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

2 Effectiveness of policies and programmes

Effectiveness of targeting assistance

21. Assistance is currently targeted on individuals, using a complex array of criteria which require a range of data to be assessed. Much of this is not currently effectively collated or even made available to the organisations attempting to deliver programmes. The Government acknowledges the lack of available data but argues improving data collection and dissemination would increase administration costs.[25]

22. The Energy Saving Trust (EST) can target CERT Priority Group households using data from the Department for Work and Pensions and existing information on the state of the housing stock held in its Home Energy Efficiency Database.[26] The EST argued that current regulations allow insufficient data to be accessed to enable it to provide effective advice.[27]

23. Scottish and Southern Energy noted that "different groups hold different data that is essential to achieve an effective solution; but quite clearly, this information is not co-ordinated" (see Table 1).Table 1: Data availability on energy efficiency and fuel poverty

Issue Who has data on this Who does not

Peoples' incomes Government Suppliers, Local Authorities

Housing energy efficiency Home-owners with Energy Performance Certificates Suppliers, Government, Local Authorities

Benefits data (age, disability etc) Government, Local Government Suppliers

Energy prices for each customer Suppliers Government, Local Authorities

People struggling to pay their bills Suppliers know who has defaulted, but not who is just "struggling" Government, Local Authorities

Energy efficiency measures undertaken Suppliers know some, as do eaga, but much insulation etc is done independently. Government, Local Authorities

Source: Scottish and Southern Energy[28]

24. Consumer Focus recommended a national database, to include SAP ratings and energy efficiency levels of homes, as well as other household information.[29] However some organisations, including NRFC, expressed caution about greater data sharing.[30] Dr Boardman said she would "prefer data sharing to be on the basis of the worst properties, not the poorest people".[31]

25. Those charged with tackling fuel poverty will be more effective if they have access to data on a range of variables, including energy efficiency levels of homes and household incomes and fuel costs. However data does not appear to be fully available to all those who require it. We recognise the sensitivities about the use of personal data and support the need for stringent safeguards and clear protocols on its use. However the current position is unnecessarily complicated. Coordinated action by relevant Government departments and agencies could remove some of the barriers quickly, given sufficient priority and political will. DECC should undertake, within 6 months, a comprehensive survey of data needs and current data access arrangements of agencies in both the public and private sectors working on fuel poverty issues. On the basis of this it should put in place within 12 months improvements to enable effective data sharing arrangements between and within agencies such as local councils, Government departments and energy supply companies.

26. In the longer term, an area-based approach, with households offered energy efficiency on a street by street basis, together with other advice such as benefits checks will overcome many of the problems about gathering data to target fuel poor households. DECC should assess the potential for cost savings from the reduced need to collect and share data on individuals under an area-based approach, while recognising that rolling out such an approach may require improved area profiling to ensure that assistance is prioritised for those households most in need. In addition the Government should urgently evaluate the benefits that could arise from the widespread use of infrared technology which can be quickly used to identify poorly insulated, high energy using properties on a street by street basis.

Prices

PRE-PAYMENT METERS

27. Domestic energy prices depend largely on wholesale energy prices, which in turn reflect wider factors, including international oil and energy price trends. Ofgem has powers to require the energy supply industry to minimise the impact of price rises on fuel poor customers. These include regulatory intervention to ensure the benefits of a competitive market extend to all regardless, for example, of payment method, and provision of social tariffs for those struggling to pay fuel bills. Ofgem is required to promote competition taking into account the needs and interests of all consumers, including the size of energy bills. It must also "seek to facilitate the achievement of social and environmental aims" set out by Government.[32] In February 2008, amid mounting public concern over their competitiveness, Ofgem launched an investigation to examine how the electricity and gas markets operated in respect of households and small businesses. Initial findings published in October 2008 identified domestic customers not doing as well out of competition, and imposed a ban on unfair price differentials between payment methods.[33] Ofgem told us that over £300 million of unfair premiums paid by customers had been removed.[34]

28. Ofgem has finally conceded that customers, such as pre-payment meter customers and those who cannot benefit from preferential tariffs attached to certain payment methods or dual fuel deals, have not benefited from competition as much as other customers.

29. At this stage is not yet possible to judge the full impact of the remedial measures proposed following Ofgem's probe but the regulator must be pro-active and rigorous in protecting customers' interests, particularly those on low incomes. We recommend that the new Energy and Climate Change Committee keeps Ofgem's performance in delivering an effective regulatory regime under review and that DECC reports annually to Parliament on what has been achieved.

SOCIAL TARIFFS

30. The definition of a "social tariff" is contentious. Until 2008 Ofgem defined this to be "at least as good as the suppliers' standard direct debit tariff". In July 2008 it tightened this definition to be "at least as good as the lowest tariff offered by that supplier to a customer in that region on an enduring basis", regardless of payment method.[35]

31. National Energy Action considered that mitigation of the worst effects of high energy prices was essential and that this should "take the form of an effective standard social tariff agreed between Government and energy suppliers setting out both the eligibility criteria and the terms and conditions of the tariff".[36] Similarly the Climate Change Committee suggested that social tariffs may be required to offset higher energy prices resulting from climate change mitigation policies. That Committee believed social tariffs would "simultaneously address fuel poverty effects and increase price incentives for energy saving by middle and higher income households".[37]

32. Ofgem told us that energy companies were providing £225 million in additional funding for their social programmes, on top of the £910 million announced in the Home Energy Saving Programme and on top of CERT funding.[38] By October 2008, 800,000 customer accounts benefited from a social or discounted tariff, twice the number at March 2008. As at January 2009 three suppliers were adopting the new, stricter social tariff standard (Scottish Power, Scottish and Southern Energy and E.ON UK).[39] The Energy Retail Association said that:

33. Scottish and Southern Energy offers social tariffs but argued against them being mandated as that would stifle innovation and competition. The company added that "a UK wide fixed price social tariff would be a very blunt and inflexible way of targeting support to fuel poor households, as, in times of low prices, open market prices may be more competitive than the fixed price".[41]

34. Unless a tariff is the best available 'enduring tariff' it cannot be said to be a true social tariff and should not be promoted as such. We are pleased that Ofgem has moved to clarify guidance to energy companies on this. Nevertheless there remains a need for wider dissemination of information to customers on the availability of, and eligibility criteria for, social tariffs. We recommend that Ofgem requires energy supply companies to publicise criteria determining who is eligible for their social tariff.

RISING BLOCK TARIFFS

35. Rising block tariffs raise the price of electricity or gas with increasing consumption in order to reward low energy users with lower prices and provide an incentive for those with high consumption to reduce demand. Energy supply companies recover revenue through higher charges for high energy users. However measures such as social tariffs would be needed to minimise impacts on low income people who use higher amounts of energy because, for example, of disability or because they live in energy inefficient housing.

36. The Centre for Sustainable Energy (CSE) has suggested that alternative energy tariff structures could be used to reduce domestic energy demand and raise extra revenue to fund energy efficiency investment for low income households. However, it also noted that complementary measures (over and above existing provisions) possibly through the benefit system would be needed for low income customers with high energy needs.[42]

37. Ofgem are considering rising block tariffs as incentives for energy suppliers to promote energy efficiency. The regulator cautioned that under rising block tariffs higher energy consumption due to under-occupancy or poor insulation could have "unintended consequences".[43]

38. We welcome Ofgem's work on rising block tariffs and look forward to its conclusions as to whether new forms of tariff have the potential to incentivise customers to reduce their energy usage while not adversely affecting the fuel poor.

Income measures

39. The Government has adopted many general income support measures that lie outside the scope of this inquiry. We will however examine several introduced to help meet rising household fuel bills.

COLD WEATHER PAYMENTS

40. Cold Weather Payments are intended to help cover extra heating costs in very cold weather. They are paid to those in receipt of certain benefits when average temperatures are at freezing point or below over seven consecutive days. For winter 2008-09 the payment rose to £25 and is likely to cost more than £209 million.[44]

WINTER FUEL PAYMENT (WFP)

41. The Winter Fuel Payment was introduced in 1997-08 as a one off payment, then £20 per household, to help pensioners to pay fuel bills. It is not taxable or subject to means testing. It can also be paid to residents of other EU Member States and Switzerland if the recipient was eligible for the WFP while resident in the UK. Payments are shared where there is more than one eligible person in a household.

42. The March 2008 budget benefited 9 million pensioners. It increased the Winter Fuel Payment for over 60 year olds from £200 to £250 and for over 80 year olds from £300 to £400. This level was maintained in the April 2009 Budget. In 2007 the Winter Fuel payment cost £2 billion. This rose to £2.7 billion for 2008-09.[45] This sum dwarfs the Government's expenditure on Warm Front, its key energy efficiency programme for alleviating fuel poverty, which has a budget of £395 million for the same period.

43. Most witnesses considered the WFP to be poorly targeted. Dr Boardman of the Environmental Change Institute noted that:

44. National Energy Action (NEA) said that the WFP removed only 100,000 households from fuel poverty and was an "extremely poor return for such investment".[47] NEA believed that:

45. Some witnesses argued for the extension of the WFP to non-pensioner groups. Citizens Advice argued for extending eligibility for the WFP to some people under 60 years old who had a strong need for assistance with heating costs such as "disabled people, people with a long-term illness, and households with young or disabled children".[49] Every Disabled Child Matters urged the Government to pilot a Winter Fuel Allowance of £200 to families with severely disabled children who are under five which would cost around £8.9 million annually and benefit 44,710 families.[50] Macmillan Cancer Support had asked for the Government "to extend the winter fuel payment to other vulnerable groups including cancer patients (particularly those who have undergone treatment in the last year) and the terminally ill".[51] The Commission for Rural Communities also recommended that older people in rural areas be compensated for the use of more costly alternative fuels "through a more flexible Winter Fuel Payment, reflecting relative fuel price rises, possibly through vouchers".[52]

46. Energy companies were in favour of improved targeting to enable the money to go directly towards paying fuel bills. RWE npower said that a "move from cash to vouchers would ensure it is better targeted".[53] The company argued that if the payment was paid directly against fuel bills and targeted solely at the fuel poor, this could take approximately 4 million households out of fuel poverty. Recognising that "recasting of the WFP is politically sensitive", RWE npower nonetheless believed that "if Government is committed to achieving its fuel poverty targets, this policy area must be reconsidered".^.[54] In contrast E.ON UK considered that the Winter Fuel Payment was an appropriate response. It said that the fact that the Winter Fuel Payment is "not well-targeted on tackling fuel poverty, as it does not vary with housing standard or income, is not particularly relevant". [55]

47. The level of Winter Fuel Payment was also of concern. Consumer Focus said that the 2008 Budget increase of £50/£100 "fails to recognise the real additional fuel costs faced by pensioners" and that the payment would have covered 37% of the average 60-79 year old age group's fuel bill in 2003 but price increases had now eroded this to 24%. It considered that the Winter Fuel Payment should also be extended to those households that were eligible for Cold Weather Payments (i.e. around 1.6 million people on income support premiums because of long term illness or disability or because they have young or disabled children). This would cost an estimated £320 million annually.[56]

48. The Government considered that the Winter Fuel Payment made "an important contribution to tackling fuel poverty" and was "responsible for taking around 100,000 households out of fuel poverty in England in 2006".[57] Additionally the Minister said that the Winter Fuel Payment was "much more about giving confidence to a very large swathe of the population that they have a bit of extra money and, therefore, they can keep the temperature up or increase it if they need to".[58] However the Minister agreed that the Department for Work and Pensions "could look at the Winter Fuel Payments from the point of view of whether it is justified for Higher Rate taxpayers, but that would be a decision for them".[59]

49. In the long term, funding is best focused on energy efficiency programmes since a one-off spend on income support has few long term benefits. However we recognise that at times of high prices immediate action is needed. Income support measures, if they are really for addressing fuel poverty, must be directed to help with the fuel bills of the genuinely fuel poor. In reality the greater part of the Government's spend is on Winter Fuel Payments, of which only 12% reaches the fuel poor, and potentially only a proportion of this is spent on meeting fuel bills.

50. In 2006-07 around 5.3 million pensioners paid tax. A small proportion of pensioners, are higher rate tax payers—there were 210,000 such pensioners in 2001.[60] Taxing the Winter Fuel Payment paid to higher rate taxpayers could generate around £20 million, and removing the payment from this group would raise around £50 million annually. Taxing WFP for those five million pensioners paying basic rate tax could raise £200 million a year.

51. Improved targeting of the Winter Fuel Payment is essential to redirect resources to where they are needed most. The Government should make the Winter Fuel Payment taxable and end its payment to those subject to higher rate tax. This would provide around £250 million per annum which could be used to provide a revenue stream to bring forward a programme of energy efficiency improvements for fuel poor households and other households with, for example, disabled people who have disproportionately high personal energy needs. Faster progress in improving energy efficiency would reduce pressures to increase the WFP, thus making further savings in the long term.

MAXIMISING BENEFIT TAKE-UP

52. In 2006-07 £10 billion of means-tested benefits went unclaimed.[61] A number of programmes are run by central government, local authorities and charities to encourage increased take-up of benefits by providing information on eligibility and help with claims. Increasingly benefits checks are being provided alongside energy efficiency advice through a range of organisations. EDF Energy has increased benefits by an average of more than £2,000 a year for customers assisted under its London Warm Zone initiative which offers an assessment of a household's energy needs together with a benefits health check.[62]

53. The Local Government Association (LGA) told us that councils' knowledge of the local area and relationship with households can help ensure that the support is effectively targeted.[63] Kirklees Council, in partnership with an energy supplier and Warm Front, was offering all households free insulation and other basic energy efficiency measures together with benefit entitlement checks.[64] The Warm Front programme as delivered through eaga Advice Services, which offers telephone advice on benefits eligibility and has delivered "average increases in weekly income of £23 to over 100,000 people".[65]

54. We welcome the provision of combined energy efficiency and benefits advice since this helps to deliver fuel poverty programmes effectively. The Government should evaluate how successful examples of this approach can be implemented throughout the UK.

Energy efficiency programmes

THE CARBON EMISSIONS REDUCTION TARGET (CERT)

55. CERT, known as the Energy Efficiency Commitment (EEC) from 2002 to 2008, came into effect on 1 April 2008 and was planned to run until 2011. The Government is now proposing that it be extended until December 2012. It is described by Defra as:

56. Suppliers must direct at least 40% of carbon savings to a "priority group" of low-income and elderly consumers. Under the predecessor EEC scheme, 50% of the energy saving measures had to come from a low-income priority group. Most expenditure is on low cost measures such as the issuing of free compact fluorescent light bulbs and loft or cavity wall insulation, but suppliers can promote microgeneration and other measures, such as biomass community heating and Combined Heat and Power (CHP).

57. Given that domestic properties produce around 27% of the UK's carbon dioxide emissions, climate change objectives are central to public sector and energy supplier energy efficiency programmes.[67] Fuel poverty objectives are closely intertwined.

58. The UK has adopted a challenging statutory target in the Climate Change Act 2008 of an 80% reduction in carbon emissions by 2050,[68] with at least 26% achieved by 2020 (compared to 1995 levels).[69] The Government has recently adopted the CCC recommendation for a reduction in emissions of all greenhouse gases in the UK by at least 34% in 2020 relative to 1990 levels (21% relative to 2005). This target could be increased to 42% relative to 1990 (31% relative to 2005) if a global deal to reduce emissions is achieved.[70]

59. While recognising that fuel poverty and tackling emissions can be tackled in conjunction, many witnesses felt that policies needed to be separated to give fuel poverty objectives sufficient weight. The Fuel Poverty Advisory Group said:

60. A number of energy supply companies including RWE npower and EDF Energy advocated separate objectives designed to tackle fuel poverty from those related to carbon reduction in order to ensure an optimal out-turn for relevant programmes.[72] However Ofgem expressed concern that a split obligation might lead to a group of people who did not fit the criteria receiving support although they struggled to pay fuel bills.[73]

61. DECC recognised that most interested parties supported separating out the social and environmental elements. However its policies will now build on the new Community Energy Saving Programme which will "focus on low income communities",[74] and that CERT's priority group approach "does not necessarily represent the optimal approach to tackling fuel poverty".[75]

62. Although the Government recognises that their proposals for improving domestic energy efficiency "will tend to have an upwards effect on energy prices in the long term", they believe that they will not conflict with objectives to tackle fuel poverty. The Community Energy Saving Programme is focussed on improving the energy efficiency of homes "of those in the most disadvantaged areas and cutting bills for those who need it most".[76]

63. The Government has said that the likely impact of a measures-based Supplier Obligation on average domestic gas bills in 2020 would be to raise prices by £37, although this could be offset by savings of £64 from reducing a customer's demand, leading to a net reduction of £27, or 4%.[77] The impact on electricity bills would mirror this with average price rises of £37, offset by potential savings of £70 leading to a net reduction of £32, or 9%.[78]

64. CERT is intended to be a carbon emissions reduction programme rather than a vehicle for tackling fuel poverty. Although CERT targets must be delivered in part through a low income "priority group", fuel poor households account for a small proportion of this group. Although we believe the Government should fund programmes to tackle fuel poverty, fuel poor customers must also be able to benefit as much as better off customers from climate change mitigation programmes such as CERT. Programmes to tackle fuel poverty should be additional to, not substitutes for, climate change mitigation programmes. Energy supply companies must continue to make their schemes available to all customers.

DELIVERY OF CERT

65. CERT's ability to deliver sufficient help to those in solid wall properties or living in homes with no mains gas supply has been criticised. The Parliamentary Warm Homes Group noted that, as a commercially driven scheme, CERT led to "many households in need of help" missing out.[79] It has also been argued that CERT's scoring system enables energy companies to discharge their obligations at low cost, for example through distributing energy saving lightbulbs, without regard to the impact of the measures.

66. The Government's consultation on Amendments to the Carbon Emissions Reduction Target covers a wide range of CERT issues with, for example, proposals for incentives for increasing the depth of loft insulation. It also proposes to give suppliers credit for behavioural measures including provision of advice and real time display devices.[80]

67. We are concerned that the current CERT scheme appears to allow measures to be counted against suppliers' targets where the actual benefits are not quantified. Simply supplying customers with energy saving lightbulbs and real time display units will not achieve the maximum notional emissions savings, or cost savings to customers. The amendments to CERT must ensure that measures achieve actual reductions in energy usage and that the impact of measures such as real time display devices and advice provision are assessed by the Department of Energy and Climate Change.

SMART METERS

68. Smart meters can be read remotely and provide customers and suppliers with detailed information on their energy usage and costs, as well as potentially providing greater choice in energy tariffs and services.[81] The Government has endorsed the roll-out of smart meters to all domestic customers by 2020.[82] DECC considered that fuel poor households could benefit from smart metering and indications were that there would be a "net benefit" to consumers. It noted smart meters might bring further benefits by reducing the higher service costs associated with pre-payment meters.[83]

69. The energy supply industry welcomed the Government's announcement of a roll-out of smart meters to all households and highlighted the benefits the technology can bring to customers through, for example, removing the distinction between types of electricity meters for customers paying by credit or debit, enabling the introduction of new tariffs that encourage lower usage of energy at peak periods and enabling customers to sell any electricity they generate back to their suppliers more easily.[84]

70. FPAG said that "smart meters will be significant in facilitating the effective use of microgeneration technology through their ability to display information to customers and also enable innovation for Suppliers".[85] The National Right to Fuel Campaign also supported the roll-out of smart meters but had "considerable reservations about the safeguards which would be needed to ensure that they do not only benefit the suppliers".[86] NEA had "questions over the cost and benefits of the technology and the inevitable pass through of capital costs to consumers who cannot afford this and may see no benefit". NEA was also concerned that "smart metering will result in rationing rather than in beneficial reduction in consumption".[87]

71. The Energy Saving Trust (EST) supported the roll-out of smart meters due to the innovative approaches to tariffs that they would open up. However it cautioned that "care will be needed to ensure that vulnerable households are put on appropriate tariffs" and that "costs to consumers can be minimised through ensuring unnecessary specifications of smart meter functionality are avoided".[88]

Smart meter delivery model

72. The Government is consulting on possible models for the delivery of the smart meter programme—options include a "Central Communications" model with the supplier responsible for installing and maintaining meters but a central clearing house to manage data interfaces, and a "Regional Franchise" model whereby all metering activity would be centralised via a Government mandate. Different energy companies had different views on the best model. For example, Centrica favoured a central communications model,[89] while RWE npower preferred a Regional Franchise model. The company called for "clear and unambiguous direction" with the "regulator playing a key role".[90]

73. Parallels can be drawn between this initiative and major infrastructure programmes such as the conversion of the UK to North Sea gas in the late 1960s and 1970s. Between 1968 and 1976 some 13 million properties and over 40 million appliances were converted from town gas to the new fuel under a coordinated campaign requiring engineers to enter homes of all 13 million gas customers, area by area. In Italy, over 27 million customers were provided with high specification smart meters over a five year period from 2000 to 2005 by Enel SpA, the dominant utility, in partnership with Capgemini. The system provides a wide range of advanced features, including the ability to read usage information from a meter and remotely change the meter's billing plan from credit to prepay as well as from flat-rate to multi-tariff. The estimated cost of the programme was around €2.1 billion with a pay-back period of four years based on an estimated €500 million per year savings.

74. We support the Government's intention to require the energy supply industry to install smart meters. Although ultimately the consumer will fund this initiative, we believe it could help the fuel poor in helping them modify their usage patterns to their advantage.

75. However, we believe that the 2020 target is unambitious. The Government must decide urgently on the roll-out model for the programme so that the industry can move ahead as fast as possible. Customers also need to be given clear information on the costs and benefits of smart meters, including advice on how they can use them to monitor and adjust their own energy usage and costs.

WARM FRONT

76. Warm Front is the Government's "main tool for eradicating fuel poverty in England" (with equivalent programmes in the devolved administrations).[91] It is a grant-funded scheme, launched in June 2000 originally as the Home Energy Efficiency Scheme. It funds the installation of energy efficiency measures in vulnerable private sector households.

77. Several organisations expressed concern about Warm Front, in particular the level of funding available to it. Expenditure in 2008-11 was set to be 25% lower than in 2007-08. Although additional funding of £74 million and £100 million announced in September and November 2008,[92] redressed the shortfall for the years 2008-10, funding for 2010-11 is set to be some 40% lower at £200 million. FPAG had expressed concern for several years about the potential shortfall and has advised that the 2007-08 level needed "at least to be maintained for the next ten years to meet the targets".[93]

78. The National Audit Office's (NAO) report on Warm Front published in February 2009 concluded that "delivery of the Scheme has been largely effective and to that extent offers value for money, but it has been impaired by problems in the Scheme design".[94] It noted that "the use of proxy measures, such as benefit entitlement, to determine who is eligible for scheme grants has resulted in inefficient targeting of resources".[95] It states that "57% of vulnerable households in fuel poverty do not claim the relevant benefits to qualify for the Scheme" and that "75% of households who would qualify [for Warm Front grants] were not necessarily in fuel poverty".[96] It also concludes that some £34 million in grants were made to households whose properties were already comparatively energy efficient. To improve targeting it recommends that DECC improves "the way it assesses eligibility for the Scheme, so that the most vulnerable households are the first to receive the assistance they need."[97]

79. The NAO expressed concern about the contribution customers are required to pay above the grant maximum and noted that "more applicants (around 25% in 2007-08) are having to contribute towards the cost of the work carried out".[98]

80. Macmillan Cancer Support said that energy efficiency schemes could still leave measures unaffordable for some customers.[99] Consumer Focus said that 20% of all Warm Front clients, and 80% of Warm Front clients having heating measures installed, were asked to contribute to the costs of measures and this meant that "many households do not benefit from Warm Front as they cannot afford to meet the extra charges". It concluded that "the maximum value of the Warm Front grant is therefore not adequate for meeting a large number of Warm Front clients' needs".[100] Consumer Focus also noted that the Warm Front target of increasing home SAP ratings to 65 was met in only 40% of cases.[101]

81. The Minister recognised that "there are people who are unable to take advantage of the measures because they cannot make the top-up",[102] but that increasing the grant would, "within the same pot of money, reduce the number of people that can be assisted".[103] In April 2009, after we had finished taking evidence, she announced an increase in the grant maximum from £2,700 to £3,500, with a grant maximum of £6,000 introduced for harder to treat properties off the gas grid. She also announced expansion of the scheme to include the installation of low carbon technologies such as solar thermal heating and air source heat pumps.[104] In response to concerns about bureaucracy from a centrally managed scheme, DECC officials told us that subcontracts from eaga were let on a regional basis three years ago and that would have been an opportunity for "local contractors who say they can do the job cheaper to say: 'I would like to be a part of this'".[105] The NAO recommended that DECC commission the scheme quality assurance assessors to "examine whether for more expensive measures such as oil, Scheme rules could be revised to enable households to seek, if they wish, quotations from other accredited companies in the area, without undermining security of customers".[106]

82. It is clear that the grant maximum for Warm Front has historically been set too low which has deterred a significant number of applicants from taking up the support available under the scheme. We therefore welcome the recent increase in the grant maxima, however the £6,000 maximum applies only to hard-to-treat properties that are off the gas grid. We recommend that it should be extended to all hard-to-treat properties but this could lead to fewer people benefiting unless overall funding for Warm Front is increased. We therefore recommend that DECC reviews overall funding levels and assesses in 12 months' time whether the levels have been increased sufficiently to fully deal with the problem that puts people off Warm Front help, namely grant levels that did not cover all the costs associated with installing a new high efficiency heating system.

83. We support the expansion of Warm Front to include the installation of low carbon technologies aimed at the difficult to reach households. The Government must ensure that the results of the small-scale pilot programmes are evaluated promptly in order to allow full national roll-out at the earliest opportunity.

84. Age Concern told us that their research had uncovered "lengthy delays" in carrying out work which left "some older people without heating and hot water during the winter".[107] The NAO report concluded that "scheme satisfaction is high, with 86% of households assisted by the Scheme satisfied with the quality of the work done, and 5% dissatisfied. Where customer concerns were raised, they were around common themes such as installation, customer contributions and delays".[108] Although installation work was done well within target timescales, the typical 64 working days from decision to proceed to installing a central heating system (or 27 working days for installing insulation) was still "a long period of time for vulnerable households to wait for their work to be done".[109]

85. We recommend that the Government considers whether the target timescales for completion of work under the Warm Front scheme should be reduced to ensure that vulnerable households are not left without heating during winter months. It should also review the scheme's performance against the target of achieving SAP 65 levels and ensure that only measures that achieve this target are deployed. Measures to meet a higher SAP rating should be encouraged.

86. We urge the Government to ensure that the cost of bureaucracy is minimised and that the Minister's review include a re-assessment of Warm Front scheme rules to allow the use of local contractors where doing so can improve value for money.

87. As eaga operates a monopoly in the provision of Warm Front service, customers have no choice but to use the contractors it specifies. The Government must ensure that eaga investigates all complaints and puts in place measures to address any consistently identified problems.

DECENT HOMES STANDARD

88. First proposed in the Housing Green Paper in 2000,[110] this is the main programme for tackling fuel poverty in the social sector (which hosts around 15% of fuel poor households). Under a Public Service Agreement (PSA) target to meet the Decent Homes Standard all social housing[111] and parts of the private housing market in England must, by 2010:

i. meet the current minimum standard for housing;

ii. be in a "reasonable" state of repair;

iii. have reasonably modern facilities and services;

iv. have a "reasonable" degree of thermal comfort.

89. The thermal comfort standard clearly impacts on fuel poverty. In 2006 there were 7.7 million non-decent homes of which 6.6 million were in the private sector with 1.1 million in the social sector.

The Standard Assessment Procedure (SAP)

SAP is the Government's defined methodology for rating the energy efficiency of a dwelling. It is used to demonstrate compliance with requirements for dwellings as set out in Part L of the Building Regulations published in 2006.[112]
SAP rating is based on the energy costs for space and water heating on a scale of 1 to 100, with a higher rating indicating a better level of energy efficiency.
The average SAP rating for the UK's housing stock in 2005 was 48.1, when 10.2% of dwellings rating less than 30 and 21.6% rating better than 60.
After significant growth in SAP rating over the last 15 years, the social sector has the highest rating with a mean SAP of 57 in 2005 compared to the private sector mean SAP rating of 46. The English House Condition Survey 2006 found fewer than 8% had a SAP rating of 69 or higher.[113]

90. Applying the Decent Homes standard has halved the number of homes in the social sector that provide inadequate thermal comfort. The average SAP rating for social housing rose ten points between 1996 and 2006 to SAP 57. This is compared to a rise in SAP of five points to SAP 47 in the private sector, which represents 80% of housing. Almost all social sector housing (97%) has a SAP rating of more than 30.[114] The Government told us that spending on energy efficiency under the Decent Homes standard would be £2 billion over the three years 2008-11,[115] and that it expected 95% of the social housing stock to be "decent" by 2010.[116] The Energy Saving Trust noted that the gains made through the Decent Homes programme were "significant" but said that its replacement should go "much further" and deliver "standards of refurbishment more in line with what is possible with existing technologies".[117]

91. National Energy Action said that the thermal comfort element of Decent Homes was "from the outset pitifully inadequate to provide affordable warmth although the willingness of social landlords to voluntarily adopt much more rigorous standards has led to the social rented sector being considerably more energy efficient than other tenures".[118] It said that "once the Decent Homes standard has been fully implemented in social housing[…] it will be necessary to move on to Decent Homes Plus with much more demanding energy efficiency targets being set for all of the housing stock".[119] The ODPM: Housing, Planning, Local Government and the Regions Committee recommended as long ago as April 2004 that a "Decent Homes Plus" target should be set with a "much more ambitious thermal comfort criterion which is in line with building regulations in force at the time when the new Standard is set".[120]

92. Dr Boardman of the Environmental Change Institute believed that the Decent Homes Plus Standard should be SAP 81.[121] However, the Minister told us that "there are only an estimated 30,000 homes in England (across all tenures) with a SAP 81 rating […] therefore in my view, the attainment of SAP 81 for existing housing stock is not a practical proposition and no calculation has been made of the estimated cost of achieving this for the social housing sector has been made".[122] Kirklees Council told us that after Decent Homes investment it had achieved an average SAP of social stock of 75.[123]In 2003 the average SAP for Kirklees' social housing was 45, but by April 2009 it was expected to be SAP 77, principally through a programme of new and replacement gas central heating, largely funded by £34 million from the Decent Homes programme, external cladding for non-traditional build properties, loft insulation top ups and double glazing installation.[124]Kirklees Council also installed renewable energy systems such as thermal and air source heat pumps at a cost of around £1.5 million with a budget of £13.9 million approved in December 2008 for additional renewable systems.[125]

93. The Government told us it had not "taken any decisions about work following on from the Decent Homes programme".[126] It was undertaking a review of the financing of council housing and was considering the issue of costs and standards for council housing to help inform any decision about a capital investment programme following on from Decent Homes. The April 2009 Budget statement included an announcement of £100 million to improve insulation in 150,000 social homes.[127]

94. Decent Homes has clearly been an effective vehicle for raising standards in social housing. However, the low level of requirements set for thermal comfort means that significant scope remains for improvement in energy efficiency levels. It is clear that the social sector leads the way in improving SAP ratings, but, given the likelihood of many social tenants being on low incomes, it is important to maintain progress and for future investment programmes to prioritise the improvement of energy efficiency levels.

95. We are disappointed that the Government has not, to date, undertaken an assessment of the costs for achieving higher SAP rates for social housing. We recommend that the Department of Energy and Climate Change works with the Department for Communities and Local Government to ensure that an appropriate thermal comfort level is included explicitly as an outcome from the capital investment programme following on from the Decent Homes programme. We do not accept assertions that it is not practical to achieve a SAP 81 level. We recognise that higher SAP levels will not be feasible for all types of construction but that does not mean that policy should set targets at the levels achievable for poorer housing stock. We recommend that Government assesses the cost and feasibility of introducing a SAP 81 standard as the basis of an improved thermal comfort level for all social housing. If this is declared impractical the corollary is the climate change targets are also likely to be impractical.

HOUSING HEALTH AND SAFETY RATING SYSTEM

96. The Housing Health and Safety Rating System (HHSRS) was introduced by the Housing Act 2004 and applies to all residential premises whether owner-occupied or rented. From April 2006 this required local authorities to take action on Category 1 hazards. A very low level of thermal comfort is defined as a Category 1 hazard.[128] In 2006 4.7 million homes (22% of all homes) had one or more Category 1 hazards—and one of the two most common hazards was excess cold.[129]

97. Research undertaken by the Housing, Health and Safety Rating System Taskgroup of the Energy Efficiency Partnership for Homes showed that "most Local Authorities are failing to use HHSRS effectively to tackle excess cold" and that most have not "even considered the links between fuel poverty and the use of HHSRS powers".[130] The Parliamentary Warm Homes Group recommended careful monitoring to ensure that "HHSRS enforcement action is actually being taken when problems are identified" and that outcomes were also monitored to "ensure that high energy efficiency standards are actually being delivered".[131] The Energy Saving Trust supported increased use of HHSRS powers but noted that this would require "local authority enforcement officers to be better resourced and trained than at present".[132]

98. DECC told us that the HHSRS is an enforcement tool to address serious risks for the most vulnerable households rather than a scheme to "improve the rented sector as a whole". It said that the Department for Communities and Local Government was "intending to commission an evaluation of how the HHSRS is working".[133]

99. In the private rented sector there is a 'split incentive' for taking action on energy efficiency, because the landlord bears the costs of installing measures but the tenant reaps the benefit of reduced energy bills. As a result there is a need for stronger regulatory forces to encourage action in this sector. We are therefore concerned that one of the levers that is available, HHSRS enforcement action, is not being pursued as vigorously as it could be.

100. We recommend that the Government urgently reviews the extent to which local authorities use their powers under the Housing Health and Safety Rating System to tackle excess cold. We further recommend that guidelines are issued in the next six months to all local authorities with housing responsibilities highlighting the importance of using HHSRS provisions to ensure fuel poverty levels in the private rented sector are reduced.

Hard to treat properties

101. There are higher levels of fuel poverty among those living in hard to treat properties,[134] which are usually defined as those with solid walls or off the gas grid.[135] Seven million properties in the UK have solid walls, and approximately 4.5 million properties are not connected to the gas network.[136]

102. NEA noted that the cost of conventional non-mains fuels "can be exorbitant: space and water heating costs using kerosene or LPG are respectively 60% and 100% higher than those for mains gas".[137] The Federation of Petroleum Suppliers raised concerns about the impact of high oil prices which meant that "the numbers of fuel poor have increased to a level" whereby distributors of fuel oil could no longer ensure that vulnerable customers were not "left totally without fuel".[138]

103. NEA told us that as energy efficiency programmes have tended to concentrate on the most cost-effective measures such as loft and cavity-wall insulation which means that the "economic and environmental case for this prioritisation has won out over the social case to the detriment of those, often rural, households whose dwellings often lack a cavity to insulate and who rely on disproportionately expensive heating fuels".[139] NEA recognised that there might be a "case for some modest extension of the mains gas network".[140]

104. Consumer Focus also noted that, despite the Government's intention to explore gas extension and renewable energy technologies for hard to treat properties, "seven years on we have seen very limited action on both".[141] eaga estimated that around 13,000 heat pumps (air and ground source) will need to be installed per year in order to meet the 2016 target. The Government estimates that under CERT 4,700 heat pumps will be installed each year.[142]

105. The Micropower Council referred to the retrofitting of ground source heat pumps by Penwith Housing Association in Cornwall in 2004 as an example where microgeneration[143] "has helped the fuel poor overcome their difficulties".[144] The Commission for Rural Communities said that although 25% of those in fuel poverty live in rural areas, just 10% of Warm Front grants are given to people in rural areas and that "up to 250,000 rural residents are not claiming pension credit, a key eligibility criterion for Warm Front grants".[145]

106. The Minister recognised that "we have to have regard to the one-third of properties which are hard to treat, which are really not being dealt with to any degree in the current scheme" and that "we have to change quite a lot in the future".[146] DECC was investigating ground source heat pumps, air source heat pumps and thermal solar and had established a pilot scheme under Warm Front.[147]

107. CERT's emphasis on cavity wall and loft insulation has been ineffective in helping those living in solid wall properties. We recommend that the Government establish how new technologies, such as air source heat pumps, can be deployed for hard to treat homes. We further recommend that the Government develop a financing model to enable fuel poor households to take advantage of such technologies. There is greater potential for fuel poor households to benefit from community scale schemes.

108. Local authorities should be required to survey their areas and identify opportunities to retro-fit microgeneration systems in both its housing and business sector. The Department for Communities and Local Government should evaluate the implications for all new housing developments over 50 units in size being required to install a district heating system.

New homes

109. Building regulations were tightened in England and Wales in 2002 and again in 2005-06, raising energy efficiency standards for new homes by 40% over those built before 2002 and by 70% for those built before 1990.

110. The Government's Code for Sustainable Homes uses a one to six star rating system to grade the overall sustainability of a new home, including minimum standards for energy and water use at each level. The Code was made mandatory from 1 May 2008.[148] By 2010 new homes will have to meet a three-star rating in energy use (equating to a 25% reduction in carbon emissions from 2006 Building Regulations levels), by 2013 a four-star rating (equating to a 44% cut), and by 2016 a six-star rating (equating to the zero carbon standard).

111. Some witnesses were concerned that there would be less than 100% compliance with the tightened Building Regulations requirements on energy efficiency (Part L).[149] The Chief Executive of the Energy Saving Trust was quoted as saying that "the Government's sustainable buildings code—which sets gradually tightening limits on carbon dioxide emissions from new properties—was not being adequately enforced".[150] The Government is piloting a survey of the implementation of the relevant building regulations and DECC told us that the findings of that project were "promising, with improved levels of air-tightness compared to earlier surveys".[151]

112. We welcome the planned ratchetting up of energy efficiency requirements under Building Regulations aligned to the levels of the Code for Sustainable Homes, but we have concerns about the extent to which these are being enforced in practice. The Department for Communities and Local Government pilot scheme to review this is welcome but the lessons from this need to be disseminated nationally to those responsible for building control functions. The Department should issue guidance to local authorities and other building control bodies urgently reiterating the need for rigorous enforcement of energy efficiency requirements.

Future proposals for energy efficiency programmes—Heat and Energy Saving Strategy Consultation

113. In February 2009, after we had finished taking evidence, DECC and the Department for Communities and Local Government launched a consultation on the Government's Heat and Energy Saving Strategy (HESS),[152] together with two associated consultations on the extension of the CERT obligation,[153] and the operation of the Community Energy Saving Programme (CESP).[154]

114. CESP was announced in September 2008 as part of a package of measures to help home owners with fuel bills. CESP is funded by energy suppliers and electricity generators. It will support partnerships including, but not limited to, local councils and community-based organisations, voluntary organisations and energy companies to go street by street through communities offering free and discounted central heating, energy efficiency measures and benefit checks. Areas with higher levels of deprivation will be selected for delivery of measures for both vulnerable households and those in the able-to-pay sector.

115. CESP builds on the Community Energy Efficiency Fund (CEEF) which was introduced in the 2006 Pre-Budget Report. This £7.5 million programme took an "area based approach" to direct advice and measures to 300,000 of the "most vulnerable pensioner and other vulnerable households" to help them "feel warmer and more comfortable". It funded 50 projects across England with a budget of £6.3 million up to March 2008.[155]

116. Under the HESS there is an aim for emissions from existing buildings to be approaching zero by 2050 and it is proposed that by 2030 all homes should get a "whole house" package including all cost-effective energy saving measures, plus renewable heat and electricity measures "as appropriate". It also proposed that "all loft and cavity walls will be insulated where practical by 2015",[156] as part of a radical shift in ambition and a comprehensive national plan that the Secretary of State for Energy and Climate Change, Ed Miliband, described as "the Great British refurb".[157]

117. The consultation also addressed the key issue of the future of obligations on the energy supply industry, proposing to extend CERT to the end of 2012, but asked whether a new delivery model is needed to coordinate the roll out of improvements "house-by-house and street-by-street". It suggested that the new Community Energy Saving Programme, by focusing on low-income communities, would help to ensure that more energy saving measures are installed in houses that are likely to be in the priority group".[158] Additionally the document looked at how to encourage district heating and Combined Heat and Power (CHP), including ways to provide financial support for householders keen to invest in energy efficiency or renewable technologies.

118. The Government has ruled out the replacement of the CERT measures-based approach with a cap and trade scheme because this "runs the risk of suppliers using fuel prices as a means of reducing demand, only installing measures where they could do so profitably".[159] It has assessed the price impact of this approach as an increase in consumer bills of between £128 and £2095 by 2020, with a central assumption of £299, compared to a measures-based model (such as CERT) which would increase consumer bills by between £66 and £104 by 2020.[160]

119. To date energy efficiency programmes have not reduced levels of fuel poverty enough to meet the Government's targets. This reflects in part the lack of separately identified policy goals for fuel poverty reduction within energy efficiency programmes. We are concerned that the sublimation of fuel poverty objectives within the climate change mitigation led aims of energy efficiency programmes has led to a lack of focus on achieving the maximum benefit from expenditure on such programmes for the fuel poor. The latest consultation documents reinforce this view since fuel poverty is addressed as a side-issue rather than being interwoven into all policies.

120. Despite laudable long-term aims, the consultation documents contain little practical detail and postpone definitive proposals, pending further consultations, summits and the establishment of a Heat Markets Forum. This will only delay the so-called "Great British refurb" and its programme of energy saving measures. We find this surprising given the plethora of previous consultations and calls for evidence, including on metering and billing, the renewable heat incentive and the household energy supplier obligation post-2011. The 2015 target for the insulation of lofts and cavity walls lacks ambition in terms of fuel poverty and meeting the climate change target. We are also extremely concerned at the lack of progress on many of the recommendations we made in our report on Climate change: the "citizen's agenda" in 2007.[161]

121. Given the urgency of the issue, and given that the technologies and techniques to achieve high home energy efficiency are now well known, DECC should have set out a detailed action plan on how to deliver domestic energy efficiency (reflecting both climate change and fuel poverty objectives) within its consultation on the Heat and Energy Saving Strategy. The Government should now curtail its consultation process and in the next three months should produce a detailed action plan for home energy efficiency sufficient to achieve its fuel poverty objectives.

25 Ev 73 Back

26 HC (2007-08) 1099, Ev 113 Back

27 Ibid Back

28 HC (2007-08) 1099, Ev 54 Back

29 Q 294 Back

30 HC (2007-08) 1099, Ev 39 Back

31 Q 38 Back

32 Department of Trade and Industry, Social and Environmental Guidance to the Gas and Electricity Markets Authority", February 2004. Back

33 Ofgem, Energy supply probe; Initial findings report, October 2008. www.ofgem.gov.uk/markets Back

34 Ev 50 Back

35 Ofgem, Monitoring Suppliers' Social Initiatives, p 7, July 2008. Back

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