House of Commons - Energy and Climate Change

Fuel Poverty - Energy and Climate Change Contents

Memorandum submitted by the Association for the Conservation of Energy (FP 55)

INTRODUCTION

The Association for the Conservation of Energy is a lobbying, campaigning and policy research organisation, and has worked in the field of energy efficiency since 1981. Our lobbying and campaigning work represents the interests of our membership: major manufacturers and distributors of energy saving equipment in the United Kingdom. Our policy research is funded independently, and is focused on three key themes: policies and programmes to encourage increased energy efficiency; the environmental, social and economic benefits of increased energy efficiency; and organisational roles in the process of implementing energy efficiency policy. We welcome the opportunity to respond to this Inquiry.

EXECUTIVE SUMMARY

— It is our contention that, far from taking adequate steps to address the continuing rise in fuel poverty, the Government have completely given up on their duty to eradicate fuel poverty in vulnerable households by 2010. They have seized upon the judgment in the judicial review of October 2008 to maintain repeatedly that their efforts to fulfil their duty can only ever be judged against the weakest possible interpretation of what is "reasonably practicable". This interpretation, while now having legal sanction, is contrary to the will of Parliament, contrary to what the Government itself believed was the will of Parliament and contrary to what the governing party repeatedly promised.

— Furthermore, current and anticipated Government programmes will be insufficient to achieve the 2016 target to end fuel poverty in all remaining households.

— The Government should institute without delay a national retrofit energy efficiency programme to bring the homes of the fuel poor up to a target SAP81 or Energy Performance Certificate (EPC) Band B standard. This is "reasonably practicable" to achieve.

— Urgent consideration should be given to redeploying Government expenditure that is currently very poorly targeted. In particular, only 12% of Winter Fuel Payment recipients are in fuel poverty. Taxing Winter Fuel Payments and/or removing them from higher rate tax payers would release substantial resources that could then be deployed to finance energy efficiency programmes for the fuel poor.

— Looking to the future, all major political Parties in England are in favour of some kind of `Pay as you Save' (PAYS) loan scheme for financing home energy efficiency measures post-2012. However, as currently proposed, no Party's scheme will be of benefit to the fuel poor. There is therefore considerable scope for modifying a PAYS scheme in order to ensure that it is genuinely accessible to all households. For example, Government could make the annual loan repayments to cover an average £8,800 package of energy efficiency measures for all fuel poor households. This would cost less annually than the Winter Fuel Payments.

PROGRESS AGAINST GOVERNMENT TARGETS

1. It is our intention in this submission to build on the comprehensive evidence submitted by ACE in October 2008 to the EFRA Select Committee Inquiry into Energy Efficiency and Fuel Poverty. We shall, where necessary, summarise key aspects of that evidence, but we do not intend to rehearse again in detail the arguments made therein. For reference, that evidence is to be found in the EFRA Select Committee's Fifth Special Report of Session 2007-08, Energy efficiency and fuel poverty: written evidence, HC 1099, Ev 125--132.

2. In responding to the previous Inquiry, we documented in considerable detail the Government's failure over successive years to respond to repeated warnings from its official advisory body, the Fuel Poverty Advisory Group (FPAG), that, without increased resources and revised policies, the statutory target to eradicate fuel poverty in vulnerable households by 2010 would not be met.

3. We noted some crucial FPAG recommendations that were not heeded. We restate two of them here.

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4. In the light of our submission—and many others like it—the EFRA Select Committee concluded in their final Inquiry Report: "With the 2010 target date less than 12 months away, we agree with the Department of Energy and Climate Change that this target is likely to be missed."[162] Furthermore the Committee stated unequivocally: "The Government should have reviewed its policies earlier given the upward trend in the number of fuel poor and rising fuel prices."[163]

5. Since the EFRA Committee report was published, the Government's ongoing failure adequately to resource and review its fuel poverty policies has, inevitably, led to a further increase in levels of fuel poverty in England. DECC produced its 7th Annual Progress Report on the UK Fuel Poverty Strategy on 21 October 2009. It contains actual fuel poverty figures up to and including 2007; it also contains projections for 2008 and 2009. These are set out in Table 1.

Table 1

Fuel Poverty Statistics	England		UK
	Households (millions)	Vulnerable households (millions)	Households (millions)	Vulnerable households (millions)
2006	2.4	1.9	3.5	2.75
2007	2.8	2.3	4.0	3.25
2008 (projection)	3.6	—	—	—
2009 (projection)	4.6	—	5.0	—
Source: DECC, The UK Fuel Poverty Strategy, Seventh Annual Progress Report, 2009, October 2009

6. The above figures are shocking enough, but just a month ago a survey commissioned by the National Housing Federation found that 7.25 million UK households reported spending more than 10% of their income on fuel—enough to render them fuel poor.[164] This is a good deal more than the 5 million estimated by DECC. Clearly the problem of fuel poverty is spiralling out of control.

THE DEFINITION OF FUEL POVERTY

7. Fuel poverty is now defined by Government as spending more than 10% of a household's total income on domestic fuel bills to heat the home to an adequate level of warmth. However, the previously accepted definition referred to disposable income.

8. The draft Strategy in February 2001, which became the Fuel Poverty Strategy in October of that year, defined fuel poverty as the spending of 10% of total income, but at the same time admitted that the previous definition referred to disposable income. For example:

9. Annex D, p 13 of the Draft Strategy said: "the 1998 Family Experience Survey shows that households in the lower three income deciles spent on average 10% of their income (not including housing benefit and income support for mortgage interest) on fuel ... it was assumed by researchers in the fuel poverty field that this|represented the amount that low income households could reasonably be expected to spend on fuel."

10. And Annex D, paragraph 9 said: "the definition used in the English House Condition Survey was to exclude housing costs met by housing benefit and income support for mortgage interest."

11. And Annex D paragraph 10 said: "excluding housing costs met by housing benefit or income support for mortgage interest ... is the definition that has been used in the past."

12. And the (then) Minister in charge of fuel poverty, Michael Meacher MP, in his handout copy of his speech at a meeting between himself, Matthew Taylor MP (Lib Dem) and John Gummer MP (Conservative), organised by Friends of the Earth on 25 March 1997, also used the disposable income definition.

13. So the Government knew that fuel poverty was defined in terms of 10% of disposable income. Yet in the draft Fuel Poverty Strategy the first sentence of Chapter 1 reads: "the common definition of a fuel poor household is one that needs to spend in excess of 10% of household income in order to maintain a satisfactory heating regime."

14. This clearly demonstrates that Government purposely and knowingly changed the definition to total income even though they were aware that the previous definition only covered disposable income. In so doing, the Government thus defined 1 million people out of fuel poverty.

THE 2008 JUDICIAL REVIEW AND THE DEFINITION OF "AS FAR AS REASONABLY PRACTICABLE"

15. In our previous submission we referred to the ongoing action for judicial review being brought by Friends of the Earth and Help the Aged against DEFRA (the then responsible Department) on account of their anticipated failure to meet their statutory target under the Warm Homes & Energy Conservation Act 2000 to eradicate fuel poverty in vulnerable households by 2010.

16. We highlighted with grave concern that, in their defence to the action, DEFRA were strongly arguing that the words "as far as reasonably practicable" in the Act in effect converted the duty to meet the 2010 and 2016 targets into merely a discretion. DEFRA argued that, in determining "reasonable practicability", it was appropriate for them to take into account whether sufficient resources were available to pay for measures [to eradicate fuel poverty] "given the money available to [Government departments] in the light of other spending commitments".[165] We asserted then—and continue to assert—that this was a deliberate misrepresentation of the original reasons for including the phrase "as far as reasonably practicable" in the Act. We called it "an attempt to subvert and evade the will of Parliament" as clearly expressed when it passed the Act.[166]

17. It was quite clear that the caveat about "reasonable practicability" was inserted into the Act to cover circumstances in which householders might not wish to allow works to be done or where they live in large properties that they cannot afford to keep warm but from which they do not want to move.[167] This was confirmed by DEFRA in their 2004 "Plan of Action": "There will be a number of households who will not accept assistance when it is offered to them."[168]

18. At the time of our last submission, the case had been heard in the High Court, but judgment had not yet been delivered. On 23 October 2008 Mr Justice McCombe delivered what we consider to have been a highly perverse judgment. In dismissing the claim for judicial review, he ruled that, because the Act required the publication of a strategy with target dates, and because that strategy was indeed published, the Government had fulfilled its obligations under the Act.

19. There is no doubt that, while the Court of Appeal has now upheld the decision and that we must accept it as the law, it is a law based on a "legal get-out"—not on the will of Parliament, nor what the Government repeatedly accepted was the will of Parliament (see below), until it needed to look for a loophole. As a result, ever since the judgment DECC (now the relevant Government Department) has taken every opportunity to absolve itself of responsibility for meeting what the Government previously accepted were its fuel poverty targets on the grounds that it is doing "all that is reasonably practicable".

The will of Parliament

20. When the Warm Homes Act was passed in 2000, the clear intention of Parliament then and in the years up to 2000 was to pass an Act to give the Government a duty to end fuel poverty. For instance:

— In the Session 1999-2000, 390 MPs (a massive majority) signed EDM No 317 supporting the Warm Homes Bill's "aim of ending fuel poverty in the United Kingdom".

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21. And what is more, the Government itself believed that this was the will of Parliament—and spoke accordingly. For instance:

is unacceptable and we commit ourselves by 2010 to end the blight of fuel poverty for vulnerable households

We renew our commitment that no household in Britain should be living in fuel poverty by 2016-18

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22. What is clear is that the use of the words "as far as is reasonably practicable" as a get-out came eight years later when the Government realised that is was not going to achieve what it believed it was supposed to.

The Government's attitude to fuel poverty

23. The Government would now appear to be completely complacent about ending fuel poverty. Since the High Court judgment was delivered and upheld in the Court of Appeal, there has been a plethora of Government documents and pronouncements—not least the Government's Seventh Annual Fuel Poverty Report[171]—that have noted the continuing rise in fuel poverty and the anticipated shortfall in achieving the 2010 target, but have then failed to propose any new policies or resources for meeting the shortfall, merely reciting (without proof) that "the Government is doing everything reasonably practicable" to achieve their targets. The most recent—and breathtaking—example of this complacency is to be found in the speech by DECC Minister David Kidney MP during the recent Standing Committee proceedings on the Energy Bill, when in summing up he said: "I have talked about the work that we are doing on fuel poverty, which I believe shows that we are doing all that is reasonably practicable to tackle fuel poverty, having put in place an extensive programme of works."[172] We feel sure that we are not alone in finding this statement considerably less than reassuring.

24. Mr Kidney's remarks are in stark contrast to the Government's previous promises and commitments. For example:

— Deputy Prime Minister John Prescott committed his Party to ending fuel poverty on 25 September 2001, telling his Party Conference: "We've set a new goal to wipe out fuel poverty by the year 2010, because we in the Labour Party do not believe elderly people should die, just because they can't afford to keep warm. That's Labour social justice in action."

— This "social justice" was repeated in the Party's Election Manifesto of 2001 (p 71): "Our goal is to eliminate fuel poverty for vulnerable groups by 2010, and for all by 2015"; it was repeated in the 2005 Manifesto (p 13): "Fuel poverty blights lives: our aim is that by 2010 no vulnerable household in the UK need risk ill-health due to a cold home."

25. In all of this there was not a hint of the phrase "as far as is practicable". Ending fuel poverty was a legal duty enacted by Parliament. It was a commitment, a target, and was "Labour's social justice in action". This was until the going got too tough.

THE COHERENCE OF THE GOVERNMENT'S INITIATIVES ON ENERGY EFFICIENCY AND FUEL POVERTY

26. Let us now examine in more detail that "extensive programme of works" to which the Minister referred. In doing so, we shall also be discussing two other issues highlighted in the Committee's terms of reference for this Inquiry—Winter Fuel Payments and Cold Weather Payments; and the issue of targeting assistance at households which need it most.

27. The Government's main residential energy efficiency scheme, the Carbon Emissions Reduction Target (CERT), is ineffective at targeting the fuel poor, with only 40% of its activity being targeted at a "Priority Group" consisting of certain (income-related) benefit recipients and all the over-70s. Furthermore, the latest figures (provided by DECC to ACE on 16 February 2010) show that only 24% of the CERT Priority Group in England were actually fuel poor. Given that, in addition, 42% of fuel poor households are not eligible for Priority Group measures,[173] there is clearly a stark mismatch between the Priority Group and those households actually in fuel poverty.

28. As a result, CERT is a regressive policy that is exacerbating fuel poverty. The 60% of CERT beneficiaries outside the Priority Group are able to pay and very unlikely to be fuel poor. Of the remaining 40%, only a quarter are fuel poor. Therefore the fuel poor—around 20% of UK households—are receiving only 10% of the CERT benefits. They are disproportionately subsidising improvements for the non-fuel poor households. This is consistent with Brenda Boardman's findings that the fuel poor pay £200 million towards CERT, but receive only £125 million back.[174]

29. Not only are the fuel poor being penalised relatively, but CERT is simply delivering too few measures to these households. Cavity wall insulation (CWI) and loft insulation (LI) have been delivered 2.2 million times in the first seven quarters of CERT, and if delivered in the same proportion for the portion of the obligation that remains, they will be delivered a further 800,000 times. If 40% of these measures are going to the Priority Group, that suggests 1.2 million PG households will have been assisted. Yet, as acknowledged by DECC, only 24% of the PG are in fuel poverty. It is therefore likely that only 300,000 households will have benefited from the main CERT measures over the entire period.

30. The same looks set to be true with the extension to CERT between March 2011 and December 2012—the period that Government are currently consulting on. Their illustrative mix predicts that CWI and LI will be delivered 1.19 million times during the extension to homes in the Priority Group. The Priority Group looks set to change, with Government seeking to create a subset that are more likely to represent those in fuel poverty. However, they propose that this will only make up 10% of the overall CERT target. If this "Super Priority Group" is made up of 50% fuel poor, overall the Priority Group will still represent just over 30% of fuel poor households. Again, it is likely that only 350,000 fuel poor households will benefit from these two measures.

31. Warm Front is the Government's flagship fuel poverty programme. Yet, as already noted, it has not been immune from savage cuts in Government funding. Until last December's Pre-Budget Report announced a partial restoration of the previously announced cut in Warm Front's 2010-11 budget, funding levels for 2010-11 were due to drop from £369 million in the current year to only £195 million—ie a cut of £174 million. The 2009 Pre-Budget Report announced an "extra" £150 million for Warm Front for 2010-11, but that still leaves funding levels for the coming year at only £345 million. Table 2 sets out Warm Front funding levels for the years 2008-11, alongside the numbers of households assisted (or to be assisted) in each year.

Table 2

Year	Funding	Number of households assisted
2008-09	£395 million	233,594
2009-10	£369 million	215,000
2010-11 (pre-PBR announcement)	£195 million	91,100
2010-11 (post-PBR announcement)	£345 million	166,000[175]
Source: HC Written Answers, 29 June 2009, col 9W

32. If we assume that the number of households assisted by Warm Front will continue at a rate of around 165,000 per year, then it would take nearly 28 years to assist 4.6 million English households—the same number that were, according to Government projections, in fuel poverty in 2009. If you bear in mind that only 25% of households eligible for Warm Front assistance are actually in fuel poverty,[176] the scale of the problem is revealed as being even more acute. As with CERT, poor targeting is a very real issue.

WINTER FUEL PAYMENTS AND COLD WEATHER PAYMENTS

33. The Winter Fuel Payment (WFP) is paid to every person over 60 in the UK. The annual cost of the Payments is £2.7 billion. This sum dwarfs the annual budget for Warm Front, which, as we have seen, is set to be £345 million next year. Given that only 12% of WFP recipients are fuel poor,[177] we agree wholeheartedly with the recommendation of the EFRA Select Committee last year that "improved targeting of the Winter Fuel Payment is essential to redirect resources to where they are needed most".[178]

34. ACE has calculated the savings to Government that would flow from discontinuing WFPs for all (or certain) pensioners, along with those that would come from taxing income tax (or higher rate tax) payers. We have also calculated the numbers of energy efficiency packages that the redeployment of these resources could in turn fund. Table 3 sets out our findings.

35. Cold Weather Payments (of £25 per week) are paid to households in receipt of certain benefits when average temperatures are at or below freezing point over seven consecutive days. During the winter of 2008-09 a total of £210 million was spent on Cold Weather Payments across Great Britain.[179] There is no doubt that the payments provide a welcome boost to household incomes in times of extreme cold, but they can by no means be seen as providing a permanent solution to fuel poverty.

36. The three-year Community Energy Saving Programme began on 1 September 2009. It aims to deliver packages of multiple energy efficiency measures to households in areas of low income. Given its focus on such geographical areas, it is likely that a fair proportion of households targeted will be fuel poor. However, it must be noted that the Programme will assist at most 90,000 households over the full three-year period. It must also be noted that there is no guarantee that the packages of measures installed will be sufficient to remove households from fuel poverty.

37. The Government consulted on its Home Energy Saving Strategy between February and May last year. It set out a variety of post-2012 proposals, including the delivery of up to 7 million whole house packages by 2020. To achieve this, it was proposed that up to 400,000 packages would be delivered in 2015, scaling up to 1.8 million in 2020. Assuming a linear increase between these dates—with the remainder of the 7 million packages delivered before 2015—we have calculated that between 2012 and 2016 (the fuel poverty target date) up to 1.5 million in total might be delivered. However, it is impossible to estimate how many of these will be to fuel poor households. Indeed, the Government's preferred mechanism—Pay as you Save—seems unlikely to be of benefit to these households.

38. All in all, it is abundantly clear that current and proposed Government programmes will be insufficient to achieve the 2016 fuel poverty eradication target. More must be done.

THE WAY FORWARD

39. The Government should institute without delay a national retrofit energy efficiency programme to bring the homes of the fuel poor up to a target SAP81 or Energy Performance Certificate (EPC) Band B standard.

40. Research by ACE and the Centre for Sustainable Energy for Consumer Focus[180] has shown that it would cost on average £8,800 to raise each fuel poor household to SAP 81 (or Energy Performance Certificate Band B)—the level necessary to remove 83% of fuel poor households from fuel poverty. Such a programme would reduce the fuel bills of those in fuel poverty by an average of 52%, with many households benefiting from considerably larger fuel bill savings of up to 70%.

41. In the 2008-09 Parliamentary session, ACE—along with a host of other organisations from the environmental, social justice and health sectors—assisted David Heath MP in promoting his Fuel Poverty Bill. The Bill required just such a national energy efficiency programme as described above. Highly regrettably, despite having widespread cross-Party support, the Bill was blocked by the Government on the spurious grounds that it cut across the proposals in their Home Energy Saving Strategy consultation. In rejecting the Bill, the then responsible Minister Joan Ruddock alleged that the cost of such a programme would be £50 billion—a figure that the ACE/CSE research has demonstrated to be wholly without foundation. Using the Government's own costs for installed measures, that research concluded that the cost of raising 4 million households (the then FPAG estimate of the number of English fuel poor households) to SAP81/Band B would in fact be £37.3 billion.

42. All major political Parties in England are in favour of some kind of "Pay as you Save" (PAYS) loan scheme for financing home energy efficiency measures post-2012. However, as currently proposed, no Party's scheme will be of benefit to the fuel poor. There is therefore considerable scope for modifying a PAYS scheme in order to ensure that it is genuinely accessible to all households.

43. ACE has recently embarked on a piece of work aimed at modelling a variety of different possible structures for a modified PAYS scheme. We shall be investigating the viability, inter alia, of schemes structured in such a way that the Government would finance, in whole or in part, the loan repayments of those in fuel poverty. Costs to Government drastically fall if they spread the repayments over a period of time. Table 3 below illustrates the number of whole house packages that could be funded by Government through the redeployment of WFP monies. Using all of the WFP funds would allow Government to fund fully a package for each of the 5 million fuel poor households. We shall also be looking at ways in which Government funds currently dedicated to other programmes could be diverted to fund PAYS loan repayments for the fuel poor.

Table 3

Policies	Saving to Government	Number of whole house packages it could fund[181]
Taxing the WFP for those paying income tax	£245,829,308	460,414
Of which, higher rate tax	£28,921,095	54,166
Removing WFP from those paying income tax	£1,156,843,800	2,166,652
Removing just the higher rate taxpayers	£72,302,738	135,416
Increasing WFP age to 65	£657,810,306	1,232,013
Removing WFP entirely	£2,700,000,000	5,056,828
February 2010