Examination of Witnesses (Questions 524
- 539)
TUESDAY 15 MAY 2007
MR EDDIE
FOLLAN, MR
ADAM SCORER
AND MS
ELIZABETH GORE
Q524 Chairman:
Good afternoon and welcome to our first set of witnesses for today
on our inquiry into Poverty in Scotland. Before we start
asking you detailed questions, do you have any opening remarks
you would like to make?
Ms Gore: Thank you for inviting
Energy Action Scotland to give evidence to the Committee and thank
you for acknowledging that fuel poverty is a subset of poverty
as a whole. It has been well documented that the fuel poor are
poor. Fuel poverty is often said to be devolved to the Scottish
Parliament but looking at the three main causes of fuel poverty,
two of those—low disposable household income and the high
price of domestic fuel—are reserved to Westminster. It is
only the third—poor energy efficiency of dwellings—which
is devolved, but of course all three factors do need to be addressed
in order to eradicate fuel poverty. There is a great deal of interest
just now in energy generation, climate change, carbon footprints
and while solutions to fuel poverty do need to be energy efficient,
it is important to understand that for many fuel-poor people they
may need to use more energy and not less. They already ration
their energy use often to the detriment of their health and well-being.
It is a very important time to keep the focus on fuel poverty
because of the recent high energy prices, especially if we are
going to meet the target to end fuel poverty by 2016. As the Scottish
fuel poverty charity, Energy Action Scotland welcomes any steps
towards meeting that goal.
Mr Scorer: I echo many of the
things Elizabeth has said. What I can add to that from energywatch's
point of view is that we particularly welcome this Committee taking
a look at fuel poverty as it considers other manifestations of
poverty in Scotland. It is important to look at whether there
is a live and adequate strategy for fuel poverty, not just in
Britain but in Scotland in particular. I do not think there is
and I think it is deficient for two particular reasons: firstly,
because there has not really been sufficient focus certainly on
the remedies and the actions that could be taken to address the
reason why the success in eradicating fuel poverty has spun into
reverse and that is because prices have shot through the roof,
and there has been no strategic response from government or from
the market to alleviate those prices issues. The second area which
I think has been neglected, although there has been a significant
amount of work through benefit entitlement and other income maximisation
efforts from a range of agencies in Scotland through the Executive,
through organisations like Energy Action Scotland, is we have
seen another example where GB policy has inhibited the ability
for the Scottish Executive to meet its own fuel poverty targets
because it has not addressed the fundamental issue that rising
incomes are why fuel poverty was in retreat before and we have
not done enough to look at those mechanisms which will support
the incomes of those groups who are physiologically vulnerable
to the cold—the elderly, families with young children, those
with disabilities or long term illnesses—so I welcome this
Committee looking at fuel poverty and hope that we are going to
be able to help you to further understand some of those issues.
Q525 Chairman:
How is fuel poverty defined at the moment? Does the definition
really capture all those in fuel poverty or does the definition
need to be changed in your view?
Ms Gore: The current definition
is widely taken to be that if a household is required to spend
more than 10% of its income on fuel in order to maintain a satisfactory
heating regime, then it is deemed to be in fuel poverty. The definition
that is set out in the Scottish Fuel Poverty Statement includes
housing benefit or income support for mortgage interest. In terms
of whether that is still a good working definition, Energy Action
Scotland's view is that certainly for the time being it is and
it would possibly be a distraction to try and spend time reworking
that just now rather than get on and actually solve the problem.
Mr Scorer: I think that because
fuel poverty is something that affects a range of demographic
groups and a range of communities and a range of individuals with
different life circumstances, you need something that enables
you to model the size and the exposure of certain groups to fuel
poverty. I agree that there is not a huge amount of benefit to
be gained from looking at the actual definition of fuel poverty,
except to recognise that for some people it is not about 10%,
it is about 20%, 30% and 40% of their income on fuel poverty and
those people are in real severe difficulties and they are making
decisions which are not just about budgeting, which are not just
about shifting money from one set of household necessities to
another; it is about coping with the cold, coping with health
issues, making sure they can keep themselves in a healthy state.
That is the only addition I would like to make. It is not just
about fuel poverty; it is severe fuel poverty and what that means
to people.
Ms Gore: I said that the Scottish
definition includes housing benefit or income support for mortgage
interest. Energy Action Scotland and others believe that those
costs should not be included in the definition because we feel
that falsely inflates the level of disposable household income
because you cannot use those for anything other than the purpose
they were intended. You cannot use them for paying for fuel, for
example. We feel that the definition should be excluding housing
costs.
Q526 Chairman:
When you say housing costs, does heating a house come into the
housing costs or not? What is included in housing costs?
Ms Gore: It is specifically the
housing benefit and income support for mortgage interest that
we are interested in because they can only be used for those purposes.
There are other benefits—for example, milk tokens, funeral
payment allowances—that can only be used for that particular
purpose, whereas what is reported when we are looking at fuel
poverty is the disposable income of the household. Some figures
taken from The Scottish House Condition Survey show that, in 2002,
13% of households were in fuel poverty. If you exclude housing
benefit or income support for mortgage interest, the figure goes
up to 17% and if you exclude all housing costs it goes up to 20%,
so you can see the effect of those items.
Q527 Chairman:
According to Energy Action Scotland, three main causes of fuel
poverty are low disposable household income, high domestic fuel
prices and poor energy efficiency of the dwelling. Obviously two
aspects of this are reserved matters and the third one is a devolved
issue. Do you think that both parliaments and both governments
are working in coordination to resolve fuel poverty, or do you
think there is more to be done?
Mr Scorer: We have seen explicitly
from both the Scottish Executive and from the UK Government a
focus on energy efficiency measures and a coordinated attempt
to put capital investment into the housing stock as the long term
solution to fuel poverty. I think there has been a degree of collaboration
and learning from each other on that. On the two other areas,
in terms of income maximisation, notwithstanding the point where
I do not think there has been anything from GB which has assisted
the picture on fuel poverty in actually directly putting more
money into the household budgets of certain vulnerable groups.
Around the idea of benefit entitlements there has been a number
of successes and a number of less successful ventures which have
seen Defra and the DTI, the Scottish Executive and the Welsh Assembly
Government working together well. The area where I think there
has been practically no coordination between governments—this
is a UK Government issue—is on how to address the issue
of fuel prices which essentially is putting pressure either on
companies to adopt more socially responsible ways of charging
low income vulnerable consumers for their energy use, or to develop
a coherent understanding of what the drivers for high prices are
and what regulatory or legislative requirements there are to drive
that down. In the energy efficiency, I would say yes; benefit
entitlements, I would say partially; in terms of fuel prices,
I would say no.
Mr Follan: Successive communities'
ministers in the Scottish Executive have looked at the issue and
in fact Malcolm Chisholm supported social tariffs at an Energy
Action Scotland conference three years ago. I know that the Scottish
Executive have met with the suppliers but I think the issue is
one of coordination between the Scottish Executive and the Westminster
government on the issue of price because there really is only
so much that the Scottish Executive can do. There is a joint ministerial
group who meet on fuel poverty and I would imagine that it has
been brought up at that, but in terms of being able to actually
do anything on price, I would certainly go along with what Adam
is saying and say it has been very limited.
Q528 Chairman:
Which groups within society are most affected by fuel poverty?
How are those in fuel poverty identified and how well is data
on fuel poverty shared within government and between government,
industry and the various agencies engaged in tackling fuel poverty?
Ms Gore: The fuel poor in terms
of groups of people is clearly identified in The Scottish House
Condition Survey. That shows the groups that are most likely to
be in fuel poverty are single pensioner households, couple pensioner
households and single adult households. In terms of identifying
areas of the country where fuel poverty lies, there is the Scottish
Fuel Poverty Indicator which was developed for Scotland by Energy
Action Scotland and Alembic Research through the Scottish Executive
with funding from the Energy Saving Trust. That can identify to
ward level where houses in fuel poverty are within that area and
that is available to all the local authorities in Scotland. It
can be adapted down to sub-ward level and that has been done for
East Renfrewshire and Orkney Councils and they are successfully
using those tools.
Mr Scorer: There is also listed
the geographical disaggregation of where the fuel poor are. Are
there pockets of it? Are there areas that we need to focus on?
In particular, that is true of course for high urban areas of
multiple deprivation, the important issue of rurality and the
impact on communities off the gas network which is an exacerbating
factor. The other element are those individuals who are particularly
susceptible to the consequences of the cold and older people are
clearly the group that is the most susceptible, the most likely
to be in fuel poverty and the ones where we have tried to do the
most to meet their needs. What I would say—this is something
picked up by the Trade and Industry Select Committee earlier on—there
is a great danger that, in rightly focusing on the needs of the
consumers, you miss other really important groups of people who
are not getting the same level of support, the same focus from
organisations bringing grants and advice, and the same focus from
government and they are families with young children, the disabled
and the chronically sick. Those who are susceptible to the cold
spend a lot of time at home, maybe with high laundering costs,
washing machines on a lot, a need to space heat and they are going
to spend a lot of money on heat. I do not think we have seen the
same commitment to addressing the needs of those groups as we
have, quite rightly, for older consumers.
Q529 Danny Alexander:
I would like you to go into a little more detail on the rural
dimension that you mentioned. When we were in Inverness both the
Highland Council and other people giving evidence to us made particular
reference to fuel poverty in a Highland context, partly because
in rural areas the prevalence of fuel heating oil, which is much
more expensive than gas, therefore pushing substantial numbers
into fuel poverty, but also substantial numbers into fuel poverty
that you described earlier. Has any work been done to see how
prevalent fuel poverty is, particularly in those more remote rural
communities as well as the other areas you have talked about?
Mr Scorer: There certainly has
and I am sure you have the details of it. It is worth saying this
is one of the aspects where there is a particular constellation
of impacts which make the Scottish fuel poverty situation different
from England, although pretty similar to parts of Wales at times,
but very different and that is a third of homes are off the gas
network. The preponderance of solid wall sandstone and granite
houses makes it difficult to put in energy efficiency measures,
much more expensive fuels, oil and electricity, to heat the homes.
The average is about 4,500 kW per year for a domestic household
in a city which rises to about 7,000 kW in rural areas. It is
a vital issue and one that is particular in Scotland.
Ms Gore: Picking up on what Adam
is saying, there is often a climatic variation. It costs about
68% more to heat your home in the north of Scotland than it would
in the south of England. There is quite a wide variation there
mainly dependent on the climatic differences. In terms of rural
and urban fuel poverty, most fuel-poor households are in urban
areas. The percentages of the population that live in those areas
mean that you are most at risk of fuel poverty if you live in
a rural area. The figures for rural fuel poor is 75,000 households,
which is 21%, and in urban areas the fuel poor is 211,000 households
which is 12% of the population in that area. Households are twice
as likely to be in extreme fuel poverty in rural areas than those
in urban areas. To pick up on what Adam was saying about houses
off the gas grid and hard to heat houses, another aspect to take
into account is that gas and electricity are the only fuels which
are regulated. Oil, for example, is not regulated and so you do
not get the same checks on price increases, whether price falls
are being implemented swiftly enough and of course there is no
equivalent to the Energy Efficiency Commitment on supplies of
other fuels other than gas and electricity.
Mr Scorer: On the non-regulated
point, oil heating was the subject of a Competition Commission
inquiry to see whether there was any meaningful competition driving
down price there. The other element is that not only are you off
the gas network, not only are you having to pay for more expensive
fuels for space heating and lighting, you are also less likely
to get picked up by the work of a number of key agencies either
in advice or support if you are having problems struggling to
pay your bill and that is having a meaningful impact on your quality
of life. It is more difficult to get picked up by community organisations
and it is much easier to deliver in urban areas, so they add up
and they start coalescing a whole range of deficiencies in the
way in which we address fuel poverty. This starts to become much
more of a wicked problem if you are residing in a rural area and
you cannot afford to heat your house.
Q530 Chairman:
Is there any evidence available to prove that the extent of fuel
poverty in Scotland is greater than it is in the United Kingdom
as a whole?
Mr Scorer: We can see from the
Scottish Executive's figures and I think everybody from England
and Wales all had the beneficial impact of price reductions up
until about 2002 reducing the numbers of households in fuel poverty.
It came down from about 35% of households in Scotland to about
13% and we now think it is climbing up to about 30%. That is 650,000
households in fuel poverty. The incidence of fuel poverty is higher
in Scotland than it is in England, similar to the situation in
Wales, for many of the reasons that Elizabeth has identified:
climatic, it is colder; it is darker; your space heating requirements
are greater; your lighting is on for longer; your electricity
is about five% more expensive in Scotland than it is in England;
there are a higher proportion of people on prepayment meters to
recover a debt. It is a whole range of issues which makes the
experience of being an energy consumer in Scotland more likely
to have you in fuel poverty than in England.
Q531 Chairman:
There was a 30% decrease in the number of households on fuel poverty
and then there was an increase again. What is the main reason
for this?
Mr Follan: We would point to price.
In 2002 the figures were something around 286,000 people living
in fuel poverty. From 2003 to 2006 we had a 90% increase in gas
prices and a 60% increase in electricity prices. That drove the
numbers upwards so we had a gap where we were not really doing
anything at all about price. I should point out here that the
Scottish Executive figures for this are something around 328,000,
but those figures are based on 2003 before the price rises, so
they are lagging behind. Certainly both ourselves and Energy Action
Scotland have done their sums and we would say round about 650,000,
simply because of the rise in prices. If you look at the impact
of energy efficiency, you are looking at something like 40,000
households who would benefit from the energy efficiency measures
that the Executive has taken. There has been an eight to 11% increase
in incomes which has lifted some out of fuel poverty. Overall
though progress towards the 2010 and 2016 targets has been outpaced
by price rises.
Ms Gore: We mentioned there was
a big fall in poverty at one point which was between 1996 and
2002. Half of that was attributed to increases in income and about
a third of that to lower fuel prices and only 15% to energy efficiency
measures, but at that point the Central Heating programme had
only just started so the impact of the energy efficiency improvements
was not going to be showing up in the figures yet, but the figures
that Energy Action Scotland and energywatch are now quoting for
fuel poverty is based on Community Scotland's which is the Housing
Regeneration Agency of the Scottish Executive which produces The
Scottish House Condition Survey. They published a report in which
it said for every five% increase in fuel price, all else being
equal another 30,000 households would go into fuel poverty in
Scotland. That is what our figures are based on.
Mr Scorer: The price issue is
absolutely critical. We are now seeing a downturn in prices. All
the energy companies have now announced a reduction. Personally
I have a worry that we do not start getting complacent and saying
that the market will now deliver for vulnerable consumers at risk
of fuel poverty because prices are coming down for everyone. What
we are seeing is even a market that is contestable, that is competitive
primarily if you are a direct debit customer, you have a current
account or you are on an online tariff. It is not such a competitive
market if you are on a prepaid meter, if you have a debt and the
company can block you transferring away, or you are not really
a lucrative consumer. I think this inquiry is timely because you
are at a moment when it would be all too easy—I do not think
anyone is actually doing this, thankfully—to say that the
market will deliver a competitive solution. The market will deliver
competitive solutions for consumers the market wants. It will
not deliver, or has shown no sign of delivering, a competitive
solution for consumers who are not regarded as lucrative. One
of the key elements that we would like to see in the Energy White
Paper, which is hopefully due next week, is a commitment from
the UK Government to provide legislation that will require all
of the major energy suppliers to have what we call a social tariff,
which is their lowest tariff in the marketplace that is available
for consumers who the Government has an eligibility test for who
are the most deserving, the most vulnerable, on the lowest incomes,
in receipt of certain benefits. It is up to the Government to
decide the mechanism because the industry will not do this by
itself and without such a mechanism we will continue to see the
numbers in fuel poverty stay at a stubborn and unacceptable level.
Q532 Mr Davidson:
Are you effectively saying that there should be means testing
for this social tariff?
Mr Scorer: What we are saying
is that the Government already has a number of mechanisms whereby
it identifies consumers. One might be the cold weather payments
system, so you recognise that a number of people are physiologically
vulnerable to the cold and need some assistance.
Q533 Mr Davidson:
I understand that. I am just saying is that a yes or a no? It
is basically a means test, is it?
Mr Scorer: There needs to be a
set of eligibility criteria and one of the most effective ways
of doing that would be identification for a passport benefit.
Q534 Danny Alexander:
You have made it clear that you think if the current policy carries
on as it is at the moment that the target for 2016 is likely to
be missed, and substantially missed by the sound of it. Are you
saying that the matters you are describing there about pricing
are the most likely reasons why the targets are missed? I think
what you were saying there was that the current system is effectively
price discrimination against low income families because of direct
debits and the costs of prepayment meters and all those sorts
of things. Is that the main reason why you think it is going to
be missed or are all the issues that you are talking about part
of the reason?
Mr Scorer: That has to be the
main reason why the numbers of households in fuel poverty have
gone through the roof and are likely to stay there. 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, but without a component
that says the market is discriminatory towards low income and
vulnerable consumers who are not lucrative to the companies they
are going to continue to pay proportionally more significant amounts
of their money on energy than others and that is likely to keep
them in fuel poverty. It is an absolutely critical component,
but more than that I suppose it is the most neglected component.
It is the route we have not travelled. It is the solution we have
not tested and therefore the benefits are still there to be gained
if we can come up with a system which means that this is a socially
responsible market that delivers the cheapest energy to the people
who most need it.
Mr Follan: I do not want to be
accused of being a statistician but, to back that up, if you look
at the 90% rise in gas and 60% rise in electricity, prices have
really only come down in the last year by 12% for gas and five%
for electricity. That is not going to be of any benefit whatsoever
really to the people at the bottom of the pile and the people
on the lowest income. Picking up on Adam's point and just to reinforce
it about direct debits and prepayment meters and the inequality
that exists in prepayment meters, people are paying £200
a year more for paying upfront for their energy for a start and
actually trying to budget. There are issues there about recalibration
of meters and hopefully we can touch on that, but just to reinforce
that inequality. At the moment, you could conclude that the people
who are on direct debits are being subsidised by the poorest who
pay by a prepayment meter. I am sure that having looked at some
of your evidence in the past you have dealt with some issues around
financial exclusion. In Scotland, 12% of people do not have a
bank account so they do not even have access to the direct debit
tariff which is generally the lowest tariff. In some areas—I
think the Dundee Partnership have estimated—that somewhere
around 35% have never had a bank account, so you can see how people
have effectively been locked out of the cheapest tariffs in the
market and that is something we are looking at in terms of social
tariffs to see whether we can find a way to get people access
to the lowest possible tariff.
Q535 Mr Davidson:
Can I clarify what you think ought to be the role of the regulator
in all of that? If the companies are able to essentially overexploit
the poorest consumers should the regulator not be doing something
about that and why have they not already done so?
Mr Scorer: The regulator would
regard the market and given that we have not only a competitive
market but the most competitive market in the world, it is trusted
to the industry to provide a range of solutions—it could
be corporate or social responsibility solutions, there could be
rebates or time-limited benefits—as possible partial solutions.
I think we need to recognise—whether it is from the regulator,
whether it is from government through legislation—that the
package of measures that have been more than welcomed from the
energy companies is just insufficient, inadequate and incoherent.
Q536 Mr Davidson:
I understand all that. What I am asking you is whether or not
you think it is the role of the regulator to deal with some of
these things? It strikes me that this is a weakness of the regulator
to allow such anomalies of provision to exist and it ought not
necessarily be for the Government directly to move in to legislate
because it ought to be controlled by the regulatory process that
we have established.
Mr Scorer: I agree with you that
it is the responsibility and primary duty of the regulator to
protect the interests of consumers.
Q537 Mr Davidson:
Why do you think the regulator has not behaved in the way that
we seem to agree he ought to have?
Mr Scorer: I think Ofgem has a
confidence or a faith that the market mechanism is the surest
way of delivering.
Q538 Mr Davidson:
It is evident that that is clearly misplaced, is it not?
Mr Scorer: I believe it is misplaced.
Q539 Mr Davidson:
The evidence indicates that that faith is misplaced, yet Ofgem
seem not to have recognised that. Why is that?
Mr Scorer: I believe that Ofgem
has faith in the market delivering. There is no evidence to support
that.
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