Memorandum submitted by the British Electrotechnical
Allied Manufacturers Association (BEAMA) (01)
INTRODUCTION
1. The Government is committed to tackling
fuel poverty and doing everything reasonably practicable to achieve
our targets. Action to tackle fuel poverty is carried out by a
range of Government departments and co-ordinated by DECC. There
is a range of programmes and measures which help address the three
variables that have an effect on the number of people in fuel
poverty, not all of which are within the Government's control.
These factors are:
— The cost of fuel (determined by energy
prices);
— The ability of the household to afford
the necessary fuel (determined by household income); and
— The amount of fuel needed to heat a property
(determined by the efficiency of the property).
2. Whether or not a particular household
is in fuel poverty will depend upon the interaction of these factors
at any given point and households may move in and out of fuel
poverty at different times. This is known as "churn"—ie
some of those who are not currently fuel poor may become fuel
poor and vice versa due to changing household circumstances.
The definition of households in fuel poverty commonly
used—ie, those households where more than 10% of income
has to be spent on fuel for adequate heating
3. The Warm Homes and Energy Conservation
Act 2000 (WHECA) defines that a person is to be regarded
as living in fuel poverty if he is a member of a household living
on a lower income in a home which cannot be kept warm at reasonable
cost. The Fuel Poverty Strategy[1]
published in November 2001 identifies fuel poor households
as those that need to spend more than 10% of income on fuel to
maintain a satisfactory heating regime (usually 21 degrees
for the main living area, and 18 degrees for other occupied
rooms). Reporting in this way reflects the three drivers of fuel
poverty. Two different classifications of income are used to calculate
two different fuel poverty ratios. The official headline figure
uses the full income definition, whilst the basic income definition
is also produced.[2]
PROGRESS AGAINST
GOVERNMENT TARGETS
4. The aim of the UK Government and the
Devolved Administrations remains the eradication of fuel poverty
as far as reasonably practicable, as detailed in the Fuel Poverty
Strategy; a commitment reaffirmed through measures set out in
the 2003 and 2007 Energy White Papers and subsequent
documents including the Low Carbon Transition Plan[3]
(LCTP) published by DECC in July 2009. In England,[4]
the two targets that Government has committed itself to were included
in the 2002 revision to the Fuel Poverty Strategy;
— In England, the Government as far as
reasonably practicable will seek an end to fuel poverty for vulnerable
households[5]
by 2010; and
— Fuel poverty in other households in England
will, as far as reasonably practicable, also be tackled as progress
is made on those groups, with a target that by 22 November
2016 no person in England should have to live in fuel poverty.
5. Measuring fuel poverty on a UK wide basis
is complex as figures are estimated on a country by country basis
to different timescales and slightly different definitions. The
latest estimates[6]
indicate that in 2007 (the last year that statistics are
available), there were approximately four million households in
fuel poverty in the UK. This represents an increase of around
two million households since 2004, or half a million since 2006.
Around 3.25 million of these were vulnerable households,
an increase of around half a million since 2006. The increase
reflects the impact of energy price rises in recent years on the
number of households in fuel poverty.
6. The overall number of households in fuel
poverty in England in 2007 was estimated to be 2.8 million
(around 13% of all households) of which 2.3 million were
vulnerable. This represents a rise of around 0.3 million
households since 2006 and a rise of around 0.3 million
vulnerable households over the same period.
7. The Government remains committed to tackling
fuel poverty and since 2000 over £25 billion has
been spent on various programmes and benefits including Warm Front
(which as assisted over two million households in that time),
the Decent Homes programme and Winter Fuel Payments. The Government
estimates that without this package of measures, the number of
fuel poor households would have been around 400,000-800,000 higher
in England in 2008.
8. The Government has also obtained significant
additional resource from energy suppliers through the Carbon Emissions
Reduction Target (CERT) and its predecessor scheme to fund further
energy efficiency measures. Between 2002 and 2011, CERT is
expected to have levered in up to £2.7 billion energy
supplier investment in energy efficiency measures to a priority
group of low income and vulnerable households.
9. The Government is currently consulting
on an extension to CERT to December 2012[7]
which proposes to increase the carbon saving target on energy
suppliers, increasing the amount of assistance to the Priority
Group.[8]
It also proposes to increase the balance of investment towards
the most vulnerable Priority Group households who can least afford
to pay for measures (the central proposals would see an approximate
£1.3 billion additional energy supplier investment in
the Priority Group by December 2012).
10. The Government has also reached voluntary
agreements with energy suppliers to increase their social assistance
programs to reduce energy prices for vulnerable households to
March 2011. They agreed to collectively spend at least £100 million
in 2008-09, £125 million in 2009-10 and £150 million
in 2010-11 on their support measures. Ofgem estimated in
March 2009 that around 1 million customer accounts were
benefitting from some form of social or discounted tariff. All
of this support has been an important part of the action taken
to tackle fuel poverty.
11. When the UK's Fuel Poverty Strategy
was launched in 2001, our policies and stable energy prices meant
that good progress was made in reducing the number of households
in fuel poverty. However, significant price rises since 2004 and
the current economic climate have seen the downward trend in fuel
poverty numbers reverse in recent years. As such, it is recognised
that some vulnerable households will remain in fuel poverty in
2010.
12. The Government has regularly re-assessed
what can and should be done in this area in the light of the cost-effectiveness
of potential measures and the resources available to the relevant
departments and considers that it is currently doing all that
is reasonably practicable to seek to end fuel poverty, both in
vulnerable and non vulnerable households.
13. In addition to the proposed CERT extension
and mandatory price support (which directly resulted from an ongoing
review of fuel poverty policy and delivery), last July's Low Carbon
Transition Plan (LCTP) included further details of other Government
initiatives. These include working with energy companies, local
communities and other interested parties to deliver £350 million
worth of energy efficiency measures through the new Community
Energy Saving Programme (CESP) using a street by street approach
focused on low income areas, that was launched last September.
14. The Government is considering how future
arrangements for delivering energy efficiency measures to households
could continue to support the fuel poor alongside other households
as the Government's proposals for Heat and Energy Management post
2012 are developed. The publication of the Household Energy
Management (HEM) strategy is expected in the next few weeks.
15. The Government continues to work with
Ofgem and energy companies in order to ensure that consumers,
particularly vulnerable households are given a fair deal. Most
recently Ofgem has developed rules to ensure that consumers should
not suffer unjustified disadvantages because of their payment
method. As a result the average tariff differentials for Pre-Payment
Meter (PPM) customers now reflect cost differences. They have
also developed measures to make it easier for all consumers to
switch energy supplier and take advantage of the retail market.
16. The Government has announced that smart
meters will be provided to all households, and has given an indicative
timetable of the end of 2020 for this roll-out to be completed.
These meters will reduce the costs of prepayment. We also anticipate
that suppliers will introduce innovative pay-as-you-go offers
around these new meters.
THE METHODS
USED TO
TARGET ASSISTANCE
AT HOUSEHOLDS
WHICH NEED
IT MOST
17. A key challenge in addressing fuel poverty
is being able to identify and target support effectively at fuel
poor households (and also those at risk of becoming a fuel poor
household through a change in circumstances).
18. Targeting the fuel poor is difficult,
no method is entirely precise. Perfect targeting would require
real time information on a households make-up, income, energy
efficiency and energy prices, for all of the housing stock. There
are a suite of policies and measures that are rightly used to
target the various householder situations which result in fuel
poverty.
19. However, Government does consider that
as the majority of the fuel poor are on the lowest incomes,[9]
an accessible and efficient method of identifying and targeting
vulnerable householders most likely to be at risk of fuel poverty
is through the receipt of means tested benefits.
20. Government is already looking to improve
the targeting of existing policies, and developing new schemes
which focus on low income vulnerable households. As part of a
current CERT consultation, the Government is proposing a new "super"
Priority Group, to increase the assistance available to households
with a high propensity to be in fuel poverty. This would mandate
that a proportion of the future Priority Group activity be offered
to poorer vulnerable households (for example, recipients of Pension
Credit and possibly of Child Tax Credit at existing or lower income
thresholds). CESP targets energy efficiency support to specified
areas of low income (lowest 10% in England and 15% in Scotland
and Wales) and thus where there is likely to be a high density
of fuel poor households.
21. Government is developing data sharing
arrangements between Government and energy suppliers for Pension
Credit recipients to support mandatory social price support (see
next section for further details). A pilot data matching exercise
is planned for later this year. Subject to successful testing
of data processes and systems, the pilot will aim to give a rebate
for electricity bill payers over 70 who are in receipt of
Pension Credit guarantee only. This pilot will inform the development
of the mandated scheme, as well as future mechanisms to further
improve identification and targeting of assistance to vulnerable
households.
22. Some households can also qualify for
assistance from these and other schemes[10]
through receipt of certain non means-tested benefits, such as
Disability Living Allowance and Attendance Allowance as it is
considered that such applicants were likely to be vulnerable to
cold-related ill health.
SOCIAL TARIFFS
AND PLANS
TO PUT
SOCIAL PRICE
SUPPORT ON
A STATUTORY
FOOTING
23. As set out in the LCTP, the Government
has committed to mandating social price support when the existing
voluntary agreement with suppliers ends in 2011. Draft legislation
to enable this was introduced to Parliament as part of the Energy
Bill in November 2009 and completed Commons Committee in
January 2010.
24. The Government also made it clear that
it would require suppliers to increase the amount they make available
to support vulnerable and low income customers. The 2009 Pre-Budget
Report announced that, subject to the successful passage of the
Energy Bill, energy suppliers will collectively be required to
make available at least £300 million per annum by 2013-14 for
mandatory social price support. This is double the agreed level
in the final year of the voluntary agreement, and would mean more
of the most vulnerable households would receive assistance with
their energy bills.
25. The LCTP proposed that the new statutory
framework for social price support should include greater guidance
and direction from Government on the types of households eligible
for future support, and how that support should be offered. This
proposal was partly in response to feedback from suppliers, who
had asked Government for greater help in identifying and verifying
the most vulnerable, and from consumer groups who felt that the
array of offerings under the voluntary agreement was often too
complex for consumers.
26. We are considering the best way of targeting
any social price support at the most vulnerable consumers post
2011. A key part of these considerations will be the results from
the pilot on data matching which, subject to successful testing
of processes and systems, will take place over the next few months.
27. Government is developing its analysis
and proposals for the structure of the social price support scheme,
and is working with suppliers, Ofgem, consumer groups and other
relevant stakeholders. Government is minded that a significant
proportion of the new resources made available through the mandated
scheme will be focused on older pensioner households on the lowest
incomes, and that some additional support will be available for
other households vulnerable to fuel poverty. Support would be
offered in the form of a fixed sum off the household electricity
bill. This offers a clear and transparent benefit to recipients
including those off the gas grid, minimize any distortion to competitive
energy markets and maintain the incentive to make efficient use
of energy.
28. The final scheme details, including
information on eligibility and benefit levels, will be subject
to consultation in summer 2010. Subject to Parliamentary scrutiny,
the secondary legislation containing the regulations governing
social price schemes will be in place when the voluntary agreement
ends in March 2011.
THE COHERENCE
OF THE
GOVERNMENT'S
INITIATIVES ON
ENERGY EFFICIENCY
29. The range of issues which can contribute
to a household being at risk of fuel poverty means that a range
of approaches are required to assist those households.
30. In developing our policies we are aware
of the need to consider the specific needs of vulnerable households.
As set out above, support provided by the existing Warm Front
Scheme and CERT bring together the funding that is available for
the provision of energy efficiency measures.
31. Looking ahead, the imminent publication
of the HEM strategy will clearly set out the direction, links
and synergies between policies which affect people's energy use
in the home, and of course the Fuel Poverty Strategy.
WINTER FUEL
PAYMENTS AND
COLD WEATHER
PAYMENTS
32. Winter Fuel Payments (WFPs) were first
introduced in 1997-98 and are primarily focussed on providing
help with fuel bills for pensioners. The Payments are paid as
simple tax free lump sum payments to ensure that pensioners have
money available to them when fuel bills arrive. Older pensioners
receive a higher amount of WFP as they are more likely to live
alone, in older and less energy efficient homes. They are also
more likely to have a lower income than recently retired people,
and are therefore more likely to spend a greater proportion of
this income on fuel.
33. The higher level of WFP made in winter
2008-09 is available again in winter 2009-10. This means
that this winter, the level of WFP for households with people
aged 60-79 is £250 and £400 for those
households with pensioners aged 80 and over. Over £2.7 billion
was paid out in 2008-09.
34. Cold Weather Payments (CWPs) are part
of the Social Fund Scheme and are intended to help vulnerable
groups on low incomes with the extra heating costs which result
from periods of very cold weather that last, or are forecast to
last, for seven days. Eligible customers are those in receipt
of Pension Credit or income-related Employment and Support Allowance
that includes a work-related activity or support component. Those
in receipt of Income Support, income-based Jobseeker's Allowance
or income related Employment and Support Allowance in the assessment
phase are also eligible if they have a pensioner or disability
premium included in their benefit or they have a child who is
disabled or under the age of five in the family.
35. Under the current CWP scheme every residential
postcode in Great Britain is linked to one of 85 weather
stations. Using postcodes linked to representative weather stations
is considered a straightforward way to administer the scheme as
the benefit computer systems can identify eligible customers and
this enables payments to be issued quickly and, for the most part,
automatically.
36. A CWP payment is made when the average
temperature has been recorded as, or is forecast to be, 0°C
or below over seven consecutive days at the weather station linked
to the eligible customer's postcode. For winter 2008-09, CWPs
were increased from £8.50 to £25 per qualifying
period as part of the package of measures to address concerns
about rising fuel costs. In winter 2008-09 over 8.4 million
payments were made worth £210 million. The higher rate
of £25 has been retained for winter 2009-10 and
so far,[11]
an estimated 11.1 million payments have been authorised worth
an estimated £277 million.
SUPPORT FOR
HOUSEHOLDS WHICH
ARE NOT
CONNECTED TO
THE MAINS
GAS GRID
37. In England, around 13% of households
(2.7 million) did not have a gas connection[12]
in 2007. Of these, just under a quarter (23% were fuel poor).[13]
A greater proportion of households without a gas connection contain
somebody aged 60 or over compared with households connected
to gas.
38. The modelled bill (modelled to achieve
the adequate standard of warmth used in fuel poverty estimation)
for homes without a gas connection is around £250 more
per annum than for those with a gas connection. Fuel poverty rates
are higher for homes off the gas grid as these homes tend to rely
on more expensive fuels for heating (oil, Liquid Petroleum Gas
(LPG) and electric). It is also partly influenced by the fact
that dwellings without a gas connection are larger (greater floor
area to heat) than those with a gas connection.
39. The Government has a number of initiatives
in place to assist these households. In January, Ofgem announced[14]
that almost 20,000 households could be connected to the mains
gas network due to new partnerships between gas distribution networks
and agencies that provide grants for central heating systems or
to help to make homes more energy efficient.
40. Warm Front is currently undertaking
trials to assess the suitability of low carbon heating technologies
and solid wall treatments to determine whether they are suitable,
in terms of both carbon savings and usability, for the vulnerable
households the Scheme is aimed towards. Energy suppliers too are
delivering a range of low carbon technologies through their CERT
obligation.
41. The Renewable Heat Incentive (RHI) should
assist in tackling fuel poverty by providing financial support
to people that use heat from renewable sources. As renewable heating
tends to be more expensive than fossil fuel alternatives, we are
proposing that Government should cover the extra cost and provide
a rate of return on top, to give an extra financial incentive
for making the switch to more sustainable, greener heating sources.
Those who are currently using oil or LPG will do particularly
well from the RHI, as tariff rates have been calculated on the
basis of switching from gas to renewables. Given that heating
oil and LPG tend to be more expensive than gas, the benefit from
the RHI will be even greater. This will help enable those that
previously could not afford the switch to renewable heating for
those that need it most.
42. Local authorities will be able to access
Feed-In Tariff (FITs) to support investments in renewable electricity
generation, for example on their own buildings, and it was announced
in the Pre-Budget report that the Government would consider the
scope for local authorities to borrow against the income streams
from FITs. We are also keen for local authorities and housing
associations to work with other partners on community scale renewable
electricity schemes which can be supported by FITs. Already, one
company is investigating offering free solar PV installations
to thousands of social housing tenants, and we hope others will
follow suit.
43. The Government wants all households
to have the opportunity to play a part in generating low carbon
energy. Although FITs and the RHI will make payments over the
life of installations, low-income households may still find it
difficult to meet upfront costs. Building on the experience of
pilot projects for Pay as You Save financing and Warm Front, the
Government will consult later this year on measures to help low-income
households take advantage of clean energy cash back.
44. DECC has also funded National Energy
Action (NEA) to undertake a feasibility study of the role that
credit unions could have in helping people to budget and save
for heating oil. NEA are also looking at how additional credit
could be offered to credit unions in emergency situations allowing
them to offer lower cost loans. NEA's report to DECC is expected
to be complete by March 2010.
45. Moving forward, it is the Government's
intention to focus social price support to help with energy costs
through electricity accounts. We believe that a rebate on electricity
bills is more inclusive for those who are off the gas grid.
46. The forthcoming HEM strategy will set
out a detailed enabling framework to increase deployment of district
heating in those communities where it appropriate. This will include
a focus on consumer protection, information on the role of local
authorities and a package of policy and financial support to incentivise
private sector investment in the long term. RHI payments will
also be available for district heating systems, for example a
tower-block. The Government is also considering providing an uplift
to the proposed RHI tariffs based on district heating networks
supporting hard to treat properties, but this is subject to further
analysis.
February 2010
1 http://www.decc.gov.uk/en/content/cms/what_we/consumers/fuel_poverty/strategy/strategy.aspx Back
2
http://www.decc.gov.uk/en/content/cms/statistics/fuelpov_stats/fuelpov_stats.aspx Back
3
http://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx Back
4
Fuel poverty is a devolved matter and separate targets exist in
England and each of the Devolved Administrations, with the overall
aim being that by 2018 no household in the UK should live
in fuel poverty. Back
5
"Vulnerable households" are households including older
householders (those aged 60 or more), families with children
and householders who are disabled or suffering from a long term
illness. Back
6
Link to detailed statistical annex published on 21 October
2009 can be found at: http://www.decc.gov.uk/en/content/cms/statistics/fuelpov_stats/fuelpov_stats.aspx Back
7
Extending the Carbon Emissions Reduction Target, published on
21 December 2009 http://www.decc.gov.uk/en/content/cms/consultations/cert_ext/cert_ext.aspx
. Closing date for contributions is 14 March 2010. Back
8
At least 40% of CERT must be met in a "Priority Group"
of households where at least one occupant is a benefit recipient
(including disability benefits, income support and income-based
jobseekers' allowance, housing benefit, council tax benefit, pension
credit and child tax credit) or is aged 70 and over Back
9
90% of those identified in fuel poverty are in the lowest three
income deciles (DECC) Back
10
More information on central government, local authority and energy
company energy efficiency schemes can be found at: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/On_a_low_income/DG_10018946 Back
11
Figures include CWP triggers to 10 February 2010. Back
12
In Wales, the figure is higher at around 19%. Although we don't
have figures for Scotland, they are likely to be at least as high
as those for Wales. Figures for homes off gas in Northern Ireland
are high, but the use of mains gas has only recently began to
grow in the last 10 years with new pipelines opening. Back
13
2007 English House Condition Survey, CLG and Fuel Poverty
data set, DECC Back
14
http://www.ofgem.gov.uk/Media/PressRel/Documents1/Networkextensions%20RF%20(2).pdf Back
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