Memorandum submitted by Dr Brenda Boardman, Environmental Change Institute, University of Oxford (FP 08)

 

 

Definition

1. Fuel poverty occurs when a household is unable to afford adequate levels of energy services in the home for 10% of income. This covers all uses of energy in the home, not just heating (Boardman 1991, p227) and refers to the 'need' for these energy services, not just what is currently purchased. A fuel poor household is likely to be cold as well as spending a disproportionate amount of money on fuel. The aim is for them to be warm and to have adequate other energy services, if possible for less expenditure.

 

2. The definition of eligibility for the main fuel poverty policies depends upon social characteristics, for instance being a pensioner, or on a means-tested benefit. The calibre of the home is not used in targeting assistance. As a result, barely 25% of all the money listed as fuel poverty policy actually goes to the fuel poor. This is in total nearly 4bn pa (2.75bn for Winter Fuel Payments and over 1bn for energy efficiency improvements).

 

3. It is extremely difficult to target the fuel poor accurately, but the present definition and policy focus is often too wide (eg all pensioners) and always too narrow (eg excluding a focus on the worst homes).

 

Coherence

4. The Government orchestrates policies that provide 75% of the money going on income support (Winter Fuel Payments) and only 25% on energy efficiency improvements (from the utilities through CERT Priority Group and government funds for Warm Front). Yet, it is only the increased energy efficiency of the housing stock that results in the permanent treatment of fuel poverty. Increased incomes or reduced fuel costs are recurring costs that deal with the symptoms of fuel poverty rather than the cause.

 

5. The policies on energy efficiency are inadequate because they are measured in outputs (numbers of insulation measures installed) rather than outcomes (numbers of homes brought out of fuel poverty. Neither Warm Front nor CERT Priority Group has a requirement to target the worst, least energy efficient homes. The average property treated by Warm Front is lifted from 40 to 61 SAP points, whereas the average fuel poor home has a SAP of 38. Those in the most severe fuel poverty are not being helped and to bring them out of fuel poverty would require a SAP 81 standard. Similar statistics from CERT Priority Group are not collated by Ofgem: this scheme provides mainly free measures to eligible households, which is of benefit to the fuel poor.

 

6. Other energy efficiency policies for the fuel poor:

a. local authorities have a duty to respond, under the Housing, Health and Safety Rating System (HHSRS), if a property has a Category 1 Risk of Excess Cold. These unhealthy homes are effectively all those with a G- and F- rating on an Energy Performance Certificate: about half the fuel poor live in such properties. Local authorities are not fulfilling their duties under this legislation and ensuring that the properties are improved to provide healthy homes. The government has not enforced the obligation. As a result, this potentially powerful legislation is not providing assistance for the fuel poor.

b. Warm Zones - these are area-based interventions, partly funded by local authorities and partly by the utilities. There are probably about 14 in the country. They take a comprehensive approach to try and bring the homes out of fuel poverty, both through energy efficiency improvements and extra income as a result of benefit entitlement checks. Many households cannot be brought out of fuel poverty, in reality, because the level of energy efficiency grants are inadequate. The results of those ongoing projects have not been well documented.

c. CESP (community Energy Saving Programme) - this new government initiative is building on the Warm Zones approach, but focusing particularly on low-income, local authority housing. These are not the households in the greatest fuel poverty, because they are in the private housing sector. The CESP initiative is only proposing to cover 90,000 properties in 100 communities. It is not clear if the intention is to lift households out of fuel poverty, but the whole pilot is too late and too small. It is good to develop an area-based approach further, but it is not clear what will be learnt.

d. Feed-in tariff: when this is introcued in April 2010 it is likely to increase the gap between the energy efficiency of better-off households and the fuel poor. There is an urgent need to develop policies that will make sure the fuel poor have access to this source of money by providing them with free installations of the eligible technologies.

7. At the moment, the poor have to purchase expensive warmth, whereas they need to have the cheapest warmth (and other energy services). Only Warm Zones target assistance on those fuel poor that need it most.

 

Targeting

8. To lift 5m households out of fuel poverty in 7 years (by November 2016) is a huge task. The proposal is that the first 50% should be taken out of fuel poverty by 2013 through action by each local authority in low-carbon zones (Boardman 2007, p88; Boardman 2010, p222). These are focused on the fuel poor and are not to be confused with the low-carbon zones being undertaken in London, where there is no such priority.

 

9. The suggestion is that each local authority defines a low-carbon zone (LCZ) that contains half the fuel poor in their jurisdiction. Because the fuel poor only represent between a quarter and a third of the households, even in the most concentrated areas, these LCZ are about 15-20,000 properties each. The local authority then ensures that energy efficiency improvements are undertaken to bring each property up to SAP81, through a street-by-street, comprehensive approach. Even so, only 83% of the fuel poor will be brought out of fuel poverty (Guertler and Preston, 2009).

 

10. The method of payment for this work has to recognize that the fuel poor have no capital and that there is no need to subsidize the rich. At the moment, some of the energy efficiency improvements (ie Warm Front) are paid for by the Government. This is a sensible, progressive method of funding as few of the fuel poor pay income tax and, hence, are barely contributing to the cost. They just benefit from the improvements. However, it is assumed that government funds are limited. The growing amount of activity that is funded through the utilities (eg CERT Priority Group) is regressive: the fuel poor contribute more funds than they receive back in improvements. Every household pays 80 pa for CERT, the renewables obligation and EU Emissions Trading Scheme combined. This is already around 10% of the fuel bills of the fuel poor. The contribution from the fuel poor for these government policies should be capped at 80 and not increased.

 

11. Schemes such as pay-as-you-save (PAYS) are not appropriate for the fuel poor as they require all the benefit of the energy efficiency improvement to reduce the fuel costs. In reality, the fuel poor take 30-50% of the benefit as extra warmth, so do not have the savings to service the loan.

 

12. A new and alternative source of funds would be to unlock some of the equity in the home. Everyone is living in a capital asset, even though it may not belong to them. The proposal is that the cost of the energy efficiency improvements are paid for by a charge on the property that is repaid when the property is sold. The landlord and the owner occupier would be responsible for the costs, not the tenant. There may be other ways of funding the work, for instance green mortgages, stamp duty rebates, low-interest loans, but the default would be a charge on the property.

 

13. A fully comprehensive, area-based approach would ensure that all those in the most severe fuel poverty are incorporated into the low-carbon zone. These are people who do not self-refer for the existing energy efficiency programmes, do not switch to the cheapest energy suppliers and do not claim all the benefits to which they are entitled. They are extremely difficult to find and to incorporate into schemes, but are probably suffering some of the worst fuel poverty. A community-wide, inclusive scheme would enable them to be helped.

 

Social tariffs

14. The emphasis on social tariffs is misplaced. Whilst they will benefit a few households, it is not clear than many of these will be the fuel poor. There are about 1m recipients of a social tariff at the moment, with about 5m households having around 9m energy accounts between them. If pensioners are the main recipients of the social tariffs, there will be similar targeting problems as with the Winter Fuel Payment: the majority of the group will not be in fuel poverty. The average benefit, under the social tariffs, is likely to be about 70 per account per year.

 

15. There is a bigger issue over tariffs. Ofgem have:

'identified that suppliers benefit in total by around 1 billion per annum from premiums charged to certain groups of customers ... This premium is borne disproportionately by vulnerable consumers and those without access to the gas grid' (Ofgem 2008, p113). The 1 billion may be a conservative estimate. The majority of the excess is paid by households with a prepayment meter or who have never switched suppliers. It would be more appropriate for Ofgem to make sure that these excess costs are not levied on the disadvantaged, rather than focus on redressing a few of them with social tariffs.

 

Winter fuel payments and cold weather payments

16. The winter fuel payment is not correctly labelled as a fuel poverty policy, it is a pension supplement. Barely a quarter of the money goes to the fuel poor: in England in 2006 it was 19%, but the proportion may now be higher, as the numbers of fuel poor have risen. The winter fuel payment is for pensioners, regardless of income: there are as many recipients in the top income decile as in the bottom income decile and 100,000 households with total annual incomes above 100,000 (HC 1099, 2008, pp53, 57-8). Non-pensioner fuel poor households are not eligible for any of the winter fuel payment.

 

17. Cold weather payments are well-targeted on households in receipt of an income-related benefit. The government's upgrade of the payment to 25 per week was fortuitous and over the recent cold winter, a total of 261 million has been paid between 1 November 2009 and 12 January 2010 (Hansard 27 Jan 2010: Column 920W). This will have provided essential support for many fuel poor households. It is to be hoped that it can be confirmed that the level of payment will continue at the level of 25 per week, at least, for the future.

 

Off-gas grid households

18. Households are not connected to the gas grid or do not have gas for heating for different reasons, including:

a. they are in properties where gas-fuelled heating systems would be inappropriate, for instance Ronan Point style flats, or sheltered housing schemes;

b. they have gas in the property, but do not use it for heating;

c. they are beyond the gas grid, in a geographical sense, and are in a rural area.

 

19. The majority of the former two groups of properties are all electric, whereas the latter are more likely to have alternative fuels, such as oil, for heating. Increasingly properties will have new electric installations using air or ground-sourced heat pumps. Rural properties are likely to detached homes, often solid walled, and therefore classed as 'hard-to-treat', ie expensive.

 

20. The measures and funds available under Warm Front or the CERT Priority Group are generally insufficient for these hard-to-treat properties, as they do not fund solid-wall insulation. The installation of oil-fired heating systems has undoubtedly been an incorrect policy. Provision of wood stoves, solar thermal heating systems and solid wall insulation are all appropriate for rural, off-gas grid properties.

 

Other issues

21. The then Minister for Fuel Poverty, Joan Ruddock, announced a review of fuel poverty policy to be published in summer 2009. It has not yet appeared. The present Minister, David Kidney, has stated that he hopes it will be published before the general election. The review is sorely needed, as the original Fuel Poverty Strategy 2001 was clearly an initial, interim document, that was written with the expectation of further detail being forthcoming. It has never been updated and that is one of the reasons why the 2010 target has become impossible. The new strategy should provide a clear routemap for the eradication of fuel poverty by 2016, together with funding proposals, defined responsibilities for delivery and should be based on the expectation that fuel prices will continue to rise. The Warm Homes and Energy Conservation Act 2000 does add the caveat that the government only has to do what is 'reasonably practicable'. Despite a judicial review and appeal, this phrase has still not been properly defined, but in seven years perhaps it is possible to assume that everything could be 'reasonably practicable' so that by 2016 fuel poverty has, indeed, been eradicated.

 

References

Boardman, B (2007), Home truths: a low-carbon strategy to reduce UK housing emissions by 80% by 2050. Research report for The Co-operative Bank and Friends of the Earth

 

Boardman, B (2010), Fixing fuel poverty: challenges and solutions. Earthscan

 

Guertler, P and Preston, I (2009), Raising the SAP: tackling fuel poverty by investing in energy efficiency. Consumer Focus. London

 

Ofgem (2008), Energy supply probe: initial findings report. Consultation. Ofgem

 

February 2010