Memorandum submitted by Consumer Focus (FP 28)

 

Introduction

Consumer Focus is the consumer champion for England, Wales, Scotland and (for postal consumers) in Northern Ireland. We operate across the whole of the economy, persuading businesses and public services to put consumers at the heart of what they do.

Consumer Focus tackles the issues that matter to consumers, and aims to give people a stronger voice.

We don't just draw attention to problems - we work with consumers and with a range of organisations to champion creative solutions that make a difference to consumers' lives. We work with companies to ensure they put consumers first, and challenge those who fail to do so

We welcome the opportunity to present evidence to the Energy and Climate Change Committee's inquiry into fuel poverty.

Summary

The Government has not met its statutory 2010 target to eliminate fuel poverty among vulnerable households and may miss its 2016 target to eliminate fuel poverty among all households. The main reason for this is the 120 per cent rise in fuel prices since 2003.

Consumer Focus considers the Government could have done more to compensate for the effect of rising fuel prices on fuel poverty levels by carrying out an extensive programme of energy efficiency improvements to the homes of the fuel poor. Current programmes do not go far enough, particularly for 'hard to treat' homes.

The Government could get back on track towards meeting its 2016 target by carrying out a national programme to improve the homes of fuel poor households to a target Energy Performance Certificate (EPC) band B standard. Our research shows that such a programme would remove 83 per cent of fuel poor households from fuel poverty and cut carbon emissions by 59 per cent.

Our proposal - to meet the 2016 target - would cost 3.4bn pa for the next seven years - nearly four times the current level of expenditure on energy efficiency programmes for low income households.

We consider it essential that the Government honours its statutory duty to eliminate fuel poverty on both the 'full income' and 'basic income' definitions of fuel poverty.

The definitions could be improved by removing housing costs from the calculation of income in the fuel poverty equation and by making greater allowance for the higher income needs of larger families. These changes would also help improve the delivery of fuel poverty programmes.

Current Government initiatives on energy efficiency could be improved by combining them into one national programme delivered at a local level. Local authorities should be given greater responsibility for delivering energy efficiency programmes, backed up by new powers and resources.

We consider there is a case for reform of energy market structures, particularly energy networks, so that they are more focused on delivering low carbon and fuel poverty solutions.

The targeting of assistance to both fuel poor and non-fuel poor households would be greatly improved by the creation of a national property database containing details of the energy efficiency standards of every home in the country.

An accelerated programme of requiring all homes to have EPCs could provide the basis for the national database. Consumers should have access to information pertinent to their own homes.

Future delivery mechanisms should build upon the experience of the Community Energy Support Programme (CESP) and Warm Zones, with respect to area-based approaches, and the Scottish Energy Assistance Package with respect to non-area specific referral approaches.

Consumer Focus welcomes the Government's intention to mandate price support for certain low income consumers.

We note that the Government is currently minded to limit such support to older poorer pensioners. We propose that the mandate is extended to households eligible for Cold Weather Payments and households on means tested benefits with school age children. Our proposal would mean nearly half of all fuel poor consumers would benefit from mandated price support.

– While we note that suppliers want to discount prices on online direct debit tariffs to attract new customers, the extent of these discounts far outweigh any savings associated with this payment method and suggests that there is scope for wider price reductions across the board - and not just to the customers suppliers want to attract.

The recent rise in differentials between prepayment/standard credit and on-line direct debit tariffs gives rise to an anomalous situation in which supplier spend on social tariffs appears to have increased. This is because spend is assessed according to the difference between the amount a prepayment meter or Standard Credit consumer would have paid and what they actually pay under the social tariff (defined as the lowest tariff on offer). It also means that suppliers with 'flatter' tariff structures will appear less generous than those with steeper tariff differentials.

These anomalies reinforce the importance of parallel initiatives to reduce the costs of prepayment and Standard Credit tariffs, for example through modernisation of prepayment meters, the introduction of smart meters and through regulatory pressure.

Winter Fuel Payments should be re-named 'Winter Payments' in recognition that they are primarily an income maintenance measure rather than a fuel poverty measure. The system plays an important role in combating pensioner poverty.

We favour extending Winter 'Fuel' Payments to households currently eligible for Cold Weather Payments.

Our proposal for bringing the homes of fuel poor homes up to a target standard of EPC B would make a substantial contribution towards tackling fuel poverty in off-gas households.

Our proposal would entail installing a wider range of measures in off-gas homes than is currently on offer, such as air and ground source heat pumps, bio-mass boilers and solar thermal. The new feed in tariff and renewable heat incentive offer new routes for installing renewable measures in the homes of low income consumers, providing mechanisms are found to fund the up-front costs of measures.

The Government should mandate a higher level of price support to eligible households living in 'off-gas' homes.

The Government should commission a major independent review of its fuel poverty strategy, charged with developing a fully costed Fuel Poverty Plan that sets out how the Government will meet the 2016 target.

 

Progress against Government fuel poverty targets

 

1. The UK Fuel Poverty Strategy sets out the two statutory targets for fuel poverty, reiterated in the Government's 2009 annual progress report:
'The Government, as far as reasonably practicable, will seek an end to fuel poverty in vulnerable households by 2010 ... Fuel poverty in other households will also be tackled as progress is made on these groups, with a target by 22 November 2016, as far as is reasonably practicable, no person in England should have to live in fuel poverty' (Defra and DTI, 2001;DECC, 2009a). There are similar targets for Scotland, Wales and Northern Ireland.

2. The Strategy described the measures the Government intended to take to tackle the three main causes of fuel poverty, namely improvement to the energy efficiency of homes, 'action to maintain the downward pressure on fuel bills' and action to tackle poverty and social exclusion (Defra and DTI, 2001). At first, the Government made good progress towards its targets. Fuel poverty declined from 1.7m households in 2001 to 1.2m households in 2004. However, there has been a significant reverse in the trend since 2004, with fuel poverty rising to 2.8m households in 2007 and a projected 4.6m households in 2009 (DECC, 2009b).

3. The 120 per cent increase in fuel prices between 2003 and 2009 is the principle cause of the rise in fuel poverty. It has meant that the Government will not hit its 2010 fuel poverty target for vulnerable households. There is also a risk that the Government will miss its 2016 target unless there is a radical shift in policy. Furthermore, there are a number of factors that may lead to fuel poverty getting even worse. These include the impact of the recession[1], the estimated 200bn investment required to renew the energy infrastructure and the Government's policy of paying for Low Carbon Transition Plan (LTCP) policies through levies on fuel bills.

4. We note that a central plank of the Strategy's plan to tackle fuel poverty was 'action to maintain the downward pressure on fuel bills'. This approach started to unravel in 2003 with the rise in fuel prices. Once it became clear that this trend was long term, we consider the Government should have made more efforts to improve the energy efficiency standards of homes. In particular, we consider there has been little on offer to households living in hard to treat homes[2], despite the increased risk of severe fuel poverty for such households (about a half of all fuel poor households live in such homes).

5. We therefore call for more action to significantly improve the energy efficiency standards of the homes of fuel poor households. This is essential for bringing the Government back on track towards meeting its 2016 target. We consider the best way of achieving this is for the Government to carry out a national programme for improving homes to a high target energy efficiency standard, coupled with parallel initiatives to install community renewables and Combined Heat and Power (CHP) and district heating. At current fuel price levels, Consumer Focus research suggests that a target EPC B or SAP 81 standard[3] is required to 'fuel poverty proof' homes (Consumer Focus, 2009a).

6. Our research found that improving the homes of fuel poor households to a target EPC B standard would cost 24bn - almost four times the current level of expenditure on energy efficiency measures for low income households (Consumer Focus (2009a). This equates to an average cost of 9,890 per home, or, if part of a wider programme to improve all housing, 7,560 per home. These costs are based on official Government estimates of the costs of standard household level energy efficiency and renewable measures.

7. Whilst we recognise this is a considerable investment, the programme would create 35,700 jobs per year and reduce the fuel bills of the fuel poor by 1.6bn per year. It would have particular benefits for the economies of deprived areas, since low income households spend a much higher proportion of their income in the local economy than higher income households. Most significantly, the research found that an ambitious energy efficiency programme to improve homes to a target EPC B standard would remove 83 per cent of fuel poor households from fuel poverty and cut carbon emissions by 59 per cent. Parallel initiatives to install community level renewables and CHP and district heating will remove an even higher proportion of households from fuel poverty[4]. We are about to update our research with more recent estimates of typical energy efficiency costs, which again will use Government data.

8. The Government has argued that many homes cannot be improved to EPC B and that the 'target standard approach' is not appropriate for Britain's heterogeneous housing stock (DECC, 2009d). However, we consider it is this very heterogeneity that necessitates the approach we propose. The standard determines the type of measures required, which will vary from home to home. New homes will require very little, if any, improvement to heating and insulation. Some slightly older homes may only require minor improvements. Other, particularly hard to treat, homes will require much more expensive insulation and renewable measures. A target would act as a driver to bring the energy efficiency of all homes up to a reasonable standard.

9. There is existing precedent for a 'target standards' approach. Warm Front aims to improve homes to SAP65, although it only achieves this in about 30 per cent of cases due to the limited range of measures it can call upon and its understandable focus on very energy inefficient homes. Similarly, many social housing providers set SAP targets for their housing stock, with some now achieving averages in the low 70s.

The definition of fuel poverty

 

10. The Government uses two definitions of fuel poverty: the official 'full income' definition and a second 'basic income' definition. The first definition includes Housing Benefit, Income Support Mortgage Interest Relief and Council Tax Benefit as income (while deducting expenditure on Council Tax). It roughly approximates to a 'Before Housing Costs' (BHC) definition of income, for example as used by the DWP's Households Below Average Income (HBAI) statistical series. The 'basic income' definition does not include Housing Benefit, Income Support Mortgage Interest Relief and Council Tax Benefit as income (and similarly does not deduct expenditure on Council Tax). However, it is not equivalent to an After Housing Costs (AHC) definition of income because it does not take other housing costs into account, eg mortgage payments.

11. Consumer Focus considers it essential that the Government implements programmes which will enable it to meet the 2016 target on both definitions, while ensuring there is some flexibility in eligibility for programmes to address certain anomalies in fuel poverty measurement (described below). We consider DECC's current review of the Fuel Poverty Strategy should give a clear and unqualified commitment to meeting the 2016 target on both definitions.

12. However, we also consider there is scope for improving fuel poverty definitions since the current definitions cause problems for fuel poverty policy. For example, the 'full income' definition prevents accurate targeting at a local level due to its treatment of housing costs. This is because it is unduly influenced by local variations in housing costs. The 'basic income' definition is less influenced by housing cost variations, although as stated above it does not take all housing costs into account. However, the basic income definition is unique to the measurement of fuel poverty and prevents easy comparison with, for example, data on child poverty. Neither definition takes into account the larger income large families require to maintain similar living standards to small or single person households (incomes are not 'equivalised' in the measurement of fuel poverty).

13. These definitional issues have important implications for fuel poverty policy. Policy is quite rightly moving towards area-based approaches. This will require accurate measurement of fuel poverty at the local level. However, since variations in housing costs affect levels of 'full income' fuel poverty, this will prevent a 'fair' allocation of resources to local areas.

14. Definitions also affect the composition of the fuel poor. The full income definition does not give an accurate picture of fuel poverty among households with high housing costs, such as lone parents and social housing tenants, because the benefits they receive for housing costs are counted as 'income'. Conversely, there appear to be higher levels of fuel poverty than might be expected among households who own their homes outright since they do not receive benefits for housing costs. The effect of definitions on the composition of the fuel poor has important implications for targeting social price support (for example).

15. Fuel poverty definitions also have implications for potential reforms to energy tariff policy, particularly those designed to encourage more energy efficient behaviour by consumers. Current tariff structures do not encourage consumers to be careful with their energy use, since rates tend to decline with increased consumption. A number of reforms have been proposed to address this, for example rising block tariffs, protected 'blocks of consumption' before environmental levies apply and relating environmental levies (eg CERT) to consumption, rather than levying as a flat charge per consumer (Ofgem, 2009a).

16. Tariff reforms of this nature could also have potentially beneficial social outcomes. There is a strong correlation between income and energy consumption since low income households generally live in smaller homes and have fewer appliances than higher income households[5]. Tariff reform may therefore result in lower fuel bills for low income consumers, although further research is required to assess the likely distributional effects.

17. The fuel poverty definition quite rightly uses required fuel expenditure, rather than actual fuel expenditure. This addresses the issue of under-consumption, or energy rationing, by many low income households which leads to cold homes and other problems. It also highlights the contribution of low energy efficiency standards to fuel poverty. However, tariff reform could potentially lead to an apparent increase in fuel poverty because many low income households would be pushed into the higher tariff blocks, if they consumed energy at levels sufficient to maintain warm homes[6]. In reality, we suspect that tariff reform will result in lower actual fuel bills for most low income consumers, particularly if combined with energy efficiency improvements. However, there is a small group of consumers with high energy needs due to their health and disability requirements. This group will need some form of protection should tariffs be reformed. The issue yet again emphasises the importance of raising energy efficiency standards in low income households' homes.

Coherence of Government initiatives on energy efficiency

 

18. Consumer Focus considers the current approach to delivering energy efficiency programmes is fragmented, lacking in cohesion and confusing to consumers, particularly those on low incomes. It relies too much on low income consumers coming forward for help, rather than proactively identifying those needing help and delivering it to them. Consumers in hard to treat homes, particularly those living in rural areas, are unlikely to claim grants because there is little on offer for them.

19. However, we consider future policy shows signs of improvement. The CESP programme, for example, is piloting an area-based approach to delivering measures, including some measures suitable for hard to treat properties. While we still have some concerns about the details of the programme and the limited number of households that will be helped, it does represent a step towards more proactive and efficient delivery of energy efficient measures.

20. The Government is also reviewing delivery mechanisms and we anticipate it will announce significant changes in the draft Household Energy Management (HEM) Strategy, due out soon. We understand that local authorities will be expected to play a much more significant role than has hitherto been the case. We would welcome such a move since there is considerable evidence that consumers are more likely to trust local authorities (Icarus, 2009). It would also encourage accountability, improved consumer engagement and greater sensitivity of programmes to local housing circumstances.

21. However, it is important that sufficient resources and powers are delegated to local authorities to enable them to carry out this role. Local authorities will also need to develop local partnerships to implement their remit, particularly with voluntary and community organisations (and provide funding to such organisations to carry out support).

22. The Government has also announced pilot Pay As You Save (PAYS) projects with a view to rolling out the model as the principal mechanism for delivering the post 2012 supplier obligation to 'able to pay' households. We have argued, and the Government has accepted, that PAYS is not suitable for low income households. We therefore hope that the forthcoming HEM Strategy will allocate the 'lion's share' of the supplier obligation to supporting low income households since PAYS implies less subsidy than is currently the case to 'able to pay' households.

23. We note that only 40 per cent of the current CERT target is allocated to priority group households. This compared to 50 per cent under the previous EEC programme which also had a smaller priority group (the EEC priority group, unlike CERT, did not include non-benefit over 70 year olds). We welcome the Government's proposals to define a 'super priority group' for the CERT extension (DECC, 2009e). We will put forward proposals for who we consider should be included within this group in our response to the consultation. We consider a much higher proportion (than 40 per cent) of the supplier obligation should go towards priority group households and note that 80 per cent of the target under the equivalent programme in Northern Ireland is allocated to low income households.

24. We support many of National Energy Action's proposals for reform of energy efficiency delivery, as set out in their policy document 'Rebuilding for Britain's energy future'. The establishment of a single national energy efficiency scheme will reduce consumer confusion considerably and, coupled with systematic delivery of measures to consumers' homes, will ensure all homes are improved cost effectively. Area-based approaches which deliver measures at scale should improve cost effectiveness, compared to the current 'scatter-gun' approach.

25. Consumer Focus is concerned about the extent to which the Government plans to fund the cost of low carbon transition almost entirely through levies on energy consumers' bills, including programmes for low income households. This represents a regressive means of raising finance, given that fuel costs represent a much higher proportion of the income of low income households than that of moderate to higher income households. We urge the Government to explore alternative sources of funding for low carbon transition, including the use of public expenditure (we consider current levels of public expenditure on energy efficiency should at the very least be maintained and preferably improved).

26. Consumer Focus also considers there is a case for further reform of energy market structures, particularly regional energy networks, so that they are more focused on delivering low carbon and fuel poverty solutions, such as energy efficiency, renewable heat and power and district heating. Consumer Focus has set out some ideas for reforming the energy market so that it is better suited to tackle carbon emissions and fuel poverty in a discussion paper (Consumer Focus, 2009b)[7].

Targeting assistance at households in need

 

27. Consumer Focus recognises that it is not possible to accurately identify individual fuel poor households since information on the energy efficiency standards of every individual home in the country and the income of its occupants does not exist. The Government uses fuel poverty proxies, such as entitlement to certain benefits, instead. This gives rise to problems in targeting assistance given that benefit status does not give any indication of the energy efficiency standard of the home.

28. Consumer Focus considers that targeting assistance at both fuel poor and non-fuel poor households could be improved considerably by compiling a national database of the energy efficiency standards of every home in the country. The EST's current Home Energy Efficiency Database (HEED), supported by DECC's National Energy Efficiency Framework, could potentially be developed into such a database. However, if the Government were to require all homes to have an Energy Performance Certificate over the next, say, three years, HEED could be improved considerably. The proposal would require improvements to the EPC system, mechanisms to ensure the database is regularly updated and tools to enable individual occupants to access the information specific to their home together with tailored advice on how to improve them.

29. By combining small area income data, for example on benefits, with detailed property data, it would be relatively straightforward to identify fuel poor households. Detailed property data would also allow programme deliverers to identify the packages of energy efficiency/renewable measures required to improve homes, both for fuel poor and non-fuel poor households.

30. The current policy of using benefit status as a proxy for fuel poverty status causes problems in targeting assistance. In 2007, only 60 per cent of 'full income' fuel poor households (or 71 per cent of 'basic income' fuel poor households) claimed means tested benefits, tax credits under the income threshold, Attendance Allowance or Disability Living Allowance (DECC, 2009c). These are the passport benefits for Warm Front and priority group CERT[8]. Thus, 40 per cent of fuel poor households are excluded from fuel poverty programmes, despite the 6.4m households that claim passport benefits in England.

31. Given the mismatch between benefit and fuel poverty status, it is perhaps not surprising that only 25 per cent of Warm Front clients are fuel poor (National Audit Office, 2009). Of course many 'non-fuel poor' Warm Front clients may have been close to the fuel poverty threshold and struggling to pay their fuel bills. Warm Front is designed to reduce the risk of households falling into fuel poverty, as well as reduce fuel poverty itself.

32. Of greater concern is the 40 per cent (or 29 per cent under the 'basic income' definition) of fuel poor households who are excluded from Warm Front or priority CERT because they do not claim passport benefits. Benefits take-up campaigns may help reduce this figure, particularly given the extensive problem of under-claiming in this country (an estimated 10.5bn of benefits were unclaimed in 2007/08). However, we consider more fundamental reform is required to ensure all fuel poor households, particularly those living in hard to treat homes, receive help.

33. Consumer Focus notes that the Scottish Government's Energy Assistance Package is designed to target help at low income homes that live in the most energy inefficient housing. Certain households on benefits who live in homes with an EPC rating of E, F or G are eligible for an extensive package of assistance that includes heat pumps and other renewable measures. The scheme also provides a one-stop shop referral service in which different levels of help are offered according to the extent of need.

34. Consumer Focus also notes that the CESP programme is designed to provide measures to all households that live in designated low income areas, regardless of their benefit status. While only 90,000 homes will benefit from the programme, it potentially could provide valuable lessons, alongside other area-based initiatives such as Warm Zones, for future policy. These include the systematic delivery of measures on an area basis, reaching fuel poor households (particularly those categorised as 'hard to reach' and those not claiming passport benefits) and integration with other support (eg welfare rights) and funding mechanisms (eg regeneration programmes).

35. While there is a strong argument for using area-based approaches as the main form of delivery, it is important that these are complemented by non-area specific schemes, as exists at present. Referral-based systems are important for priority households that do not live in designated areas and for remote rural areas in which area-based approaches are less effective. Consumer Focus therefore suggests that future delivery mechanisms should build on the CESP and Warm Zone approach, while ensuring they are complemented with the EAP style approach to non-area specific referral.

Social tariffs and social price support

 

36. Consumer Focus welcomed the Government's announcement to mandate price support. In common with our predecessor organisations, we had campaigned for the Government to mandate minimum standards for energy suppliers' social tariffs. We argued that the Government should provide leadership and take responsibility for an important social policy concern, namely the inability of many low income consumers to afford their fuel bills. We did not consider it appropriate for fuel companies to decide who should receive social tariffs and the size of the rebate they received.

37. We therefore recognise that the Government's proposal for mandated price support represents a significant step forward. We also recognise that it is currently not possible to accurately identify individual fuel poor households because there is currently no universal information on the energy efficiency standards of homes, as stated above. Without a property database, the Government has to rely on the proxy of entitlement to certain benefits.

38. Consumer Focus considers the mandate should apply to a wider range of groups vulnerable to fuel poverty than the group the Government is 'minded to focus resources on', namely low income older pensioners (DECC, 2009f). We propose extending the mandate to low income families and disabled people, as well as pensioners; specifically households eligible for Cold Weather Payments, plus households on means tested benefits with school age children.

39. We consider the Cold Weather Payment system represents a useful proxy for fuel poverty because it is designed to provide extra benefits during prolonged periods of cold weather to low income households who are particularly vulnerable to cold. We also consider all low income children (not just those under five) should receive support, for reasons outlined in the Government's UK Fuel Poverty Strategy:
'Children are particularly vulnerable to respiratory conditions such as asthma, which have been linked to cold and damp homes. Cold homes also increase the time taken to recover from other illnesses so that children may be off school more, affecting their education and development. Homework can suffer if the family is squeezed into a small part of the home, and there is nowhere for the children to study in quiet.' (Defra & DTI, 2001).

40. We have carried out research that shows the group we propose for mandated price support is just as likely to live in fuel poverty as the group proposed by the Government, which we interpreted as households over 70 claiming Pension Credit[9] (Consumer Focus, 2010).

41. The provision of mandated price support to our proposed group would help 4.2m households, 2.3m of whom receive Pension Credit. The group makes up 45 per cent of all fuel poor households in England. We consider this a fairly good 'hit rate', given the difficulties of identifying fuel poor households. In comparison, restricting the mandate to households over 70 claiming Pension Credit would mean that only 17 per cent of the fuel poor are helped.

42. Consumer Focus also thinks the Government should consider providing a higher level of mandated price support to eligible households off the gas network, given that they face much higher fuel costs than those with gas heating. There is a similar case for households living in solid walled homes; however, this group would be more difficult to identify than those 'off-gas'.

43. We consider it important that eligible households receive mandated price support automatically, rather than by having to make a separate claim. We welcome the Government's current data sharing pilot with the fuel companies as an important step in this direction. We recognise that legislative change will be required to provide mandated price support automatically to the group we propose, given that a substantial element are non pensioners (the data sharing provisions currently only apply to pensioner households).

44. Consumer Focus considers it essential that the Government and Ofgem should, in parallel with the social price support proposals, take urgent action to address the continuing problems in the British energy market. Consumer Focus is very concerned that at a time of historically high energy prices, and increasing supplier margins, suppliers are not fully passing on wholesale price cuts and consumers are not getting a fair deal. The Government must now give consideration to a Competition Commission referral.

45. We recognise that Ofgem has taken action to address previous unfair price discrimination with the introduction of new licence requirements to ensure that the prices paid by standard credit and prepayment customers are reflective of the additional cost to serve them. However, we are concerned that these additional costs are not efficiently borne, especially in prepayment where suppliers have not invested in new technology along with reduced competitive pressure.

46. Supplier pricing strategies also indicate the scope for wider price reductions. Price differentials with on-line direct debit tariffs have continued to grow. In September 2009, for dual fuel consumers, the differential between average annual prepayment costs and the cheapest on-line direct debit costs was 190. By February 2010, this had risen to 303 (see Annex). While it is accepted that suppliers want to discount prices to attract new customers, the extent of these discounts far outweighs any savings associated with this payment method and suggests that there is scope for wider prices reductions across the board - and not just to the customers who suppliers want to attract.

47. Smart meters also provide a key opportunity to reduce the differential between direct debit and prepayment meter tariffs. Dual fuel prepayment meter customers continue to pay on average 93 more than direct debit (not on-line) consumers for their fuel per year. Consumer Focus believes that Government should mandate prepay functionality for gas smart meters as well as for electricity smart meters. Assuming every property will in future have a common type of smart meter for electricity and gas, the universal introduction of this function would reduce the cost to serve. It should eliminate the difference in capital costs of the meters, reduce much of the additional cost of running separate prepayment meter infrastructure and the cost of a visit to change the meters when consumers switch between payment methods.

48. We also anticipate that the increase in payment options, flexibility and ease of use of prepayment arising from smart metering would help revolutionise the pay as you go energy market and drive competition in this sector. Experience in Northern Ireland with semi smart meters suggests than when costs are competitive prepay is the payment method of choice for many consumers, as in other sectors.

49. Ofgem defines a social tariff as a tariff that 'must be at least as good as the lowest tariff offered by that supplier to a customer in that region on an enduring basis. This is regardless of that customer's payment method and includes online tariffs' (Ofgem, 2009c). Ofgem monitors suppliers' expenditure on social programmes each year and notes that 83 per cent of supplier expenditure is on social tariffs (Ofgem, 2009c). This monitoring information is used to assess suppliers' progress against the voluntary agreement with Government for supplier expenditure on social programmes (350m over a three year period, up to March 2011).However, given the current level of differentials; supplier expenditure on social tariffs will appear very generous. It also means that for two suppliers with equal numbers of social tariff consumers, the supplier with a 'flatter' tariff structure will appear to less generous than a supplier with high tariff differentials.

50. Consumer Focus considers that the Government and Ofgem should, in parallel with the social price support proposals, take urgent action to address problems in the British energy market, including for example suppliers' failure to fully pass on wholesale price cuts to consumers and the mandating of gas prepayment as part of the minimum smart metering requirements. This is essential for the many low income consumers who are not likely to receive social price support. It is also essential for ensuring price support is capable of making fuel bills more affordable for those receiving support.

Winter fuel payments and cold weather payments

 

51. Consumer Focus considers the Winter Fuel Payment represents an important income maintenance measure. It helps supplement the basic State pension and provides help to the many low income older households who do not claim the benefits to which they are entitled. Its very universality helps ensure that help is provided to those who need it most. We also note that it is very popular with pensioner households.

52. We do not consider that the problem of under-funding of capital programmes should be addressed through cutting the budget for Winter Fuel Payments. We also consider the Government should not count the Winter Fuel Payment budget towards its expenditure on fuel poverty. We do not consider Winter Fuel Payments as integral to tackling fuel poverty. Instead, we consider it primarily an income maintenance programme that forms part of a wider swathe of initiatives for tackling general poverty, particularly that among pensioners. In this context, we consider it should be re-named 'Winter Payments'.

53. Consumer Focus welcomed the Government's increase to payments under the Cold Weather Payment system. We acknowledge that coupled with the severe winters over the past two years, it has provided significant help to low income households.

54. However we believe all households eligible for Cold Weather Payments should automatically receive the same level of support as that currently provided by Winter 'Fuel' Payments to pensioner households. In effect, our proposal would represent a hybrid system of universal payments to pensioner households and means-tested payments to non-pensioner households currently eligible for Cold Weather Payments.

Support for households not connected to the gas grid

 

55. We have already stated our concerns about the lack of provision of energy efficiency measures for hard to treat homes, including those off the gas grid. We welcome the current trials of air source heat pumps under Warm Front and consider they potentially offer a useful alternative to oil central heating or electric storage radiators (the current measures offered under Warm Front to off-gas clients). We consider a range of other alternatives should also be offered, including ground source heat pumps, biomass boilers and solar thermal. Community-wide schemes can also potentially provide a useful option.

56. The feed-in tariff (FIT) and renewable heat incentive (RHI) offer potentially valuable mechanisms for funding renewable measures, particularly in off-gas homes. However, we consider it essential that business models are developed that will provide funding to cover the high up-front costs of renewable measures for low income consumers through capitalisation of the revenue stream from the tariffs. We note that the Government intends to consult upon possible options to use the tariffs to help low income consumers later this year. We were disappointed that proposals were not set out within the main consultations for FIT and RHI. We consider there is considerable potential in developing products that draw upon CERT, Warm Front, FIT and RHI so that consumers can be offered 'whole house' improvements as an integrated package.

57. As stated above, we consider that off-gas consumers eligible for mandated price support should be offered a higher rate of support than consumers connected to the gas grid.

 

Conclusions

58. Consumer Focus considers fuel poverty has reached crisis levels and is likely to get even get worse, given the continuing rise in fuel prices predicted over the medium term. We are working with a wide-ranging coalition of environmental, poverty and consumer organisations - the 'End Fuel Poverty Coalition' - in calling for a radical new direction for fuel poverty policy. We urge the Government to carry out an independent review of its fuel poverty strategy to enable it to get back on track towards meeting its 2016 target. We consider such a review should go much further than the current internal DECC review and engage a wide range of organisations in its work.

59. We believe the review should be charged with setting out a 'road map' - a fully costed Fuel Poverty Plan - that spells out exactly what measures the Government will take to meet its statutory 2016 target, how much these measures will cost and when and how they will be delivered. We would welcome the opportunity to take part in such a review.

 

References

BRE (2009), An investigation of the effect of rising block tariffs on fuel poverty, Committee for Climate Change

Consumer Focus (2009a), Raising the SAP - tackling fuel poverty by investing in energy efficiency, Consumer Focus (November 2009 revised version)

Consumer Focus (2009b), A new energy infrastructure, Consumer Focus

Consumer Focus (2010), Cutting the energy bills of the fuel poor, publication forthcoming

DECC (2009a), The UK Fuel Poverty Strategy - 7th annual progress report, DECC

DECC (2009b), Annual report on fuel poverty statistics 2009, DECC

DECC (2009c), Fuel poverty 2007 - detailed tables, DECC

DECC (2009d), Government response to the Efra select committee inquiry: energy efficiency and fuel poverty, DECC

DECC (2009e), Extending the carbon emissions reduction target, DECC

DECC (2009f), The UK Low Carbon Transition Plan, DECC

Defra and DTI (2001), The UK Fuel Poverty Strategy, DTI

Icarus Consulting (2009), Understanding consumer attitudes to sustainable community infrastructure, Icarus

National Energy Action (2009), Rebuilding for Britain's energy future, NEA

Ofgem (2009a), Can energy charges encourage energy efficiency?, Ofgem

Ofgem (2009b), Guidelines on cost reflectivity between payment methods and the prohibition of undue discrimination in domestic gas and electricity supply contracts, Ofgem

Ofgem (2009c), Monitoring suppliers' social programmes 2008/9, Ofgem

 

 

Annex: Duel fuel tariffs on offer in 17 February 2010

 

 

 

Standard Tariffs

Tariff Status

 

 

 

Current

Current

Current

Current

Current

Current

 

Average

 

Dual Fuel - Medium User

SPower

EDF

BGas

E.ON

Npower

SSE

 

Bill

 

Average monthly direct debit

1,156

1,117

1,082

1,133

1,150

1,132

 

1,128

 

Average standard credit - cash or cheque

1,355

1,189

1,157

1,231

1,255

1,192

 

1,230

 

Average PPM

1,262

1,189

1,157

1,231

1,255

1,235

 

1,221

 

 

 

 

 

 

 

 

 

 

 

 

Online Tariffs

Tariff Status

 

 

 

Current

Current

Current

Current

Current

Current

 

Average

 

Dual Fuel - Medium User

SPower

EDF

BGas

E.ON

Npower

SSE

 

Bill

 

Average monthly direct debit

922

942

898

920

905

924

 

918

 

Average standard credit - cash or cheque

n/a

1,003

1,123

1,173

n/a

985

 

1,071

 

Average PPM

n/a

n/a

1,084

n/a

n/a

n/a

 

1,084

 

NOTE: Source: Consumer Focus price comparison factsheets.

Base on an average gas consumption of 20,500 kWh and an average electricity consumption of 3,300 kWh pa.

Where 0 or n/a is shown in this table, this indicates that the supplier does not have that payment option available.

Price inclusive of VAT.

 

Difference between Standard Credit (not on-line) and cheapest on-line Direct Debit = 312*

 

Difference between prepayment meter and cheapest on-line Direct Debit = 303*

 

*This compares the average of each supplier's standard tariff, across all regions, with the average of each supplier's cheapest on-line price.

 

February 2010

 

 


 

 

 

 

Consumer Focus submission

Energy and Climate Change Committee

Fuel poverty: call for evidence

 

Written by: William Baker, Consumer Focus

 

www.consumerfocus.org.uk

 

Copyright: Consumer Focus

Published: February 2010

 

 

If you require this publication in Braille, large print or on audio CD please contact us.

 

For the deaf, hard of hearing or speech impaired,
contact Consumer Focus via Text Relay:

 

From a textphone, call 18001 020 7799 7900

From a telephone, call 18002 020 7799 7900

 

 

Consumer Focus

 

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[1] 65 per cent of unemployed people in 2007 were fuel poor under the 'basic income' definition, or 41 per cent under the 'full income' definition (DECC, 2009c).

[2] The term 'hard to treat' refers to homes for which it is not possible to install standard energy efficiency measures, such as loft and cavity wall insulation and gas condensing boilers. There are solutions for such homes, for example solid wall insulation, heat pumps and CHP/district heating. However, these are more expensive than standard measures

[3] EPC - Energy Performance Certificate - rates the energy efficiency standards of homes using a grade from 'A' to 'G'. An 'A' rating is the most efficient and 'G' the least efficient. The average grade in Britain is 'D'. SAP - Standard Assessment Procedure - rates the energy efficiency homes of homes on a scale of 0 to 100, with some homes which export energy going above 100. The average SAP standard in England is 50 but in the case of the homes of fuel poor households, only 37.

[4] The research methodology was not able to model the impact of community renewables, CHP, district heating and more innovative insulation and heating measures on fuel poverty.

[5] The two lowest income deciles produce 60 per cent less carbon than the highest two income deciles (ref)

[6] It is for this reason that the Office for Climate Change considered a rising block tariff policy would not benefit fuel poor households (BRE, 2009).

[7] The paper is intended to stimulate discussion, rather than represent formal Consumer Focus policy.

[8] Note that 74 per cent of 'full income' fuel poor households fall into the CERT priority group due to the inclusion of over 70 year olds not on benefits.

[9] The Government has not yet stated precisely how it will define 'older poorer pensioners'.