House of Commons - Energy efficiency and fuel poverty - Environment, Food and Rural Affairs Committee

Energy efficiency and fuel poverty - Environment, Food and Rural Affairs Committee Contents

1 Introduction

Background to the inquiry

1. The Government defines fuel poverty as occurring when a household must spend more than 10% of its income on all household fuel use in order to maintain a satisfactory heating regime.[2] Having set targets to reduce fuel poverty the Government showed progress up until 2003-04 but, following the rise in energy prices, then the trend reversed.

2. Britain sees 25,000-40,000 more deaths in winter than the summer months. This phenomenon is not unique to the UK but the variation is higher than for other European countries with similar (or colder) climates and living standards. In England, mortality rates are 19% higher in the winter than in the summer. This compares to 10% in Finland, 11% in Germany and 14% in Austria. The low energy efficiency level of many English homes is a factor in the UK figure.

3. At the launch of our inquiry in July 2008, we invited evidence about the policies and programmes of both Government and the energy supply industry aimed at improving domestic energy efficiency and alleviating fuel poverty. Following the creation of the Department of Energy and Climate Change (DECC) on 3 October 2008, we discontinued this inquiry as responsibility for fuel poverty passed from the Department for Environment, Food and Rural Affairs (Defra) and the Department for Business, Enterprise and Regulatory Reform (DBERR), to the new Department.

4. On 6 November 2008 we published the 68 submissions of written evidence we had received in a special report and recommended the new Energy and Climate Change Select Committee hold an inquiry into fuel poverty at the earliest opportunity.[3] However when it transpired that this new Committee would not be established until January 2009 we re-opened this inquiry.

5. A list of those who gave oral evidence can be found at the end of this report. We are grateful to all those who participated in this inquiry and would like to thank our specialist adviser, Dr Jim Watson, of the Science and Technology Policy Research Unit, University of Sussex.

Government objectives and targets

6. The Warm Homes and Energy Conservation Act 2000 required the Government to prepare and publish a strategy setting out 'policies for ensuring, by means including the taking of measures to ensure the efficient use of energy, that as far as reasonably practicable persons do not live in fuel poverty'.[4] Levels of fuel poverty depend on three main factors—fuel prices, incomes and the energy efficiency standards of homes. The Government has policies to address all three, with programmes funded and delivered by various public and private sector agencies.

7. The Fuel Poverty Strategy published in November 2001 covered the entire UK.[5] It set targets to end fuel poverty (for vulnerable households by 2010 and for all households by 2016) and set out a broad package of energy efficiency, energy market and social inclusion measures. Fuel poverty subsequently became a devolved matter with respective targets for each of the three administrations. In 2004 Defra published Fuel Poverty in England: the Government's Plan for Action that set out measures to meet the 2010 target.[6]

8. David Heath MP introduced a Private Members' Bill in January 2009 requiring DECC to publish a Fuel Poverty Strategy sufficient to 'fuel poverty proof' a certain number of existing properties to a specified standard by December 2016 and making social tariffs mandatory for 'vulnerable households'. The Bill won backing from charities including Help the Aged, Friends of the Earth, Consumer Focus and the Association for the Conservation of Energy but has, to date, failed to receive a Second Reading.

PROGRESS AGAINST FUEL POVERTY TARGETS

9. Most of the evidence we received suggested that the Government will miss its 2010 target to eliminate fuel poverty among vulnerable households. National Energy Action believed this lack of progress constituted the "collapse of the UK Fuel Poverty Strategy".[7] FPAG likewise stated that "the Government appears to have given up on the legally binding 2010 Fuel Poverty Target".[8] Even DECC accepted that "the current mix of fuel poverty measures will not totally eradicate fuel poverty in vulnerable households by 2010".[9]

10. The latest official statistics on fuel poverty published in 2008 only go up to 2006 when 3.5 million households lived in fuel poverty across the UK, an increase of around 1 million since 2005 (See Graph 1).

Graph 1: UK Households in Fuel Poverty 1996-2006

Source: Department for Environment, Food and Rural Affairs, The UK Fuel Poverty Strategy, Sixth Annual Progress Report, 2008.

11. Based on the results of the English House Condition Survey, the overall number of fuel poor households in England in 2006 was estimated at 2.4 million (around 11.5%). Of these 1.9 million were categorised as vulnerable,[10] defined by Government as households containing older people, families with children, disabled people or anyone suffering from a long term illness.[11]

12. The Fuel Poverty Advisory Group (FPAG), a non-Departmental Public Body formerly sponsored by Defra/DBERR, published projected figures for England in 2007 of 2.9 million households in fuel poverty, of which 2.3 million were classified as vulnerable. FPAG believes that fuel poverty is now as its highest level for nearly a decade,[12] and estimates that 4 million households in England were in fuel poverty by September 2008.[13] Consumer Focus (formerly energywatch) estimates the current UK-wide figure to be 5.5 million households in fuel poverty.[14] These statistics imply that progress on fuel poverty has been reversed since 2005.

13. Some witnesses questioned a definition of fuel poverty based around the income percentage spent on heat and light. The National Right to Fuel Campaign (NRFC) considers the current definition "not adequate for the task of ending fuel poverty" but recognises "the difficulty in altering definitions, especially at this stage of the fuel poverty strategy".[15] The Minister responsible for delivering the targets refused to estimate the number of fuel poor because, she said, this group is "a constantly shifting group of people depending on [fuel] prices, depending on their incomes and of course to a degree depending on the severity of the weather".[16]

IMPACT OF PRICE RISES ON FUEL POVERTY LEVELS

14. Estimates suggest that each 1% rise in fuel prices pushes an additional 40,000 households into fuel poverty.[17] Falling domestic energy prices from the mid 1990s to 2003 were reflected in lower levels of fuel poverty. Prices have risen since then—gradually from 2003 but rapidly from autumn 2005 to December 2006 (See Graph 2). A price decrease in 2007 was followed by steep rises over 2008 with a corresponding escalation in fuel poverty levels.

Graph 2: UK domestic gas and electricity prices 1990-2008

Source: Social Indicators, Research Paper 08/76, House of Commons Library, October 2008.

15. According to Consumer Focus, the average domestic energy bill rose from £554 in 2003 to £1,308 by December 2008.[18] However, while the oil price peaked in July 2008 and fell back almost two-thirds by December 2008, wholesale gas prices fell by only around 20% over the same period.[19] As a result, both the Government and consumer groups called on the energy companies to cut their prices urgently. Prices remained volatile around the turn of the year but the main suppliers have since reduced their prices, though on average by less than 10%.[20]

16. The Committee on Climate Change (CCC) acknowledges that its recommendations for cutting GHG emissions of greenhouse gases could raise electricity prices for the average family by 25%, pushing 600,000 more households into fuel poverty by 2022. Gas price impacts could add a further 1.1 million households by 2022. However CCC argues this number could be reduced by improving home energy efficiency and subsidies for the poorest households".[21]

17. Long term price forecasts remain uncertain but Ofgem foresees a future of rising geopolitical risks to energy security, potentially higher energy prices and stronger efforts to reduce greenhouse gas emissions while making sure everyone can afford to adequately heat their homes.[22] Ed Miliband, Secretary of State for Energy and Climate Change, said in December 2008 that "whatever the recent fluctuations, given global trends it would be unwise to base policy on low prices". He added that "global demand will keep [energy] prices relatively high and the move to low-carbon will mean further cost pressures".[23]

18. The 2001 Fuel Poverty Strategy recognised the importance of fuel prices and acknowledged that price movements would fall outside the anticipated range. In fact energy prices for domestic customers have increased well beyond the Strategy's forecasts, although price volatility was not unexpected. The Minister argued that the Government was "doing what is reasonably practicable" to ameliorate fuel prices in the teeth of very high global fuel prices.[24]

19. Despite a clear statutory target for the Government to eradicate fuel poverty, as far as reasonably practicable, in vulnerable households by 2010 and in all households by 2016, we are witnessing the opposite, with a sustained increase in the numbers of those experiencing fuel poverty.

20. With the 2010 target date less than 12 months away, we agree with the Department of Energy and Climate Change that this target is likely to be missed. The Government should now explain why it did not review its fuel poverty policies earlier in the light of the upward trend in the number of fuel poor which began in 2005.

2 Department for the Environment, Food and Rural Affairs, Fuel Poverty in England: the Government's Plan for Action, 2004, p 7. An adequate standard of warmth is defined as 21 degrees C in the living room and 18 degrees C in the other occupied rooms, Department of Business, Enterprise and Regulatory Reform, UK Fuel Poverty Strategy 2001, para 1.1. Back

3 Environment, Food and Rural Affairs Committee, Fifth Special Report of Session 2007-08, Energy Efficiency and Fuel Poverty, HC 1099. Evidence published in the Special report is referenced in this report as "HC (2007-08) 1099, Ev xx". Note: energywatch became part of Consumer Focus in October 2008, and this report therefore refers to its evidence as Consumer Focus evidence. Back

4 Warm Homes and Energy Conservation Act 2000, section 2(1). Back

5 Department for Business, Enterprise and Regulatory Reform, Fuel Poverty Strategy 2001. Back

6 Department for the Environment, Food and Rural Affairs, Fuel Poverty in England: the Government's Plan for Action, 2004. Back

7 HC (2007-08) 1099, Ev 11 Back

8 Department for Business, Enterprise and Regulatory Reform, Fuel Poverty Advisory Group (for England) Sixth Annual Report 2006, March 2008. Back

9 Ev 64 Back

10 The UK Fuel Poverty Strategy, Sixth Annual Progress Report, 2008, para 2.2. Back

11 UK Fuel Poverty Strategy, 2001, para 1.12. Back

12 Fuel Poverty Advisory Group, Sixth Annual Report 2007. Back

13 HC (2007-08) 1099, Ev 3 Back