House of Commons - Energy and Climate Change

Fuel Poverty - Energy and Climate Change Contents

Memorandum submitted by National Energy Action (NEA) (FP 26)

SUMMARY

Progress against Government targets

The time-lag in fuel poverty data means that official statistics are not current. However even on the basis of older data covering a period before the worst effects of energy price increases there was no prospect of meeting the 2010 target and little prospect of meeting the 2016 target for England.

Having made a firm commitment to resolve fuel poverty within a specific timeframe, Government must increase resources and effort to comply with the aspirations set out in the UK Fuel Poverty Strategy.

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

The Government's definition of fuel poverty is contentious and, to some extent, irrational. However the current priority is the need for programmes and policies to alleviate fuel poverty and any debate on definitions at this time would represent an unnecessary distraction. The current definition of fuel poverty does favour action to reduce energy costs, including energy efficiency, over measures to increase household incomes.

The coherence of the Government's initiatives on energy efficiency

The Government has, directly or indirectly, made significant resources available for domestic energy efficiency programmes, including those targeted on fuel poverty. However, NEA does not believe that the structure of current programmes represent optimal use of these resources. NEA advocates the creation of a single national energy efficiency programme, combining resources from existing programmes and delivered through a coherent area-based mechanism.

The methods used to target assistance at households which need it most

This issue would largely be addressed through a National Energy Efficiency Scheme adopting the area-based mechanism and delivering assistance on the basis of need with priority intervention in the most disadvantaged communities.

Social tariffs and plans to put social price support on a statutory footing

NEA fully endorses proposals to legislate for statutory support for vulnerable households. However, we recognise that extreme vulnerability is not limited to older households and would wish to see eligibility extended to those households who are both economically disadvantaged and particularly vulnerable ie families with young children and those families affected by disability.

NEA has strong reservations about the extent to which fuel poverty interventions are funded through charges on energy customers' bills and would wish to see such levies capped. In effect this funding mechanism often leads to the redistribution of fuel poverty as some fuel-poor households are assisted at the expense of others.

Winter Fuel Payments and Cold Weather Payments

There is understandable ambivalence about the Winter Fuel Payment as a fuel poverty initiative and this is inevitable whilst the payment is based solely on age with no reference to need. However the universal nature of the payment overcomes a number of difficulties including non-take-up of entitlement, which is common amongst pensioner households, and the issue of those who would be marginally excluded from entitlement if the benefit were to be means-tested. The priority is to ensure that there is no diminution in Treasury-funded resources for fuel poverty programmes.

NEA has advocated that entitlement to the Winter Fuel Payment be extended to those households currently eligible for the Cold Weather Payment in recognition of their extreme economic disadvantage and additional vulnerability.

Support for households who are not connected to the mains gas grid

Some areas of disadvantage experienced by households without access to mains gas were addressed in Ofgem's Energy Supply Markets Probe but a number of problems remain. The priority is to develop realistic and economic solutions to the difficulties faced by households occupying properties that are hard-to-treat including adoption and promotion of appropriate new technologies.

Warm Front

NEA believes that the scale of Warm Front must inevitably lead to some negative experience on the part of the scheme's clients and that the nature of the programme magnifies the reaction to any perceived failings within the programme.

Much of the negative criticism has been unjustified as evidenced in a number of scrutiny reports including those undertaken by the National Audit Office. It also seems likely that remedial action instigated by the Department of Energy and Climate Change will address some of the more legitimate criticisms of Warm Front with particular reference to problems associated with the maximum grant.

1. Background

1.1 NEA is a national charity with the primary objective of working towards the eradication of fuel poverty. NEA's work in this area includes development of policy and programmes to address the three main factors that contribute towards unaffordable energy costs:

Inadequate domestic heating and insulation standards.

High energy prices.

Low household income.

1.2 NEA welcomes the Committee's decision to conduct an inquiry into the effectiveness of policies to address fuel poverty and the opportunity to comment on the range of issues identified by the Committee. Comments follow the sequence of issues set out in the Committee's Call for Written Evidence.

2. Progress against Government targets

2.1 Any consideration of Government progress must begin with recognition that, whilst fuel poverty is a devolved issue, the capacity for remedial action is actually shared between Westminster, the Scottish Government and the Assemblies of Wales and Northern Ireland. Of the three main causes of fuel poverty, any remit for action on energy prices and household incomes is reserved to Westminster; only housing standards and energy efficiency are devolved to the individual nations. Whilst NEA's programme of work covers England, Wales and Northern Ireland, our assumption is that the scope of this inquiry primarily concerns England although, clearly, some areas of Government policy impact more widely.

2.2 The Warm Homes and Energy Conservation Act 2000, supplemented by the UK Fuel Poverty Strategy, requires the Government to ensure that: "as far as is reasonably practicable" no household in England should be in fuel poverty by November 2016.

2.3 Analysis of the English House Condition Survey 1996 had indicated that there were some 4.3 million fuel-poor households in England at that date. During the intervening period, the scale of fuel poverty reduced year on year so that by 2004 the number of fuel-poor households in England had fallen to around 1.2 million households; this progress resulted from a combination of falling energy prices, investment in energy efficiency programmes and increased household income for some of the most disadvantaged households.

Demographics of fuel poverty—England 2009 (NEA estimate)


Household type	Number of households	% of fuel-poor households

One person under 60	863,000	23%
Couple under 60 (no dependent child(ren)	275,000	7%
One person aged 60 or over	1,287,000	34%
Couple aged 60 or over	527,000	14%
Lone parent	379,000	10%
Couple with dependent child(ren)	229,000	6%
Other multi-person household	191,000	5%
All households	3,753,000	100%

2.4 The reliability of official fuel poverty data is compromised as a result of the time-lag between collation and publication of survey findings. As a result the most recent official figures relating to fuel poverty in England cover 2007. The 2007 figures indicate that there were 2.8 million fuel-poor households in England at that period; however, the Government has suggested that subsequent energy[61] price increases during 2008 and 2009 mean that the true scale of fuel poverty in England affects 4.6 million households.

2.5 It is evident that the 2010 target to eradicate fuel poverty for vulnerable households in England by 2010 is unattainable; it is also evident that the 2016 target will be extremely difficult to achieve without significant additional resources and greatly improved delivery mechanisms—particularly in the area of heating and insulation programmes. However, it should also be noted that the most recent UK Fuel Poverty Strategy progress Report indicates that, without existing Government programmes, the number of fuel-poor households in England would be 400,000 to 800,000 higher than is currently the case.

2.6 Having made a firm commitment, underpinned by legislation, to eradicate fuel poverty, it is imperative that Government should not retreat from this undertaking and should increase the action and escalate the funding levels necessary to achieve fuel poverty objectives.

3. 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.

3.1 The definition of fuel poverty has always been contentious to some extent with the discussion focusing on how household income should be defined within the fuel poverty formula. The three options relating to treatment of income, and their respective weaknesses are:

3.2 Full Income—Household income is deemed to include housing subsidies through Housing Benefit or Income Support for mortgage interest. The fundamental flaw in this approach is that it imputes resources to a household despite the fact that the household has no discretion over how the money is spent—it is totally committed to housing costs. One perverse consequence of this methodology is that the higher the housing subsidy the higher the hypothetical income; a further perverse outcome is that an increase in rent for a tenant, and a consequent increase in associated housing benefit, will raise the hypothetical income and diminish the likelihood of that household being categorised as fuel poor. This definition of income is clearly nonsensical, although it remains the Government's preferred definition for target-setting purposes.

3.3 Basic Income—Household income is assessed net of any housing subsidies. Clearly this is a more rational and equitable approach to quantifying household income and fuel poverty status. Inflated housing costs (and by extension inflated housing subsidies such as those required by many private sector tenants in London) will no longer be a factor in underestimating the scale of fuel poverty. In fact, concerns over the difficulties arising from the first definition were largely assuaged following Government assurances that: "We will publish the numbers of fuel poor on both definitions. And the nature of the [fuel poverty] programmes means we will meet our target on both definitions." [62]

3.4 The third option for treatment of household income is to define resources after housing costs. This would ensure consistency in making only residual income, that which is actually available as discretionary expenditure, the basis for determining whether or not fuel was affordable.

3.5 It should also be recognised that changing the definition affects not only the scale of fuel poverty—it also reflects the distribution of fuel poverty. This results from the fact that pensioners who have paid off their mortgage receive no financial support for housing costs.

3.6 Despite the unsatisfactory anomalies associated with the Government's preferred definition of fuel poverty, NEA sees this debate as an unnecessary diversion from the priority need to develop and implement effective policies to ensure that all homes are adequately and affordably heated. It should be noted that the 10% expenditure figure relates to all household energy expenditure and not just to that element that is required for space heating within the dwelling.

3.7 The current definition of fuel poverty presents some interesting challenges for policy makers in that any reduction in household fuel costs has a value ten times greater than any increase in household income. This means that action to lower fuel bills through social tariffs or some other form of discount is highly effective in reducing the breadth and depth of fuel poverty. It also means that the optimal means of reducing fuel poverty is through energy efficiency investment which has the added benefit of delivering long-term and sustainable solutions.

4. The coherence of the Government's initiatives on energy efficiency

4.1 Support for energy efficiency programmes, whether funded directly through Government in the form of Warm Front, or mandated by Government through energy suppliers in programmes such as the Carbon Emissions Reduction Target and the Community Energy Saving Programme, has been significant.

4.2 Over the period 2008-11 the Government has directly funded Warm Front to the extent of £1.1 billion; over this same period some £1.9 billion (of £3.2 billion in total) in CERT expenditure has also been committed to a Priority Group comprising households in receipt of a means-tested or disability-related benefit or older people (householders aged 70 or over). In addition, the Community Energy Saving Programme will expend some £350 million between 2009-12 in delivering significant whole-house energy efficiency assistance packages in disadvantaged communities.

4.3 Furthermore, establishing specific Thermal Comfort criteria within the Decent Homes Standard for social housing has helped drive up heating and insulation standards within this sector. Local authority landlords reported that between 2000 and 2008 investment in insulation totalled £375 million and £2.7 billion was expended on new heating systems.

4.4 However, it would appear that the effect of these considerable achievements has, at best, only mitigated the impact of rising domestic energy costs which have been the main factor in the unprecedented rise in fuel poverty in England. Clearly much more needs to be done in order to maximise the benefit of energy efficiency investment.

4.5 NEA believes that the current structure of domestic energy efficiency programmes makes them unfit for purpose in terms of eradicating fuel poverty. A fragmented approach in which individual households make individual applications for assistance followed by individual assessment and installation work represents grossly sub-optimal use of resources. In our advocacy of a National Energy Efficiency Scheme we put the case for all existing and additional resources to be put towards funding a single national heating and insulation programme working in a coherent and structured manner across all communities in England with priority given to the most disadvantaged communities.

4.6 Assistance would be delivered to all households within a community in the form of grant assistance for low-income households and subsidy for those able to contribute towards the cost of the necessary works. The grant and subsidy approach would enable the scheme to mandate rigorous energy efficiency standards that must be reached.

5. The methods used to target assistance at households which need it most

5.1 In terms of energy efficiency, NEA believes that a National Energy Efficiency Scheme will largely obviate the need for targeting of individual households. A community-based programme adopting a door-by-door, street-by-street approach will identify need much more effectively than individual applications. This will be particularly important in the case of households that have traditionally been hard to reach for reasons of language barriers, lack of knowledge, social isolation or fear of stigma.

5.2 The door-by-door, street-by-street model will also address some other previously intractable problems such as lack of knowledge of benefit entitlement or anxiety over the application process. It is well documented that benefit entitlement checks can significantly increase household income and, also, that as many as one in three households entitled to Pension Credit do not claim this benefit. Practical energy efficiency measures will be supplemented by advice and guidance on claiming benefit entitlement.

5.3 In this respect we would draw the Committee's attention to the existing Warm Zones model which combines assessment of the property, delivery of practical improvement measures, energy advice and benefit entitlement checks to deliver a comprehensive package covering all aspects of an affordable warmth programme.

6. Social tariffs and plans to put social price support on a statutory footing

6.1 NEA is wholly supportive of the proposal to establish a mandatory framework for support with energy costs. We recognise that energy suppliers have achieved or exceeded all that has been required of them under voluntary arrangements but also believe that this area is too important to be left to the discretion of energy suppliers regarding eligibility and the amount of benefit.

6.2 NEA recognises that existing voluntary arrangements will have to continue and that this compromises the ability to optimise a mandatory scheme in terms of beneficiaries and the degree of benefit since much of the available funding will be ring-fenced for existing voluntary arrangements.

6.3 It is crucially important that statutory arrangements should offer assistance based on need and that the benefits should not be restricted to any specific demographic. Clearly older and poorer pensioners represent a viable proxy for fuel poverty and their unvarying circumstances and the legislative basis for data-sharing make the case for their inclusion even more compelling.

6.4 However, NEA believes that extreme vulnerability is not restricted to older households and that access to energy costs support should be available to non-pensioner households on the lowest incomes and who are particularly vulnerable. Consequently, NEA advocates that the social price support should be extended to cover those households who are currently eligible for the Cold Weather Payment scheme operated by the Department for Work and Pensions.[63]

6.5 Currently, some 4.1 million households qualify for the Cold Weather Payment and the Government has indicated that, by 2013-14, supplier investment in discounted energy costs should reach £300 million. This level of funding equates to a potential discount on energy bills of approximately £75 per household broadly equivalent to the discount for older, poorer pensioners under the Government's Energy Rebate Scheme.

6.6 NEA does have strong reservations about the funding mechanism for this and for other assistance delivered through energy suppliers. Despite the common misconception that such programmes are the result of a combination of Government encouragement and supplier philanthropy it must be emphasised that the cost of these initiatives, whether energy efficiency schemes or social price support, is recovered through charges on customer bills.

6.7 This means of funding programmes is inequitable and regressive in that those who can least afford to contribute pay the same towards the cost of the range of initiatives as the most affluent households. Clearly, the least regressive means of funding Government social welfare objectives is through direct taxation rather than through levies on consumers' bills.

6.8 As an illustration of the unintended consequence of levies on domestic bills it should be noted that the Government estimates that costs associated with the increased funding for the Carbon Emissions Reduction Target (CERT) will result in more households becoming fuel poor than are removed from fuel poverty.[64] The Impact Assessment for CERT indicates that, in the short term at least, between 70,000 and 150,000 households will be driven into fuel poverty as a result of additional charges on domestic bills whilst between 21,000 and 31,000 households will be removed from fuel poverty.

7. Winter Fuel Payments and Cold Weather Payments

7.1 The universal nature of the Winter Fuel Payment is simultaneously a weakness and a strength. Affluent older households receive the payment despite the fact that they require no financial support with their energy costs. Limiting the payment to those on low-incomes, who are much more likely to be experiencing fuel poverty, would significantly reduce expenditure on Winter Fuel Payments. This could then free up resources to increase the level of support given to low-income pensioner households and/or extend the payments to other vulnerable non-pensioner households.

7.2 However, the universal nature of the payment also pre-empts some of the difficulties associated with means-tested benefits where they are not claimed for fear of stigma or lack of knowledge, or where a low-income household is marginally over the qualifying income threshold.

7.3 Clearly there is a debate to be had on the future of the Winter Fuel Payment in a context of increasing pressure on public expenditure. But, however the debate develops it is crucial that resources intended to address fuel poverty are protected.

7.4 In contrast to the universal Winter Fuel Payment, Cold Weather Payments are made only to vulnerable households on low incomes[65] and only in circumstances where the weather is especially severe. Payments are triggered where average daily temperatures have reached, or are forecast to reach, no higher than 0oC over a seven-day period. Annual expenditure on Cold Weather Payments has normally been in the region of £8 to £12 million.

7.5 However, for winter 2008-09, the payment was increased from £8.50 to £25 a week. This increase, allied to a comparatively cold winter, resulted in expenditure of some £209 million in 2008-09 (Environment, Food and Rural Affairs Select Committee 2009). The Cold Weather Payment has been retained at the £25 level for the winter of 2009-10 and, to date, payments to the value of some £270 million have been made.[66] Some 4.1 million households in the UK are eligible for Cold Weather Payments, of which more than 2.7 million are pensioner households.

7.6 If the Winter Fuel Payment were to be extended to non-pensioner households eligible for the Cold Weather Payment the total annual cost would be in the region of £280 million.

8. Support for households who are not connected to the mains gas grid

8.1 Despite the appalling increases in domestic gas prices in recent years—prices more than doubled between 2003 and 2009—natural gas generally remains the cheapest heating option for the overwhelming majority of households in England.

Space and water heating costs by fuel type—North of England October 2009[67]


Fuel type	Heating system	Annual cost

House coal	Open fire with back boiler	£1194
Electricity	Storage heating and radiators	£1220
Natural gas	Gas-fired boiler and radiators	£878
Liquid propane gas	LPG-fired boiler and radiators	£1699
Oil kerosene	Oil-fired boiler and radiators	£1090

8.2 In 2009, the energy regulator, Ofgem, instigated an Energy Supply Market Probe which considered the disadvantage faced by households off the mains gas network who could not benefit from any dual-fuel discount. Ofgem determined that energy suppliers were, in fact, imposing higher charges for electricity for these households in order to cross-subsidise lower gas costs and instructed suppliers to halt this practice but this does little to address the disadvantage faced by households who cannot benefit from lower mains gas costs.

8.3 The additional costs associated with alternative conventional heating systems are reflected in the relationship between heating source and fuel poverty.

Fuel poverty in England—2007—by fuel used for main heating source[68]


	% households in group		Number of households in group		Total number of households in group

Fuel	Not fuel poor	Fuel poor	Not fuel poor	Fuel poor
Gas	88.0%	12.0%	15,806,000	1,936,000	17,742,000
Oil	76.9%	23.1%	711,000	214,000	925,000
Solid fuel	63.0%	37.0%	139,000	82,000	221,000
Electricity	82.6%	17.4%	1,256,000	264,000	1,520,000
Communal	90.2%	9.8%	256,000	28,000	283,000
Total	87.8%	12.2%	18,167,000	2,524,000	20,691,000

8.4 In January 2010, Ofgem published details of a new partnership arrangement[69] intended to encourage extension of the gas network to 20,000 properties occupied by fuel-poor households. The partnership would involve cooperation between the four gas distribution networks (GDNs) and agencies delivering Government-sponsored energy efficiency programmes such as Warm Front. As a result of this initiative some of the most deprived communities in Great Britain may in future be able to benefit from a more economic heating regime as a result of connection to mains gas and subsequent installation of gas-fired central heating.

Fuel poverty by wall type and by access to the mains gas network—England—2007

Mains gas by wall type	% fuel-poor households		Number of fuel-poor households		Total number of households	% Total fuel poor in group
Cavity wall	Not fuel poor	Fuel poor	Not fuel poor	Fuel poor
With gas	90.2%	9.8%	11,980,000	1,299,000	13,190,000	46.1%
Without gas	83.3%	16.7%	1,544,000	310,000	1,855,000	11.0%
Total	89.3%	10.7%	13,453,000	1,544,000	15,044,000	-
Solid wall
With gas	83.6%	16.4%	4,580,000	898,000	5,477,000	31.8%
Without gas	63.7%	36.3%	547,000	312,000	858,000	11.1%
Total	80.9%	19.1%	5,127,000	1,209,000	6,336,000	-

8.5 Whilst NEA welcomes this initiative we also see a longer-term need for more ambitious and innovative action. The table above illustrates the importance of heating fuel and wall type in For a number of years NEA has been involved in pilot projects to assess the potential benefits of alternative heating systems such as air-source heat pumps in properties that are off the mains gas network and with little prospect of ever being connected. In theory, the Warm Front scheme allows for grant-funded installation of this and other technologies but these have not yet been formally introduced as an option under that programme.

8.6 NEA would suggest that, in pursuit of the potential social benefits to be derived from such installations, urgent consideration be given to overcoming potential barriers to their use including adequacy of grant levels, planning issues and advice and guidance to potential beneficiaries. It is also increasingly important that the other key issue of hard-to-treat housing, solid-walled properties, were to be addressed through grant programmes. Incorporating this technology within a suite of grant-aided measures will expedite the large-scale installations that will reduce cost to a more cost-effective level.

9. Warm Front

9.1 Since the Committee, subsequent to announcement of the remit of this inquiry, indicated its intention to examine the Warm Front programme, NEA would wish to make some brief comment on this scheme. NEA believes that Warm Front has been an extremely successful and beneficial programme and that the infrequent failings of the scheme have been exaggerated out of all proportion.

9.2 It is inevitable that a scheme of this magnitude and nature should at times be subject to criticism on the grounds of poor administration; insensitivity to customer needs; poor workmanship; and the erroneous perception that the scheme exists to deliver profit to participating agencies as much as to deliver affordable warmth to vulnerable households.

9.3 It is also inevitable that, given the purpose of Warm Front to assist disadvantaged households, any failings will be high profile and the subject of negative media scrutiny. However, despite criticism directed at the programme, objective assessment[70] of Warm Front has generally indicated that the programme is popular, provides value for money and is efficiently administered.

9.4 NEA believes that revisions to the scheme announced last year have addressed some of the more valid criticisms of Warm Front. Increases to the maximum grant levels, a more liberalised supply chain, improved customer communications and the expansion of low carbon technologies within permissible measures will all contribute to further enhancement of Warm Front as an effective fuel poverty programme.

9.5 The announcement of an additional £150 million of funding for Warm Front in the Pre-Budget Report was a welcome indication that Government continues to recognise its own primary responsibility to address fuel poverty through provision of funding from the Exchequer.

February 2010