submitted by the Institute for Public Policy Research (ippr) (FP 34)
· The 2010 fuel poverty target has not been met and it
is unlikely that the 2016/18 target will be met because rising energy prices,
increased levels of worklessness (resulting from the recession) and likely
future constraints on public spending will all push up levels of fuel poverty.
· There are a number of problems associated with the
current definition of fuel poverty, which mean that fuel poverty is not
necessarily being addressed in the most appropriate way. The definition therefore needs to be
· The current fuel poverty strategy does not
prioritise energy efficiency measures, even though they represent the most
sustainable and cost effective way of addressing the problem. In future, much greater emphasis needs to be
given to energy efficiency.
· Targeting fuel poverty programmes is notoriously
difficult. We welcome attempts to use
datasharing to improve targeting as well as moves towards 'area-based' approaches,
which avoid the problems of targeting.
· Using social tariffs and/or social price support
makes sense as a short term measure, but it should not be seen as a long-term
option because it is ultimately paid for by energy customers in a regressive
· Winter Fuel Payments are not an effective way of
tackling fuel poverty. They should be
rolled into the Basic State Pension and replaced with a more appropriate fuel
poverty payment, perhaps along the lines of Heating Additions, which were
phased out in the 1980s.
· Government should commission an independent review
into fuel poverty, which should aim to fundamentally rethink the current
2. About ippr
Institute for Public Policy Research (ippr) is the UK's leading progressive think
tank, producing cutting edge research and innovative policy ideas for a just,
democratic and sustainable world. Ippr has a strong track record of
policy-focused research on climate change, and welfare and poverty. We are currently engaged in a research project
to assess the impact of current measures to tackle fuel poverty and to develop recommendations
for how the fuel poverty agenda should be taken forward in a context of growing
concerns about the fairness in the context of climate change
policies, and increased pressure on public spending. We expect to publish our final report in
winter of 2009/10 has been one of the coldest the UK has experienced for
decades. The cold weather has
highlighted the continuing problem of fuel poverty in the UK and
heightened efforts to address the problem.
The Government is conducting a review of its fuel poverty programme and
looks set to introduce a new obligation on energy companies to reduce energy
bills for vulnerable households. However, this is unlikely to be sufficient to
eliminate the problem of fuel poverty entirely.
4. Progress against Government targets
the progress in tackling fuel poverty seen in the late 1990s and early part of
the 2000s, the number of people living in fuel poverty has been increasing
since 2004/05. As a result, the 2010
target to end fuel poverty for vulnerable households in England will
not be met. The primary driving factor
in pushing up instances of fuel poverty has been the sharp rise in domestic
energy prices seen in recent years; domestic gas and electricity prices have
increased by approximately 100 per cent since 2004. Although the introduction of more generous
benefits (such as Pension Credit, tax credits and Winter Fuel Payments) and
improvements in domestic energy efficiency will have had a beneficial effect on
the number of people in fuel poverty, these have been outweighed by the
increases in energy prices.
4.2 It seems
likely that without additional action, fuel poverty will continue to worsen in
the future. There are three important
drivers that are likely to increase instances of fuel poverty in the future:
1. Energy prices look set to continue rise in
overall terms for the foreseeable future;
2. Household income may decline in the short
term as a result of the recession and the associated increase in worklessness;
3. The likely reduction in public spending from
2010/11 to reduce the fiscal deficit could reduce the scope for government
intervention to tackle fuel poverty.
4.3 These pressures suggest that without
increased efforts to address fuel poverty, the legally enshrined target to
eradicate fuel poverty among all households in England by 2016 will not be met.
5. The definition of households in fuel poverty
research identified a number of concerns with the definition of fuel poverty as
it currently stands (although it should be noted that some of the experts we
interviewed felt that the definition was adequate and should not be changed).
5.2 First, the use of 10 per cent as the cut
off point for defining fuel poverty has been questioned. If energy prices continue to rise at a faster
rate than income levels, then more and more people will cross this threshold
and be classified as 'fuel poor'. There
are several ways this problem could be dealt with. First, to increase the limit, for example, by
making it proportional to the average spend on energy. The second is to retain the threshold but to
identify different subgroups within the 'fuel poor' to help distinguish the most
vulnerable. For example, this could mean
identifying people who are on the lowest incomes, those who live in
'hard-to-treat' properties or people who are the most susceptible to health
problems as a result of living in cold homes.
5.3 The second concern with the definition
identified by our research was its formulation as expenditure on energy as a
proportion of income. Defining fuel
poverty in this way results in the confusing outcome that (statistically
speaking) reducing energy bills is ten times more effective at removing people
from fuel poverty than action to increase household income by an equivalent
amount. This statistical effect has been
a key factor in promoting action to reduce fuel bills through the voluntary
agreement with energy suppliers and then the mandatory social price
support. As we will go on to argue in
paragraph 8.1 below, there are a number of reasons why increasing the emphasis
on reducing bills (and therefore making energy companies and ultimately energy
consumers pay) is problematic.
5.4 Ippr believes that the definition of fuel
poverty should be reviewed as part of a wider independent review on fuel
6. The coherence of the
Government's initiatives on energy efficiency
Government's current fuel poverty strategy consists of a three-pronged
approach: increasing household incomes, reducing energy bills and improving
energy efficiency. It is widely
recognised that energy efficiency measures represent the most cost effective
and sustainable way to tackle fuel poverty (because energy
efficiency programmes have a one-off cost which delivers sustained reductions
in energy requirements, whereas measures to increase household income or to
provide discounts on energy bills require continued funding).
6.2 However, the current, target-driven
approach to tackling fuel poverty has tended to drive policy responses to focus
on short-term solutions such as financial measures rather than long-term
investment in energy efficiency. For example,
the planned expenditure on energy efficiency measures through Warm Front (and
equivalent programmes in devolved administrations) and the Decent Homes
programme over the three year period between 2008 and 2011 is roughly the same
as the annual spend on Winter Fuel
and Cold Weather Payments. The lack of
emphasis on energy efficiency is also reflected in the failure of current
energy efficiency programmes to address hard-to-treat and off-grid properties.
6.3 A number of studies have attempted to
estimate how much it would cost to address fuel poverty through a comprehensive
domestic energy efficiency programme.
The figures produced range from £9.2 billion (supplemented by support
for energy costs) to £64 billion. Ippr recommends that a full cost-benefit
analysis setting out how long the 'pay-back' period would be for different
types of investment should be conducted in order to better inform decisions
about how energy efficiency measures could be better prioritised in future.
7. The methods used to
target assistance at households which need it most
7.1 Targeting the fuel poor is
notoriously difficult due to the diverse nature of households living in fuel
poverty. In addition there can be
problems achieving high levels of take up, even where targeting is good. There are many reasons that people fail to
take up benefits that they are entitled to, but an important one is the stigma
associated with being labeled as 'poor'.
7.2 We welcome
attempts to improve targeting of energy companies' measures on fuel poverty
through data sharing with DWP. If the
datasharing trials with Guarantee Pension Credit recipients prove successful,
we recommend that the datasharing approach should be extended to include
recipients of Cold Weather Payments since there is a strong correlation between
people receiving this benefit and those living in fuel poverty. Although datasharing could improve targeting,
there is still a problem with uptake, since currently the take-up rate of
Pension Credit is only around 70-80 per cent, as measured by expenditure. This means that 20-30 per cent of eligible
customers will not receive a rebate under the Energy Rebate Scheme. We recommend that Government continues its
work to improve uptake of Pension Credit to ensure that as many people as
possible can benefit from the Energy Rebate Scheme (and Mandatory Price Support
measures should the datasharing approach be extended to this scheme too).
7.3 We also
support moves towards a greater use of 'area-based' approaches (such as the
Community Energy Saving Programme and Warm Zones) as these overcome many of the
targeting problems - including problems of take up - since the programmes
include all households, not only those meeting the definition of being 'fuel
8. Social tariffs and plans to put social price
support on a statutory footing
research revealed a strongly held conviction among representatives from NGOs,
fuel poverty campaign groups and energy companies that in an ideal world, fuel
poverty would be addressed solely through the tax and benefits system. This is because measures applied through
energy companies are ultimately paid for by energy consumers and the costs are
passed on in a regressive way. This
contrasts with the tax and benefit system, where income tax at least is
'progressive' (higher earners pay a larger share of their income in tax than
lower earners) and governments can use benefit payments to disproportionately
increase the incomes of the poorest.
8.2 However, while we recognise that social
tariffs/mandatory price support might not be the ideal option, we also
acknowledge that given the current pressures on public expenditure, it will be
necessary to continue with energy supplier-led measures on fuel poverty in the
short term. But they should not be seen
as a long-term option.
8.3 The introduction of social price support
has a number of advantages over the existing system of social tariffs, most
notably because it creates a unified system across all energy suppliers,
providing more clarity and consistency for vulnerable consumers.
8.4 However, it remains a regressive tool and
to try to minimise the impacts of this approach, we recommend that Government
should investigate ways to ensure that costs are passed on to customers in the
least regressive way possible. One way
to do this might be to design the balancing mechanism between energy companies
(to ensure no company is made to bear a disproportionate share of costs of
implementing the scheme) on the basis of units of energy sold rather than
number of customers. This approach would
encourage suppliers to pass on the costs on a per-unit basis rather than as a
fixed cost per customer. Since people on
higher incomes tend to use more energy than those on the lowest incomes, this
approach could be more progressive on average.
8.5 Our research identified a number of risks
associated with the introduction of mandatory price support. First, moving away from social tariffs
towards a rebate system means there will no longer be a guarantee that
recipients are on the lowest available tariff.
8.6 Second, the level of the rebate is not
linked to energy prices, so there is a risk that prices could rise by more than
the level of the rebate, in which case recipients will be tipped back into fuel
8.7 Third, there is a question about what the
level of the rebate should be. If it is
set too high, then the additional costs (which are ultimately borne by all
energy consumers) could end up pushing customers at the margin (but who are not
eligible for rebates) into fuel poverty.
There should be scope to increase the level of the rebate in future as a
precaution against large energy price rises.
However, we recommend that Government should commit to match any future
increased spending requirements imposed on energy suppliers with an equal
increase in publicly-funded fuel poverty programmes to ensure the balance
between government- and energy company-led programmes does not tilt any further
towards the energy companies and hence result in a more regressive approach to
paying for fuel poverty measures.
8.8 A final concern is that customers who
were eligible for social price support but who already benefited from a social
tariff might be excluded from receiving the rebate. We believe that using data provided by DWP to
exclude some people from receiving
the rebate goes against the spirit of the data sharing as allowed under the
Pensions Act 2008. We therefore suggest
that the rebate created by mandatory social price support should be offered in
addition to the measures already offered under the voluntary agreements.
9. Winter fuel payments and cold weather payments
9.1 It is widely acknowledged that Winter
Fuel Payments (WFPs) are not an effective way of tackling fuel poverty, as only
12 per cent of
people who receive them are thought to be fuel-poor. However, Winter Fuel Payments are an
effective way of increasing the incomes of pensioners using a non-means-tested
mechanism, which will benefit those on low-incomes who fail to take up their
entitlement to Pension Credit. In addition, Winter Fuel Payments are a popular
measure, which is likely to make their removal very challenging politically.
9.2 The Environment, Food and Rural Affairs
Select Committee have proposed that WFPs should be made taxable and that the
entitlement should be stopped altogether for higher rate tax payers.
While this is an attractive proposal in principle, it has been suggested that
there may be some practical barriers that make this difficult and costly to
implement in practice, as suggested by the Government's response to the Select
Committee's recommendation. It is difficult to make WFPs taxable because
DWP would not be able to tax at source, and even if they could, the individual
would need to establish their tax liability with HMRC and would need to make
the effort to claim back tax. Stopping
the payment for higher rate tax payers also raises difficult questions: would
the WFPs be paid and then claimed back at the end of the tax year if recipients
found their income was over the threshold, or would the decision about whether
to pay the WFPs be based on the previous year's income? The latter case could cause concern for
people who are about to retire and see their income drop substantially.
9.3 We recommend that ultimately, the WFP
should be rolled into the Basic State Pension for the sake of clarity about the
widely recognised purpose of the payment.
This would also have the benefit of making the payment taxable thus
avoiding the technical problems associated with taxing a separate WFP. As WFPs are phased out, a new form of benefit
that genuinely addresses fuel poverty would need to be introduced. One
possibility would be to introduce a new form of benefit along the lines of
Heating Additions, which were phased out in the 1980s. Heating Additions were
paid to Supplementary Benefit (Income Support) claimants who met certain
criteria relating to the vulnerability of members of the household and
characteristics of the dwelling.
10. Need for a
radical review of the fuel poverty strategy
10.1 The context in which fuel poverty is being
addressed has changed substantially since the Government's fuel poverty
strategy was first developed in the early 2000s. Energy prices are rising, climate change is
much higher on the political agenda and new technologies are offering new
solutions to the problem. We believe
that the time is right for a fundamental rethink of the Government's approach
to the problem to ensure that it is fit for purpose in today's Britain. DECC's current review of fuel poverty does
not go far enough as it will only deliver incremental changes to the current
approach, rather than a thorough and strategic rethink.
10.2 We recommend that the Government should
commission an independent review into fuel poverty, which should consider the
· How can energy
efficiency measures be prioritised over cuts to energy bills and income
· Should fuel poverty
be redefined to ensure a more rational approach to selecting fuel poverty
· Is target-setting an
appropriate approach to addressing the problem?
· How should
responsibility for paying for fuel poverty measures be divided between
government and energy companies to ensure the fairest approach?
· Who should deliver
fuel poverty programmes? Could there be
a role for Distribution Network Operators or local authorities as well as
central government and energy suppliers?
And is there scope for better partnership working between these
· How can new
technologies (such as smart meters, micro generation and community heating) be
used to help address fuel poverty?
11.1 Despite the Government's efforts, fuel
poverty looks set to get worse, not better, in the coming years. While recent policy initiatives in this area
(including increases in winter fuel payments and cold weather payments and the
new mandatory price support scheme) will help tackle the problem to some
extent, they will not be sufficient to eradicate fuel poverty entirely.
11.2 A new approach to dealing with fuel poverty
is necessary and the first step towards this should be an independent review of
fuel poverty that would fundamentally rethink the UK's fuel poverty strategy and
ensure it is fit for purpose in a world of rising energy prices.
 Office for National Statistics (ONS) (2009a) Economy webpages,
available at: http://www.statistics.gov.uk/cci/nugget.asp?id=19
and National Energy Action (2009) The Cost of Affordable Warmth
Glasgow/Newcastle-upon-Tyne: Energy Action Scotland/National Energy Action.
Available at http://www.eas.org.uk/downloads/The%20Cost%20of%20Affordable%20Warmth_FINAL%20VERSION.pdf
D P (2009) 'The value of retrofitting carbon-saving measures into fuel poor
social housing' Energy Policy 38(2):
832 - 839 ; Preston I, Moore R and Guertler P
(2008) How Much? The cost of alleviating
fuel poverty Bristol:
Centre for Sustainable Energy;
W (ed.) Raising the SAP: Tackling fuel
poverty by investing in energy efficiency London: Consumer Focus. Available at http://www.consumerfocus.org.uk/assets/1/files/2009/11/FuelpovertyproofingcostpubMay09final.pdf
; Environment, Food and Rural Affairs Select Committee (2009) Energy Efficiency and Fuel Poverty, Third
Report of Session 2008-09 London:
Department for Work and Pensions (2009b) Benefit
Expenditure Tables Available at http://research.dwp.gov.uk/asd/asd4/medium_term.asp
Environment, Food and Rural Affairs Select Committee (2009) Energy Efficiency and Fuel Poverty, Third
Report of Session 2008-09 London:
Department of Energy and Climate Change (2009c) Government Response to the Efra Select Committee Inquiry: Energy
Efficiency and Fuel Poverty London:
DECC, available at: http://www.official-documents.gov.uk/document/cm77/7719/7719.pdf