Examination of Witnesses (Questions 425-439)
JENNY SAUNDERS
AND LESLEY
DAVIES
5 JUNE 2008
Q425 Chairman: Ladies, welcome to this
third evidence session of our inquiry into fuel prices. We are
very grateful to you for coming and for the written memoranda
that you provide the Committee with. Although we know who you
are, would you tell the rest of the world who you are and where
you are from?
Jenny Saunders: I am Jenny Saunders.
I am Acting Chief Executive of National Energy Action, a fuel
poverty charity.
Lesley Davies: I am Lesley Davies,
and I am Chair of the National Right to Fuel Campaign.
Q426 Chairman: Could I start with
very factual questions to get your assessment particularly of
your current estimate of the levels of fuel poverty?
Jenny Saunders: We are estimating
that there are 4.5 million households across the UK who fall into
the category of fuel poverty as defined as needing to spend 10%
or more of your income to heat the home to an adequate heating
regime.
Q427 Chairman: That represents what
change on recent history?
Jenny Saunders: That is an increase
from about 2.4 million three or four years ago, so there has been
a dramatic increase in the numbers; a doubling due to the price
increases. The distributional effect has been that we see certain
parts of the UK, certain regions in England having much higher
percentages of households in fuel poverty, so for example the
North East at 20% odd, lower percentages perhaps in the South
East.
Q428 Chairman: Can you characterise
those households? I know that the debate is always about pensioners
and obviously that is a large part of that group, but are there
other groups as well that you would identify as being particularly
important to remember when we are talking about fuel poverty?
Jenny Saunders: We categorise
people as being vulnerable households who are most likely to suffer
worse symptoms of fuel poverty as being not only pensioners, but
families in receipt of income support and those with special disability
allowances as well. It is clearly a problem linked to low income,
but it is obviously very clearly linked to the problem of the
housing type, the insulation and heating standards and the cost
of energy.
Q429 Chairman: If my colleague, Roger
Berry, were here—he apologises that he is not because a
lot of this is his special interest subjects but he has a debate
on the Floor of the House on the Future of Care and Support which
he wants to participate in and I understand that—he would
emphasise, for example, that young disabled people often get overlooked
in a study. Do you think that is a major area of concern?
Jenny Saunders: We have tried
to highlight to DWP for a number of years that perhaps some special
assistance could be given by extending the winter fuel payment
not only to pensioners, but to households who are eligible for
the cold weather payments and families with disabled members of
the family could fall into that category.
Q430 Chairman: We meet at quite an
auspicious time because we have just had Ofgem's statement on
the Fuel Poverty Action Programme after the recent summit. One
of the big issues announced is sharing data so that the suppliers
know who is actually in need and who is not. It seems that it
is quite difficult to identify which households are specifically
in need. How confident are you in the accuracy of the estimate
of 4.5 million that you have given?
Jenny Saunders: I think we can
be confident in the accuracy of that number because it is based
on statistical data that is collected by the Government through
the English House Conditions survey. What we do not know is where
exactly those individual households are because it is this complex
combination of income, housing type and how many members are in
the household. It is not easy to say, unless you get across the
doorstep, that this household is definitely in fuel poverty, as
we define it. What we can say is, and we can do some mapping,
that particular parts of the country down to sub-ward level are
more likely to have households suffering fuel poverty.
Q431 Mr Weir : I want to pick up
a point about the numbers and you mentioned that it is because
of rising prices and of course Ofgem have had the fuel summit
speaking to the `Big 6' generators. I know that your sister organisation
in Scotland, Energy Action Scotland, has done good work in respect
of off-grid houses, people who rely on fuel oil, calor gas and
propane gas, for example. Are these included in your 4.5 million
figure or is there any way to differentiate how many people fall
into that category outside of the normal suppliers?
Jenny Saunders: They will be included
in that category. However, we have different degrees of fuel poverty.
You are quite right, people off the gas grid area will be having
an average energy bill of somewhere in the region of £1,700
compared to the average £1,000 if you are on the gas grid.
It is particularly affecting people in rural areas and there is
no protection. Although they may get assistance through their
electricity supplier through the CERT scheme, there is no special
measure if they are dependent on calor or oil.
Q432 Mr Weir: Most of these are using
the oil or the calor for heating as opposed to anything else,
so it is vitally important.
Jenny Saunders: Yes. In some work
that we have done in some properties off the gas network we have
shown that by taking them off bottled gas we can reduce their
heating bills by somewhere in the region from £42 a week
in the winter to about £14 by giving them an air source heat
pump which is a new alternative technology. We would like to see
some more innovation in the kind of measures that we offer people
who are living in those off gas areas.
Q433 Chairman: We must not labour
the point now but I think the Committee is concerned about the
lack of regulatory oversight for these fuel types. Theoretically
it is a very strong oversight for gas or electricity if you are
on the mains, but I have had a letter from the Office of Fair
Trading only this week which indicates that there is a serious
gap there and that is an issue that the Committee will be looking
at. Tell me about energy prices and what role they play in fuel
poverty. Obviously insulation is one of the issues we are talking
about in energy efficiency and obviously usage. People can, for
example, set their own consumption of energy as well. Sometimes
one might be aware of the costs that they are incurring. Tell
me about the role of energy prices in fuel poverty?
Jenny Saunders: The recent increases
in the numbers of households in fuel poverty we would argue, is
down solely to the energy price increases. Previously we have
tried to map how the different policy instruments have helped
us to reduce the levels. We have looked at incomes policy and
energy efficiency. Up until 2004, about 60% of the reduction in
fuel poverty was attributable to just helping people to increase
their incomes, particularly the pension credit, and that has been
eroded now. Some households do not understand the complex range
of tariffs. They clearly do need better energy advice on how they
can save energy in the home, but most people in fuel poverty will
not be profligate; they will be sparing, they will not be wasting
energy if they cannot afford to do so. That is our view.
Q434 Chairman: Few people make profligate
use of energy now given the prices. The Government's projections
on fuel poverty made in last year's White Paper, which was the
most recent projections, what validity do you think those projections
now have in light of the events since the publication of the White
Paper?
Jenny Saunders: They suggested
three possible energy price scenarios. We are already way beyond
the highest possible scenario that was predicted. We would estimate
that the target 2010 date for eradicating fuel poverty in vulnerable
households cannot be met with current resources. In 2016 we would
hope that we could meet them but it will require significantly
more resource and some new policies.
Q435 Mr Clapham: In relation to new
policies is it possible to say where you would like to see those
new policies?
Jenny Saunders: We need to have
an expanded range of measures on offer to households. We are not
saying that everything that is being done at the moment is wrong.
We have had faith in the energy efficiency programmes. We do know
that they are delivering a good deal to people. We have to step
up and we have to bring in, particularly in the off gas areas,
new insulation products, we have to join up rather better at a
local level and see how the new performance indicators on local
authorities can be constructively implemented. I think we do need
to look at a social tariff being a statutory obligation, but we
are not saying everything is wrong and we tear up the strategy,
but we certainly need more resources to deliver.
Chairman: Towards the end we will come
back to the action programme that Ofgem has announced, so there
may be an opportunity to explore this issue in slightly more detail
at the end, but that is a helpful overview, thank you.
Q436 Mr Bailey: These questions are
primarily posed at yourself, Lesley, because they are NRFC's statistics,
but obviously if Jenny wishes to make a comment then that would
be welcome. First of all, in very broad terms you have claimed
that the energy firms have made £2.3 billion more in profit
in 2006 than in 2003. Can you tell us what is the basis of your
methodology for calculating this?
Lesley Davies: Firstly, I need
to say that we may have included an incorrect table. The figure
is slightly different to £2.3 billion; it is about £2.07
billion and I will send a corrected table but it does not undermine
any of the arguments that we have made in the paper. Please accept
my apologies for that error. We were really very concerned when
energy prices were rising so substantially and the retailers were
saying there is nothing we can do about it, it is all just to
do with increases in wholesale prices, and we wanted to put that
to the test: could you explain the increase in energy prices by
increases in any of the supply chain costs? We commissioned a
consultancy—we did not do this ourselves as you would not
want to trust me with a calculator with these types of numbers—to
look at this so that we could produce something really quite robust,
bearing in mind though that we were using only publicly available
information and that in itself was quite a challenge. We have
always said that this is a starting point for a discussion around
these areas. It is also something we had wanted Ofgem to do and
Ofgem had been asked to do by different parties over the period
when energy prices have been increasing and they had not undertaken
this task and we are hoping that they do do it so that perhaps
a bit more robustly than we were able to do it, given their own
powers and duties as part of the energy probe. We did something
really quite simple. We estimated using BERR data the expenditure
that had been made by residential consumers in 2003 and 2006.
In 2003 it was £14 billion; in 2006 it was £22 billion,
not an insubstantial increase and our evidence suggests that you
can explain half of that increase only by increases in wholesale
costs. You can explain around 20% of it by an increase in what
we have loosely termed "other costs" but there are other
costs in the supply chain, for example, increases in distribution
and transmission transportation costs, those types of things,
and costs to serve and so on, but that you were left with around
£2 billion which really could only be accounted for by an
increase in profits to, we think, just using our data principally
from electricity generation.
Mr Bailey: I am trying to phrase this
in a way that ensures that we do not get bogged down in a morass
of statistics but there are one or two questions that must involve
them. First of all, you have said that the increase in fuel plus
other costs is 104% and 18%, ie 122%. The increase in margins
is 213%, but you have said that reported expenditure has only
increased in 58%. I am a little puzzled how you can only get an
increase in expenditure of the public buying this electricity
of 58%, but the gap between the costs and the margins is that
much greater. How do you run these statistics off against each
other?
Q437 Chairman: Reported expenses
at the top level—is that the total of the three? What is
it? I want to make sure I understand what "reported expenditure"
actually means.
Lesley Davies: The reported expenditure
is the proportion of total expenditure made by all consumers,
including business, but we have then reduced that down to what
would be representative of residential consumers. The £14.3
million is the expenditure made by residential gas and electricity
consumers.
Q438 Mr Bailey: That clarifies one
point. My next question was could these be altered if you took
in industrial and other consumers?
Lesley Davies: You would increase
it.
Q439 Mr Bailey: Getting back to the
point, it would seem on the surface that if costs have risen by
122%, but in effect the percentage change in the amount that the
public have purchased only goes up by 58%, the companies must
have done something to mitigate the increase in costs.
Lesley Davies: You have to take
into account the proportion of the bill that is made up by energy,
so an increase as I understand it in terms of the wholesale costs
would only impact on around half to three quarters of the bill.
It differs between gas and electricity so you are not comparing
like with like with those two percentages. I think perhaps it
would be better if I dropped you a note about that particular
point rather than trying to answer it here.
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