House of Commons - Scottish Affairs

Select Committee on Scottish Affairs Second Report

4 Fuel poverty

97. Fuel poverty in Scotland is generally defined as the need to spend more than 10% of household income (including Housing Benefit or Income Support) on fuel use in order to heat the home. It has often been linked to rural poverty, as many rural properties are harder to keep warm and hence incur higher fuel costs, but steep rises in the cost of fuel over the past few years now mean that many more households, both rural and urban, have fallen into fuel poverty. It is estimated that over 600,000 households are living in fuel poverty in Scotland today.[111]

98. Fuel poverty has three main causes: low income; high fuel prices and poor energy efficiency.[112] The Scottish Fuel Poverty Statement, produced in August 2002 by the Scottish Executive, has set a target of eradicating fuel poverty "so far as is reasonably practicable" by 2016. This target was described as "challenging" by representatives of both the Scottish Executive and the UK Government.[113] In order to achieve it, action is likely to be needed on all three fronts, as Mr Adam Scorer, Director of Campaigns, energywatch, suggested:

I do not think any of the solutions are golden bullets. Neither energy efficiency of the housing stock issues, nor the income maximisation, nor price actions by themselves will deliver solutions to fuel poverty and I think we have to be clear on that.[114]

UK Energy Policy

99. Energy policy is largely reserved to Westminster, although energy efficiency is a devolved matter. The problem of low incomes can best be tackled by the UK Government's wider anti-poverty strategy, focused on getting more people into work and the tax credits and benefits system, discussed above.

100. Fuel poverty has a greater effect on vulnerable groups, such as the elderly, the disabled and those with young children, who spend more time at home and therefore need to have the heating on for longer. The Government provides some benefits specifically aimed at reducing fuel poverty, including the Winter Fuel Payment for pensioners and Cold Weather Payments to those receiving Income Support or with a long-term sickness or disability, people aged over 60 and those with a child aged under five or a disabled child.

101. Energywatch suggested that the Government should consider extending the Winter Fuel Payment to all those who are eligible for Cold Weather Payments.[115] In addition, Capability Scotland argued that both UK and Scottish initiatives have failed to recognise that disabled people often suffer the same problems as older people when it comes to heating their homes, especially in respect of low incomes, reduced mobility and the greater amount of time spent in the home.[116]

102. Scots are disproportionately more likely to be in fuel poverty than the UK average and are also more likely to owe a debt to an energy company.[117] Historically, energy costs have been higher in Scotland (by an average of around £40 per year), but this is no longer the case. Persistent factors include climatic conditions (lower temperatures and longer hours of darkness) which lead to an increase in energy use; less energy-efficient housing stock and the higher proportion of pre-payment meters, which generally incur a more expensive tariff.[118]

103. Within Scotland, rural areas suffer particularly high levels of fuel poverty. Households must spend a higher proportion of their income on heating their homes, but fuel choice may be limited, as houses may not be connected to the gas grid, and the nature of the housing stock is hard to heat and insulate. Fuel poverty is not included in the SIMD, a fact which again leads us to question its suitability for measuring poverty in rural areas.[119]

104. Witnesses have suggested that a regional weighting for the Winter Fuel Payment might be a way to recognise Scotland's particular needs. Ms Elizabeth Gore, Deputy Director, Energy Action Scotland, said:

On the winter fuel allowance we talked earlier about the fact that Scotland has a colder climate and it takes more energy to heat your home to recognised standards. What we could do with the winter fuel allowance is that on top of the standard rate, which there currently is, introduce a banding system whereby from a central point in the UK you could introduce bands north of that whereby each band as it goes progressively north has a regional weighting on the winter fuel allowance.[120]

105. The Government should review its eligibility criteria for benefits aimed at alleviating fuel poverty. In particular, both Winter Fuel Payments and Cold Weather Payments could be extended to those in receipt of disability-related benefits. As part of this review, consideration should be given to establishing a form of regional weighting that would recognise the increased burden in fuel costs to colder parts of the UK.

Fuel Prices

106. Our evidence suggests that fuel prices are the most significant factor behind the recent rise in levels of fuel poverty. Between 1996 and 2002, fuel poverty in Scotland fell significantly from 738,000 households (38%) to 286,000 households (13%). This reduction was driven by increases in earnings levels and improvements in energy efficiency.[121] Since 2003, fuel prices have increased by an average of 55% for electricity and 91% for gas in Scotland.[122] As a result, the number of households in fuel poverty has climbed steeply to around 30%.[123]

107. The UK energy market is generally recognised as one of the most competitive in the world.[124] It is likely, then, that fuel poverty can most effectively be reduced by targeted social tariffs, provided by energy companies to the poorest in society, rather than structural changes in the market. A number of energy companies have introduced social tariffs, but we have not seen any evidence to suggest that these are having a systematically beneficial effect for the poorest customers. As Mr Adrian Scorer, Director of Campaigns, Energywatch said:

The currency of social tariff has been debased by a number of the products that have been brought about by companies. Some are more expensive than their direct debit tariffs, they are poorly targeted and they are time-limited. They are really, I think, window-dressing. That is not all by any means. Look at some of the activities latterly of Scottish Gas, of EDF Energy, of Scottish and Southern Energy - there were serious attempts to develop one but across the marketplace you have incoherence, you have confusion for consumers and for people who advise consumers about where to go and you have not seen anything that you could say is based on a set of sound principles that mean these tariffs deliver what they ought to deliver which is the cheapest tariff from that company for the most vulnerable consumers.[125]

108. Added to the problems of complex tariffs is the fact that many lower income customers pay for energy via pre-payment meters. Sometimes, this may be the only form of payment available if the customer has had a problem with debt in the past. On other occasions, people on low incomes choose pre-payment as a way of managing their expenditure and avoiding debt.[126] Perversely, pre-payment meters are often a more expensive way of paying for energy overall than other methods, for example direct debit.

109. Many of our witnesses cited cases where pre-payment meters have operated to create a debt for the customer. When energy prices change, pre-payment meters must be re-calibrated to reflect the new (normally higher) price. If this is not done immediately, the customer can face a large retrospective bill for energy used when the meter was not correctly calibrated.[127] This problem can be avoided through the use of newer 'smart' meters which can be instantly recalibrated remotely. Smart meters also offer a number of other benefits, such as the ability to monitor energy use and tariffs through the day.

110. The role of the energy market regulator in reducing fuel poverty is key. Ofgem's formal powers in this regard are limited, although they do have the power to 'name and shame' companies, which has been used successfully in respect of poor practice in prepayment metering and social tariffs.[128] The current Ofgem licence review offers a chance to prohibit bad practice in relation to recalibration and will place greater obligations on suppliers to deal with fuel poverty.

111. One programme that does exist to help low income customers who have experienced difficulties paying their fuel bills is Fuel Direct. Fuel Direct is available to customers who are in debt to an energy company and who receive Income Support, Income-based Jobseeker's Allowance or Pension Credit. In order for a Fuel Direct arrangement to be set up it is necessary to secure the agreement of both the Department for Work and Pensions and the energy supplier. An amount is then deducted both for debt and current consumption directly from benefits.

112. Witnesses told the inquiry that the take-up of Fuel Direct has fallen significantly in recent years. There is a perception that both the Department for Work and Pensions and the energy companies are discouraging use of the programme in favour of other options, such as pre-payment meters.[129] We cannot understand why the take-up of Fuel Direct should have fallen at the same time that fuel debt is rising. We urge the Government to look into the cause of this fall as a priority.

Energy efficiency

113. The third strand in the reduction of fuel poverty is an improvement in the energy efficiency of homes. Significant co-ordination with the Scottish Executive will be required to address the issues of energy use and energy efficiency in Scotland, as energy efficiency of dwellings is a devolved matter. The Scottish Executive is responsible for two programmes in this area: Warm Deal and the Central Heating Programme. It is estimated that around £1.7bn would be needed to ensure that all houses in Scotland were raised to an energy efficiency standard that would protect their residents from fuel poverty.[130]

114. Stewart Maxwell MSP described the Scottish Executive's policies in this area. He acknowledged that a long waiting list of over 10,000 people had built up for the Central Heating Programme that would take some time to clear:

we are reviewing the system, we are looking at the system because, given from day one there has always been this huge waiting list and that every single winter there are the same problems, complaints and difficulties. Of course it is clear that fuel poverty is not declining in Scotland, in fact recent evidence is suggesting it is on the rise. Therefore, we have to review that programme to see whether we can make sure that it is delivering in terms of fuel poverty, make sure it does not disadvantage particular groups and make sure, hopefully, we can reduce waiting lists rather than make them longer. Those are very difficult questions. No previous administration so far has come up with an answer to that, we will do our best to try and resolve this particular problem .[131]

115. Improvements in energy efficiency are clearly a long term solution. It will take time to raise all houses in Scotland to a satisfactory energy efficiency level. The prevalence of solid wall houses in some areas further extends this task, as they are harder to insulate.[132] Whilst energy efficiency measures will form part of the plan to meet the 2016 targets, other solutions will need to be implemented more quickly.[133]

Policy co-ordination

116. As we have emphasised throughout this Report, poverty is a complex issue that calls for co-ordinated action from the UK Government, the Scottish Executive and local authorities. Fuel poverty is no different. We were therefore disappointed to detect a tendency to 'pass the buck' on this issue, both on the part of the UK Government and of the Scottish Executive. Caroline Flint MP told us that Scottish Executive policies were the key levers: "Clearly and quite rightly, these are issues that apart from obviously the winter fuel payments that we do, the added value is at the more local level."[134] Conversely, Stewart Maxwell MSP thought that the devolved administration's hands were tied:

The progress towards 2016 in terms of eradicating fuel poverty unfortunately, here again, it is out of our hands in many ways because the power over energy prices and actual income levels—again we go back to the tax and benefits system—is a reserved power of the UK Government. Effectively, the amount of money you earn and the price of the fuel you buy are the big determinants in terms of whether or not you fall within fuel poverty and we do not have power over those.[135]

117. Where fuel poverty is concerned, the picture is further complicated by a large number of different energy companies with competing tariffs, as well as a lack of information about who is in most need. Some small pilot projects have attempted to identify the fuel poor, but more co-operation and information pooling is needed to make further progress.[136]

118. The benefits of identifying those most in need are potentially great: the targeting of energy credits may form a pathway to other unclaimed benefits as part of an integrated system.[137] We heard of a scheme run by the Energy People's Trust and the Citizens Advice Bureau in Dumfries and Galloway that provides low income families, lone parent and other hard to reach groups with a specialist service aimed at reducing fuel and household poverty.[138] The project employs two welfare benefits specialists who conduct benefits checks.

119. There is also a potential benefit of greater coherence at national policy level. Improved energy efficiency measures can contribute to the success of measures aimed at preventing climate change and protecting the environment. For example, micro-generation has the potential to help alleviate fuel poverty in households off the gas network in rural areas. The reduction of fuel poverty is an area in which greater co-operation and co-ordination between the UK Government, the Scottish Executive, energy companies and Ofgem is required.

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