ministerial Group on Fuel Poverty was established in 1999. Its agreed terms of reference are "to take a strategic overview to ensure policies and new initiatives with a bearing on fuel poverty are co-ordinated across Government and integrated with the activities of relevant external bodies, such as the regulator and the energy industries"; and it set itself the specific objective "to develop and publish a strategy setting out the Government's fuel poverty objectives, targets for achieving those objectives, the policies to deliver those objectives, and how progress should be monitored."
3. Following the publication of a consultation draft in February 2001, the UK Fuel Poverty Strategy was published in November 2001. This sets a national goal for the Government and the Devolved Administrations "to seek an end to the problem of fuel poverty . . . in particular . . . (to) seek an end to the blight of fuel poverty for vulnerable households by 2010". Fuel poverty in other households is to be tackled once progress has been made on the priority vulnerable groups. Specific targets are set for each of the four countries of the UK, in recognition that policies on energy efficiency and housingmajor parts of the strategyare devolved matters.
4. This memorandum does not repeat all the evidence and discussion in the Strategy document, copies of which were provided to the Committee on the day of publication (it is also available on the internet at http://www.dti.gov.uk/energy/fuelpoverty/index.htm/). It does, however, highlight some of the key issues surrounding fuel poverty.
5. Fuel poverty is a large social problem, affecting about one household in every six on current estimates, and contributing to 30,000 or more excess winter deaths each year (by comparison with mortality in the rest of the year). It can also lead to a greater incidence of general ill-health, with consequent burdens on health services. Other impacts include social exclusionpeople unable to afford things many of us take for granted, or unwilling to invite others into a cold homeand damage to children's education. The health implications are explored at more length in chaper 1 of the Strategy.
6. Fuel poverty is widely accepted to come from an interaction of three thingslow income, level of expenditure on fuel, and housing which is energy-inefficient or perhaps bigger than the occupant actually needs or can afford to heat. Of these factors, it is housing which is perhaps the most important. It is possible for a person living on basic benefits to be physically warm and comfortable in a well-insulated home, built to modern standards. But most people do not live in homes like that. The UK housing stock is old, with a low turnover (less than 1 per cent a year). Problems are more concentrated in the predominantly older stock (and particularly within the private rented sector); and poorer people are more likely to live in such properties than are other households.
7. The Government's policies to tackle fuel poverty focus on three areas:
programmes to improve the energy efficiency of housing;
continuing action to maintain downward pressure on fuel bills;
continuing action to tackle poverty and social exclusion.
The UK Fuel Poverty Strategy aims to join up each of these policy strands in a coherent approach. The second and third areas of activity are for Government across the UK; the first relates to areas of policy which are devolved to Scotland, Wales and Northern Ireland. This means that there will be differences in the detail of housing and energy efficiency progammes delivering practical measures into homes.
8. Once a home has been upgraded to a standard of heating and insulation which removes its occupants from fuel poverty, that should provide a permanent solution to the problem, not just for the current occupant(s) but for any future ones. In environmental terms, it makes sense for people to use energy efficiently. Improving energy efficiency can provide certainty of long-term benefits; while possible future movement of energy prices or future levels of income will be affected by a host of external and not necessarily controllable factors.
9. The initial focus of the Strategy is on helping those households which are vulnerable to the threat of ill-health from cold conditionspensioners, families with young children, the disabled, and people with long-term illness. About three-quarters of fuel poor households are currently believed to fall into this category. The Warm Front programme, and its equivalents in Scotland, Wales and Northern Ireland, provide a range of measures and, in some cases, central heating for low-income households on benefit (in Scotland, for all pensioners). In England, the new scheme was launched in June 2000. It provides grants for comprehensive packages of insulation and heating improvements, including central heating systems. Access to the scheme is through receipt of a qualifying income or disability-related benefit. In England alone, we have provided measures to some 350,000 homes since the launch of the Scheme.
10. The Government is committed to ensuring that all social housing in England meets the set standard of decency by 2010. This standard includes the requirement for dwellings to have efficient heating and effective insulation. Efficient heating is defined as any gas or oil programmable central heating or electric storage heaters/programmable solid fuel/LPG central heating or similarly efficient heating systems (for example, efficient heating based on renewable sources). Heating sources which provide less energy-efficient options fail the decent home standard.
Effective insulation is defined as:
for dwellings with gas/oil programmable heatingcavity wall insulation (if there are cavity walls that can be insulated effectively) or at least 50mm loft insulation (if there is loft space);
for dwellings heated by electric storage heaters, programmable solid fuel or LPG central heating, a higher specification or insulation is required, at least 200mm of loft insulation (if there is a loft) and cavity wall insulation (if there are cavity walls that can be insulated effectively).
The decent home standard is a minimum standard that all social housing must meet by 2010. Guidance was recently issued which encourages landlords to take the opportunity to maximise the energy efficiency of dwellings where possible, over and above the minimum set out in the decent home standard. Action taken to meet this standard will help many households who are fuel poor but are not classified as "vulnerable".
11. The Energy Efficiency Commitment for 2002-2005 on electricity and mains gas suppliers, which requires them to meet targets for promoting improvements in energy efficiency, came into effect on 1 April 2002. The Energy Efficiency Obligations Order, which set the overall target of 62TWh, came into force in December 2001. The target, set by Government for the first time, provides a challenge to energy suppliers and should encourage them to put energy efficiency at the core of their business. The Commitment will be of benefit to all domestic customers of electricity and gas suppliers, including the fuel poor: 50 per cent of the energy savings are to be targeted at customers receiving benefits or tax credits.
12. Advice on energy efficiency matters is available to everyone through organisations such as the Energy Saving Trust and Energy Efficiency Advice Centres. Advice to householders can help them to identify ways to reduce their expenditure on energy, and improve the comfort of their home. Local authorities may also provide advice, particularly to their tenants.
13. Following representations after the publication of the Strategy in November, the Government has agreed to consult on a clarification to the overall objective of the UK Strategy. The Warm Homes and Energy Conservation Act 2000 placed a duty on Government to ensure that ``as far as reasonably practicable persons do not live in fuel poverty''. The Act also required the Government to specify a target date for doing this, and that ``the target date specified ... must be not more than 15 years after the date on which the strategy is published''that is, by November 2016.
14. The consultation draft of the Scottish Fuel Poverty Strategy, published on 8 March, refers to a 2016 target. The Welsh Assembly has until March 2003 to publish its own Fuel Poverty Strategy. The Department for Social Developoment in Northern Ireland is also progressing a Fuel Poverty Strategy.
15. While the UK Fuel Poverty Strategy has a strong focus on housing, wider Government policy to improve people's economic circumstances remain highly relevant. Making people better off will ensure that energy expenditure takes up a smaller proportion of an expanded income, whether they are on benefit or in work. Changes to the tax and benefits systems since 1997 (discussed in more detail on the Strategy) mean that people have more resources than five years ago, and are better off both because of this and because fuel prices are much lower than they used to be. Recent years have seen significant change in energy markets, with liberalisation and the development of competition in energy supply. Until the slight increase in gas prices late last year, both gas and electricity prices were at their lowest in real terms since the 1970s. For electricity prices that is still the case.
16. This has had a significant effect on fuel poverty. In 1996the last year for which comprehensive data are availableit was estimated that in total there were about 51/2 million fuel poor households in the UK. Data prepared for the UK Fuel Poverty Strategy suggest that the figure for 2000 was about 4 millionwith about half the reduction coming from the effect of falling prices, the balance being mainly due to income improvement.
17. The focus on housing improvement as the long-term answer to fuel poverty will require the physical installation of energy efficiency measures into millions of homes. This in turn will require co-ordination of effort among many bodiesthose active in identifying who needs help, those providing funding for that help, and those installing measures. The Government, together with some energy sector companies, is supporting pilot "Warm Zones" which are assessing the benefits of a proactive and comprehensive approach. An initial evaluation of their first year in operation is expected to be available in July 2002. In some local areas effective local partnerships already exist. Many local authorities have taken a leading role in establishing cross-sectoral partnerships to tackle fuel poverty at a local level. These partnerships may bring together health care professionals, social services or local authority staff, and fuel proverty programmes to identify households in fuel poverty and install remedial measures. Advice on energy efficiency and benefits could also form part of the package to help householders. DTI and DEFRA have been running seminars with and through the Government Offices for the Regions to inform local authorities and the health sector about the importance of tackling fuel poverty and to encourage them to develop their own local links.
18. The Government has established (as proposed in the Strategy) a high-level Fuel Poverty Advisory Group, which met for the first time in March 2002. The Group will consider good practice in, and barriers to, the practical delivery of measures to fuel poor households, and will advise Ministers on whether and how things might be done better. It is too early yet for the Group to have reached any firm conclusions. The Group is expected to make an intial report to Ministers later in the year. The Scottish Executive has established a similar advisory body for the development of its own Fuel Poverty Strategy.
PIU ENERGY REVIEW
19. The Committee will also be aware of the PIU Review, published in February 2002. The Review does not make any specific recommendations about fuel poverty, other than to point up that it must be successfully tackled to allow the option, in the future, of developing pricing instruments in the domestic sector for environmental reasons. There is also the issue that in the medium term, the changes proposed, particularly the more rapid development of renewable energy, might raise electicity prices by 5-6 per cent, albeit in a time frame within which the Government would hope that fuel poverty had largely been eradicated. The Review's conclusions do not, therefore, call for immediate action with respect to fuel poverty: but the interaction of environmental concerns, energy prices, and social concerns will need to be kept in mind for the longer term.
20. The UK Fuel Poverty Strategy marks the beginning of a process. It points to a number of areas (eg shortage of gas engineers, hard-to-heat homes, access to mains gas) that need further thought, and work is in progress. The Government remains open to suggestion as to how delivery might be improved, and has established the Fuel Poverty Advisory Group specifically for that purpose.
21. There will be annual reports on how the Strategy is progressing. These reports will draw on the work of a monitoring group which incorporates independent external membership.
THE COMMITTEE'S QUESTIONS
22. Answers to the specific questions posed by the Committee are set out below.
Is the Government target of ensuring that by 2010 no members of ``vulnerable households'' need risk ill health due to a cold home, adequate? Can it be achieved?
23. The goal of the Government is to seek an end to the problem of fuel poverty. But, although the risks from fuel poverty and cold related ill health apply to all people, older households, families with children and householders who are disabled or suffering from long-term illness are especially vulnerable. Government and the Devolved Administrations consider that these vulnerable households should receive priority assistance. (Further details are included in Chapter 1 of the Strategy.)
24. Hence Government concluded that it was appropriate in particular to seek an end to the blight of fuel poverty for vulnerable households by 2010. Fuel poverty in other households will also be tackled once progress is made on the priority vulnerable groups. Interim targets have been set reflecting the understanding of the nature and the scale of the problem in each country.
25. The Government is committed to achieving its target of taking vulnerable households out of fuel poverty by 2010. The UK Fuel Poverty Strategy, published in November 2001, sets out how we propose to do so. The main ways we propose to tackle fuel poverty are:
(1) programmes to improve energy efficiency;
(2) action to maintain downwards pressure on fuel bills; and
(3) actions to tackle poverty and social exclusion.
The Government will regularly monitor progress and review policies and programmes in the light of progress, to ensure they are having the desired effects. The Fuel Poverty Advisory Group has now been set up to advise Government on issues relating to the delivery of fuel poverty measures in order to help ensure that targets will be met.
Why has the number of fuel poor households fallen recently? Can this reduction be sustained?
26. Over half of the 1.5 million reduction in fuel poverty in England between 1996 and 2000 is estimated to be due to fuel price changes alone, with the balance thought to be due mainly to changes in incomes. The most recent comprehensive data for estimating fuel poverty remains the 1996 English and Scottish House Condition Surveys (EHCS and SHCS): in 1998 there was a follow-up survey to the EHCS, but this was based on a smaller sample. The 1996 data were used to model the estimates of fuel poverty in 1999 which appeared in the draft Fuel Poverty Strategy (published in February 2001): this modelling was based solely on fuel price and income changes since 1996, and did not include any revision of levels of housing energy efficiency, there being no data for this. By the time of the publication of the final Strategy in November 2001, the later 1998 English housing data (which reflected changes in energy efficiency between 1996 and 1998) had become available, and the 2000 fuel poverty estimate was updated from this 1998 base, using income and fuel price changes between 1998 and 2000. This new estimate could not take account of the impact of enhanced fuel poverty schemes such as Warm Front and Warm Deal, which had not started in 1998. The similarity of the estimates produced by both methods (1996 data revised to 1999 and 1998 data revised to 2000) suggests that the main reasons for the reduction in fuel poverty since 1996 are changes in energy prices and incomes.
27. Clearly, fuel prices cannot fall indefinitely, and there have been some recent increases in gas prices. Whilst maintaining low energy prices for vulnerable consumers is an important part of the Government's fuel poverty strategy, energy efficiency improvements combined with wider social exclusion measures are essential elements. Improved energy efficiency schemes aimed at tackling fuel poverty have been introduced, such as the New Home Energy Efficiency Scheme (now marketed as the Warm Front Team) introduced in England in June 2000, and Warm Deal in Scotland. Also, the Energy Efficiency Commitment will help domestic consumers through the investment of their energy supplier. The effect of these and other schemes will take time to feed through to estimates of numbers in fuel poverty.
What is the relative significance of factors such as poor energy efficiency, low incomes or the cost of fuel?
28. The main cause of fuel poverty is a combination of poor energy efficiency in homes, low incomes, and fuel costs. For those in the most severe fuel poverty, energy-inefficient housing is the key issue. In 1998, nearly 80 per cent of English fuel poor households had an energy efficiency SAP rating of less than 50, while about 85 per cent of fuel poor households were in the lowest 30 per cent of income levels, and approximately 50-60 per cent of the fuel poor households needed to spend over £772 (the 1998 average required expenditure in England) to maintain an adequate temperature. It is not possible to apportion statistical significance to these three key factors separately.
How effective are the industry-led initiatives?
29. The energy companies have developed a number of other initiatives aimed at tackling fuel poverty and have also been central to initiatives such as the Warm Zone pilot scheme. Company schemes can take various forms, such as energy efficiency improvements, energy efficiency advice, special cheaper tariffs, or benefits checks. The DTI has recently introduced a survey of energy companies aimed at identifying the impact of such schemes in tackling fuel poverty. The first questionnaires have been sent out, and results are expected shortly. An analysis of the results of this survey will form part of the annual monitoring for the Fuel Poverty Strategy progress report.
30. Under the Energy Efficiency Standards of Performance Schemes established by the energy regulator, there has been a requirement since 1994 for electricity suppliers and since 2000 for gas suppliers to improve the energy efficiency of their customer base, with a particular focus on disadvantaged customers, including the fuel poor. Indicators show that roughly two-thirds of their expenditure has been directed to those disadvantaged groups. The Energy Efficiency Commitment, which is effective from 1 April 2002, will require licensed gas and electricity suppliers to assist domestic customers to take up energy efficiency measures. Running to 2005, the Commitment has an overall target of saving 62TWhs with 50 per cent of the energy savings being targeted at customers receiving benefits or tax credit.
How can Government promote the take-up of energy efficiency measures in households whose income is just above benefit level?
31. The Government has acknowledged this as a challenging issue which needs further attention, as it is hard to identify those who are "just above the benefit level". The Strategy recognises that a number of the healthy adult fuel poor have income levels above the threshold for income related benefits, and that for many of them the main cause of fuel poverty is the poor energy efficiency and/or the large property size of their home. The Energy Efficiency Commitment is expected to helpenergy suppliers will have programmes aimed at all their customers. The Fuel Poverty Advisory Group also plans to look at ways of identifying and helping such households. Where they live in social housing, they will be helped by the upgrade of all social housing to a decent standard by 2010.
How much could better co-ordination between agencies of fiscal measures help?
32. We are keen to ensure the effective delivery of programmes, drawing together activity across the various bodies. We are encouraging close working between the main players such as Warm Front Scheme Managers (and equivalents in Scotland, Wales, and Northern Ireland), gas and electricity suppliers, and local authorities. Many local authorities are already active in this area.
33. At present it is difficult to quantify the impact that better co-ordination may have on tackling fuel poverty. Warm Zones are a co-ordinated approach involving partnership from various players, focussing on tackling fuel povety in a localised area within three years. The Energy Saving Trust is managing the evalaution of the Warm Zones pilots and this evaluation may provide an insight into the impacts of good co-ordination. Initial results are expected in the summer.
What contribution to the elimination of fuel poverty might be made by technological advances?
34. The main programmes to tackle fuel poverty through insulation and/or heating offer most benefit for homes which are of conventional construction (ie with cavity walls and loft spaces which can be insulated) and which have mains gas available or nearby. Many fuel poor households are not in this position. If these households are to be helped, other forms of heating or insulation may have to be considered.
35. The Fuel Poverty Strategy included proposals for two pilot programmes to investigate the possibility of using micro-CHP (that is, a domestic gas boiler which also produces much of the household's electricity needs) and renewable energy as part of the solution to fuel poverty. These pilots will be set up during the year and will look at what role these technologies may have in the future activity to tackle fuel poverty. Further details on the pilots will be made available during the year. DTI, DEFRA, and the Fuel Poverty Advisory Group will also explore other technological developments that could help.
36. Other technologies with potential for helping fuel poor households include smart metering for elecricity and/or gas, which could, for example, tell customers what the cost of their consumption was (spot or cumulative), or how much credit they had left. This sort of information could help people understand the benefits of energy efficiency or simple good housekeeping, or prevent the type of self-disconnection which sometimes happens to people using prepayment meters.
37. As it does in any other sphere, improved technology has the potential to benefit consumers, including in this instance fuel poor households. Which technologies will be successful, and what their direct impacts will be, is difficult to forecast.