Memorandum submitted by energywatch Scotland
ENERGYWATCH
energywatch is the independent watchdog for
gas and electricity consumers in Great Britain. We provide free,
impartial advice on a range of energy issues. We also take up
complaints on behalf of consumers who are experiencing difficulty
in resolving problems directly with their energy companies. In
the last financial year, we dealt with 62,000 complaints and 226,000
complex enquiries on behalf of energy consumers across Britain.
In 2005-06 energywatch Scotland dealt with around
20,000 complaints about suppliers and enquiries from domestic
and business consumers across Scotland. Consumer advisers negotiated
over £1 million in compensation on behalf of consumers.
This submission focuses on largely on fuel poverty.
We recognise that those living in fuel poverty are generally those
on low incomes who are also faced with a number of the difficulties
faced by all who live in poverty, but note also that research
carried out by energywatch in 2005 found that low income households
are willing to prioritise energy bills over other expenditure.
A warm home is an essential right, not a luxury.
WHAT IS
POVERTY?
Section 95 of the Housing (Scotland) Act 2001
defines fuel poverty as being a household living in a home which
cannot be kept warm "at reasonable cost". The Scottish
Fuel Poverty Statement, published by the Scottish Executive as
a requirement under the Act, adopted the following definition
of fuel poverty, which follows the UK Fuel Poverty Strategy definition:
"A household is in fuel poverty if, in order to maintain
a satisfactory heating regime, it would be required to spend more
than 10% of its income (including Housing Benefit or Income Support
for Mortgage Interest) on all household fuel use."
Research carried out by Energy Action Scotland
and Strathclyde University, and based on the Scottish Executive's
2003 Scottish Index of Multiple Deprivation establishes a clear
link between fuel poverty, multiple deprivation and excess winter
deaths. According to this research there is a greater risk of
winter mortality in Glasgow (1 in 36 aged over 65) than in any
other local authority area in Scotland.
THE EXTENT
OF POVERTY
Optimism as a result of the fall in the numbers
living in fuel poverty between 1996 and 2001has largely been replaced
with concern as a result of a series of price rises since 2003.
Prices have increased by an average of 55% for electricity and
91% for gas in Scotland. Communities Scotland estimates that for
every 5% increase in energy prices 30,000 more households are
pushed into fuel poverty. As a result the number of households
living in fuel poverty has increased from 286,000 in 2002 to an
estimated 600,000 today. This is creeping closer to the 738,000
households living in fuel poverty in 1996. In relation to GB averages
Scottish consumers are more likely to be in debt:
— In Scotland 1 in 10 electricity consumers
were in debt compared to the GB average of 1 in 19.
— 1 in 5 Scottish consumers using prepayment
meters for electricity were in debt compared to the GB average
of 1 in 8.
— 1 in 14 gas consumers was in debt
compared to the GB average of 1 in 20.
— 1 in 4 consumers using prepayment
meters for gas were in debt compared to 1 in 5 in GB.
— 1 in 10 Scottish consumers cannot
switch suppliers due to being in debt.
CONTRIBUTING FACTORS
Fuel poverty is a combination of three factors:
the price of domestic fuel, household income and the energy efficiency
of a dwelling. The Scottish House Condition Survey 2002 indicated
that approximately 50% of the reduction in fuel poor households
in Scotland between 1996 and 2002 was attributable to higher incomes,
35% to lower energy prices and 15% to energy efficiency measures.
The price that domestic consumers pay for their
gas and electricity has impact on the number of households living
in fuel poverty. In 2006 the major suppliers have announced 14
price rises between them. These rises have the greatest impact
on the poorest in society. In Scotland consumers pay around 5%
more for their electricity than the in England. In September 2005
the total level of debt for electricity in Scotland was 34,216,700
pounds and 17,907,880 pounds for gas.
Prepayment usage is more common in Scotland
than GB wide, with around 20% of the 2.5 million electricity consumers
using prepayment meters, compared to 14% GB wide. As prepayment
meters are often installed as an alternative to disconnection
for debt, many more of these consumers will be living with debt
than among those using standard credit, direct debit or cash payment.
However, the higher prices charged for prepayment metering means
that the supplier's "solution" to the debt may actually
exacerbate the problem, and mean that debts take longer to clear.
A consumer on a direct debit in Scotland will pay an average of
£382 for their electricity whilst a prepayment user will
pay £415. ln GB as a whole these figures are £388 and
£399 respectively. Energywatch is urging suppliers to equalise
their prepayment meter tariffs—for both gas and electricity—with
their quarterly tariffs to ensure that consumers are not penalised
for trying to budget, or trapped in debt for longer than they
need be.
POTENTIAL SOLUTIONS
Faster recalibration of Token Prepayment Meters
Around 250,000 households in Scotland use token
prepayment meters. These meters need to be recalibrated by hand
following a price rise—unlike other meters such as key meters
which can be recalibrated remotely. The problem with token meters
is that supplier recalibration processes have not been keeping
pace with price rises. The result of this is that consumers using
these meters will not be paying the correct price for electricity.
This is potentially pushing large numbers of consumers into debt,
a debt which 4 of the GB major suppliers'—Scottish Power,
Scottish Gas, Npower and Powergen—claw back once the meter
has been recalibrated. energywatch is calling for all suppliers
to follow industry best practice and only apply price rises once
meters have been recalibrated.
Fairer tariffs
While the suppliers all offer a range of packages
of help for low income consumers, including rebates in winter,
energy efficiency and insulation grants, and community schemes,
these can often fail to provide the help that is needed most to
those most in need. energywatch are calling on suppliers to work
harder to get behind account numbers to identify vulnerable households,
and provide tariffs that do not penalise the poorest consumers.
As well as the equalisation of prepayment meter tariffs and an
end to back charging token meter users we believe that discounted
energy tariffs should be more widely available to consumers on
low incomes.
Smarter metering
The system of metering in place at the moment
makes it very difficult for consumers to have up to date information
on the gas and/or electricity they are using and subsequently
how much they are spending. energywatch believes that smarter
metering—that provides consumer and suppliers with up to
the minute information on energy use is an effective means of
assisting consumers to understand their energy consumption and
put an end to estimated billing. The debate on this issue has
moved higher up the political agenda and DEFRA are currently transposing
the Energy Services Directive. Article 13 could be interpreted
to mandate smarter meters at point of replacement or as new connection.
Energywatch would urge the Committee to see the wider introduction
of this type of metering as an important mechanism for helping
fuel poor households budget. Smarter metering would also end problems
over the recalibration of prepayment meters, and allow for more
flexible debt recovery plans.
IMPACT OF
GOVERNMENT POLICY
Energy policy is largely reserved to Westminster
although energy efficiency and the eradication of fuel poverty
is a matter for the Scottish Parliament and Scottish Executive.
The Scottish Executive produced the Scottish Fuel Poverty Statement
in August 2002, published under section 88 of the Housing (Scotland)
Act 2001. This sets out Scotland's overall objective for fuel
poverty comprising a commitment to ensuring "so far as is
reasonably practicable, that people are not living in fuel poverty
in Scotland by November 2016". It also sets the Scottish
Executive an interim target of achieving a 30% reduction in fuel
poverty by 2006.
Income maximisation
Income maximisation plays an extremely important
role in the reduction of fuel poverty in Scotland. Not only does
it increase household income, it also gives people the passport
to qualify for certain schemes established for those at risk of
fuel poverty, such as the Warm Deal programme and cold weather
payments. Figures published by the Department for Work and Pensions
on the take up of income related benefits shows that in 2003-04
between 4.2-7.3 billion of benefit went unclaimed, and the DTI
estimates that the average benefits entitlement check identifies
£1,200 unclaimed annual benefits per household.
The Winter Fuel Payment is a non means tested
annual payment to help pensioners pay their winter heating bills
and is currently set at £200 for people aged over 60 and
£300 for those over 80 years old.
Many other vulnerable groups across Scotland
are not able to benefit from such schemes set up to help those
living in or at risk of fuel poverty. The Trade and Industry Select
Committee recently warned that certain vulnerable groups not in
receipt of the Winter Fuel Payment or other government-funded
schemes aimed at alleviating fuel poverty are in dire need of
assistance.
Cold Weather Payments are paid to those receiving
Income support or Income-based Jobseekers allowance and with a
long term sickness or disability. Individuals also qualify if
they are aged over 60 or have a chid under 5 years age or are
responsible for a disabled child. Payments are made automatically
for each qualifying week if the average temperature for the area
has or is expected to be 0°C or below over a seven day period.
Energywatch believes that there is merit in considering extending
the qualifying criteria for the Winter Fuel Payment to those non
older groups eligible for the Cold Weather Payment.
Fuel poverty programmes
The Scottish Executive delivers two programmes
aimed at tackling fuel poverty; Warm Deal and the Central Heating
Programme. Warm Deal is aimed at eligible households in receipt
of benefit and offers a £500 energy efficiency grant with
£125 for pensioner households not on benefits. Warm Deal
has recently been extended to families with a disabled child in
receipt of Disability Living Allowance and from January 2007 the
Central Heating Programme will include pensioners over 80 in receipt
of the guarantee element of Pension Credit with partial or inefficient
heating systems. There has been significant investment in this
work by the Scottish Executive although much can still be done.
Children's charities, for instance have called on the Executive
to extend the Central Heating Programme to families on low incomes
with dependent children. Figures suggest that there are around
5,000 families with children living in houses with no central
heating. Around 25% of households—largely in rural areas—are
off the gas network and unable to benefit from the programme.
CONCLUSION
Rising gas and electricity prices have contributed
to increasing numbers of households living in fuel poverty in
Scotland. The links between fuel poverty and wider issues of multiple
deprivation are apparent and as winter approaches there is a real
concern that households may face the choice between eating, or
adequately heating their home. We continue to have a situation
where people on low incomes often pay more for their energy, a
situation made worse by the added issue that Scottish consumers
pay around 5% more than other consumers in England. There are
solutions. Equalising prepayment meter tariffs with quarterly
paid prices, ending the back charging of token meter users and
the wider provision of discounted tariffs for those on the lowest
incomes would be a step forward. Providing smart meters which
allow consumers to monitor how much energy they use—and
how much they. Alongside the price of energy and energy efficiency
measures, income maximisation can have a major impact on reducing
the numbers living in fuel poverty. Consideration should be given
to extending the Winter Fuel Payment to those groups who qualify
for Cold Weather Payments.
Eddie Follan
energywatch
October 2006
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