Memorandum submitted by the Department of Energy and Climate Change (DECC) (FP 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 4 million households in fuel poverty in the UK. This represents an increase of around 2 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 2 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 1.3bn 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 100m in 2008-09, 125m in 2009-10 and 150m 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 7 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, 0C 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 210million. 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

 

2. http://www.decc.gov.uk/en/content/cms/statistics/fuelpov_stats/fuelpov_stats.aspx

[3] http://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx

[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.

[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.

[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

[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.

[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

[9] 90% of those identified in fuel poverty are in the lowest three income deciles (DECC)

[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

[11] Figures include CWP triggers to 10 February 2010.

[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 ten years with new pipelines opening.

[13] 2007 English House Condition Survey, CLG and Fuel Poverty data set, DECC

 

[14] http://www.ofgem.gov.uk/Media/PressRel/Documents1/Networkextensions%20RF%20(2).pdf