Memorandum submitted by Citizens Advice (FP 47)

 

Summary

 

Progress against Government targets

Government efforts to eradicate fuel poverty have been derailed by spiraling fuel prices, revealing the inadequacy of depending on low prices to tackle fuel poverty. Going forward, any strategy must also be based on increasing the energy efficiency of housing stock and ensuring that those most at risk of fuel poverty receive a level of income which enables them to pay for the energy that they use.

 

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

Citizens Advice considers that it is helpful to retain a yardstick against which progress in addressing fuel poverty can be measured as it helps to focus policymakers' minds and can play an important part in ensuring that that policies and programmes are coordinated around a clearly defined objective.


The coherence of the Government's initiatives on energy efficiency & the methods used to target assistance at households which need it most

The fragmented nature of energy efficiency programmes means that it can be difficult for consumers to understand what help is available. More holistic methods of addressing fuel poverty offer cost-savings to companies as well as real benefits to consumers by offering joined-up delivery of a range of measures intended to improve energy efficiency standards, and permanently reduce fuel bills. To create maximum benefit, such programmes must bring together energy efficiency measures with initiatives addressing people's level of income (e.g. through benefit entitlement checks).

 

Social tariffs and plans to put social price support on a statutory footing

We question whether social tariffs are the most appropriate or effective vehicle to tackle fuel poverty due to their regressive nature. Nevertheless, we are pleased that the government has included proposals in the Energy Bill to put social price support on a statutory footing, which should help address some shortcomings in the current system.

 

Clear direction should be given to make sure that all groups living in fuel poverty (including those on low income and disabled people), and not just older people, can benefit from the statutory scheme.


Winter fuel payments and cold weather payments

There is a strong case for the winter fuel payment to be better targeted at those most in need.

 

And, while cold weather payments are undoubtedly welcome, relying on this erratic payment to help vulnerable groups on low incomes to pay for their fuel bills each winter may not be the best way to provide assistance.


Support for households which are not connected to the mains gas grid

Households off the gas grid lose out in a number of ways: they pay more for their fuel, are forced to buy in bulk and may not be able to spread payments to help affordability concerns.

 

There is a compelling case for DECC to extend Ofgem's regulatory oversight to cover customers who are off the gas network to address these issues. There is also a strong rationale for seeking to ensure that those off the gas grid should be among the first to benefit from new energy efficiency programmes.


 

 

The Citizens Advice Bureaux (CAB) network is the largest independent network of free advice centres in Europe, providing advice from over 3,200 outlets throughout Wales, England and Northern Ireland.

 

The Citizens Advice service provides free, independent, confidential and impartial advice to everyone, about their rights and responsibilities. It values diversity, promotes equality and challenges discrimination. The service aims:

 

to provide the advice people need for the problems they face; and,

to improve the policies and practices that affect people's lives.

 

In 2008-2009 the CAB service in England and Wales dealt with almost 6 million problems in total, including 1.9 million on debt. Of these, almost 83,000 were concerned with fuel debt, which represents a 19% increase on the previous year, and an increase of 82 per cent since 2005-6.

 

Comparisons for fuel debt problems for specific quarters in 2009-10 with the corresponding periods from the previous year reveal a sharp increase, as shown in Table 1 below:

 

Table 1:

Fuel debt problems dealt with by CABx in England and Wales - quarterly comparisons from 2008-9 to 2009-10

 

 

Q1

Q2

Q3

Q4

 

2008-9

 

 

18,183

 

19,076

19,466

26,166

 

2009-10

 

 

27,855

 

 

26,381

 

25,748

 

% increase on corresponding quarter from 2008-9 to 2009-10

53%

38%

32%

 

 

In addition to fuel debt problems, in 2008-9 the CAB service dealt with almost 51,000 problems about a range of other (non-debt) fuel matters. A summary of the increases in fuel and fuel debt problems dealt with by bureaux in England and Wales over the last five years is given in Chart 1 below:

 


Chart 1:

 

 

 

Progress against Government targets

 

The Government has set laudable and challenging targets to eradicate fuel poverty in England amongst vulnerable groups by 2010 and in all households by 2016. However, the scourge of fuel poverty is increasing, with some estimates suggesting that despite moderate price cuts there are now likely to be more than 5 million fuel poor households.[1]

 

At their current, historically high, levels energy costs are hitting vulnerable people and those on low incomes particularly hard:

A CAB in Cornwall reported that their client, who lives with her three dependent children in Local Authority housing, is struggling to pay for her fuel usage. The only source of heating in the client's house is a coal fire. The client receives income support and spends up to 30 per week for the fuel, which represents nearly half the client's income.

The medium-term prognosis for energy bills is bleak, with Ofgem suggesting that over the next 10 years customers' energy bills could rise anywhere between 13% -52% under a number of different scenarios.[2] We are concerned that the costs of facilitating the UK's transition to a low carbon economy will not be shared equally, but will be added to all customers' bills, placing a disproportionate burden on those on low incomes and frustrating efforts to address fuel poverty.

Government efforts to eradicate fuel poverty have been derailed by spiralling fuel prices. It is possible to have some sympathy for the plight of Government but, in a sense, this turn of events has simply revealed the folly and inadequacy of tackling fuel poverty largely through low prices which was an unsustainable strategy, and one which left progress extremely vulnerable to price fluctuations beyond its control. Going forward, any strategy must also be based on:

increasing the energy efficiency of the housing stock, thereby reducing the impact of rising energy bills; and

ensuring that those most at risk of fuel poverty receive a level of income which enables them to pay for the energy that they use.

 

The definition of households in fuel poverty

 

Citizens Advice considers that it is helpful to retain a yardstick against which progress in addressing fuel poverty can be measured as it helps to focus policymakers' minds and can play an important part in ensuring that that policies and programmes are coordinated around a clearly defined objective.

 

 

The coherence of the Government's initiative on energy efficiency and the methods used to target assistance at households which need it most

 

There are a number of measures provided by Government which are intended to deliver energy efficiency measures, including programmes such as Warm Front and the Carbon Emission Reduction Target (CERT). Such programmes to improve energy efficiency and reduce energy consumption cost some 2.6 billion a year.[3]

 

While this level of funding is large, the fragmented nature of the programmes and the fact that they have been designed as top-down solutions to individual problems means that it can be difficult for consumers to understand what help is available and navigate their way around (hence the need for assistance such as the Home Heat Helpline). In addition, such programmes may not always interact to deliver the best outcome for consumers. For example, Government has now taken welcome action to address the issue of shortfalls in Warm Front grants but - from a consumer perspective - it would have seemed eminently sensible for other energy efficiency programmes to step in to provide additional funding .

 

More widely, while programmes such as Warm Front and CERT may deliver real benefits to millions of households, they are usually focused on delivering just one or two measures to households, therefore requiring supplementary applications to different schemes, repeat visits and additional work to tackle any remaining energy efficiency shortcomings.

 

We recognise that government is currently piloting the delivery of a more holistic method of addressing energy efficiency measures under the Community Energy Saving Programme (CESP) which will be delivered on a street by street basis. Although the programme is small-scale, we consider that this approach may offer cost-savings to companies as well as real benefits to consumers by offering joined-up delivery of a range of measures intended to improve energy efficiency standards, and permanently reduce fuel bills. To create maximum benefit, such programmes must bring together not just energy efficiency measures but also programmes to address people's level of income (e.g. through benefit entitlement checks). Unfortunately the current CESP pilot does not do this and in our opinion this represents a major shortcoming.

 

We also think that the move to a more co-ordinated packaging of assistance would bring benefits in terms of how assistance is delivered or targeted. Under the current model, in order to gain some assistance the individual in question in required to put themselves forward and make an application to individual programmes, meaning that some vulnerable people who may benefit from such programmes miss out because they are not aware of them or because they lack the skills or confidence to make an application.

 

Innovative ways to better target assistance available are currently in the process of being trialled in the data sharing pilot between the Department for Work and Pensions (DWP) and energy suppliers. Depending on the outcome of the pilot, we would welcome the exploration of other opportunities to share data and proactively target assistance, provided that appropriate safeguards are put in place.

 

 

Social tariffs and plans to put social price support on a statutory footing

 

We question whether social tariffs are the most appropriate or effective vehicle to tackle fuel poverty due to their regressive nature. We consider that a strong case could be made for funds to be redistributed via the tax and benefits system rather than through fuel suppliers being compelled to offer social tariffs which can differ in eligibility criteria and benefits delivered, as well as failing to identify those who may be most in need of assistance.

 

Nevertheless, we are pleased that the government has included proposals in the Energy Bill currently before Parliament to put social price support on a statutory footing. In our opinion this should help address some of the shortcomings inherent in the current system. Putting social price support on a statutory footing could help to ensure that:

 

Eligibility is based on objective factors, targeting help at those most in need;

Social tariffs are open to all those that meet eligibility criteria, rather than only those fortunate enough to apply while the social tariff is 'open';

People most in need of assistance receive a consistent level of support, regardless of which supplier they are with;

Consumers and their advisers are provided with clear information about social tariffs; and

All suppliers pay a fair and proportionate share of the costs in offering social tariffs.

 

The details of the statutory scheme, such as the nature of the benefit and eligibility criteria, will be set out in secondary legislation after consultation during Summer 2010. Citizens Advice considers that it is essential at this early stage that clear direction is given to make sure that all groups living in fuel poverty (including those on low income and disabled people), and not just older people, can benefit. The following cases demonstrate the difficulties currently experienced by deserving groups who are ineligible for social tariffs:

A CAB in Kent reported a case in which their client, an unemployed man over 50, is finding it extremely hard to survive on his benefit income due to the high costs of fuel. As the client is in receipt of jobseekers allowance and under 60 he is ineligible for assistance. The client is therefore very worried about how he will pay for his energy use and is at risk of illness through not being able to keep warm enough.

A CAB in the West Midlands reported a case in which their client, a single woman aged 61 who has been diagnosed with cancer, receives an income which puts her just above the threshold to receive pension credit guarantee. This means that although she is struggling to pay her fuel bills, and spending approximately 16 per cent of her income on heating, she is ineligible for her energy supplier's social tariff.

 

Winter fuel payments and cold weather payments

Winter fuel payments

The Winter Fuel Payment (WFP) is highly valued by many pensioners. However, it is important to note that the WFP is a very poorly targeted benefit, with all pensioners - regardless of income - entitled to it. The benefit cost more than 2.7 billion in 2008-9 yet only 12% of the 2.9 million people receiving payments were classed as living in fuel poverty.  Moreover, many fuel poor households did not qualify for this support.[4]

A CAB in South East Wales reported a case in which their client, who has long term health problems and a disability, is struggling to pay for heating costs . The client's only income is means-tested benefits but as he is under the age of 60 years he does not yet qualify for the Winter Fuel Payment. The client now finds himself in the position of having to choose between heating his home or eating, in other words he cannot afford to do both.

With funding for fuel poverty and energy efficiency programmes likely to be under increasing pressure going forward, it is difficult to justify the status quo. We consider that the WFP should be better targeted at those most in need. One way to do this which would seem to create minimal administrative difficulties would be to make the WFP taxable and end its payment to those subject to higher rate tax. The savings generated (estimated to be 250 million per annum) could be used to extend eligibility to the WFP to groups most at risk of fuel poverty or to boost energy efficiency improvements for fuel poor households.

Cold Weather Payments

 

The substantial increases in the Cold Weather Payment announced in September 2008 (raised from 8.50 per week to 25 per week) and continued for the current winter would have gratefully received by eligible recipients. In 2008-09 8.4 million separate payments were made, at a total cost of 210 million while over 260 million has been committed to the scheme so far this winter.[5]

 

The eligibility criteria for CWPs is more comprehensive and provides a useful starting point for considering which groups should receive assistance with their fuel bills. However, relying on this erratic payment to help vulnerable groups on low incomes to pay for their fuel bills each winter may not be the best way to provide assistance. As the case below shows, it can be difficult for eligible people to determine whether they will receive a payment, meaning that they may be unwilling to use their heating during very cold weather.

 

A CAB in Derbyshire reported that their client, a single man living in private rented housing in receipt of income support, came to bureau to enquire about cold weather payments in the week commencing December 21. The client had not been using his heating because he was so worried about the size of his gas bills. The client could not find out if the weather had been cold enough to justify a cold weather payment. If it had been, the client would put his heating on more. The CAB adviser found that there was a lack of information about whether CWP had been triggered and even government web sites provided information relating to previous weeks.

 

The fact that payment of the CWP is based on temperature and geography renders it difficult to disseminate simple and clear messages to consumers. In our opinion there is, at the very least, a need to reconsider how the cold weather payment is communicated to eligible consumers in order to provide them with speedy and reliable information about when they can expect top receive a payment. More broadly, since payment is only made after a sustained period of cold weather, the CWP, while welcome, may fail to give people the confidence to heat their homes safe in the knowledge that they will receive the financial assistance to enable them to do so.

 

 

Support for households which are not connected to the mains gas grid

 

There are approximately 4.3 million customers living in rural areas who are not on the gas network. These people are entirely dependent on electricity, domestic heating oil or liquefied petroleum gas (LPG) for heating their homes and providing hot water. These people lose out in a number of ways. Most obviously, they have to pay significantly higher costs for their fuel. Estimates from 2008 suggest that households off the gas network typically had energy bills in the region of 1,700 per annum, compared to 1,000 for those with gas mains connections.[6]

 

The problem of affordability for people living off the gas network is particularly acute for those on low incomes. These are exacerbated by the fact that domestic heating oil and LPG suppliers often have minimum delivery amounts which necessitate large lump-sum payments. Yet paying for bulk deliveries in advance can be impossible for those on low incomes.

 

A CAB in Suffolk reported a case about their client and partner who are both unemployed, and live with their four children aged 12, 10, 3 and 2 in a rented property which has an oil-based heating system. The clients cannot afford to get their oil tank filled because oil costs 41.8 pence per litre, and while there is a discount if you order a minimum of 900 litres this equates to 415, which is totally unaffordable for the clients. The CAB adviser could only advise the clients to seek charitable help for assistance with their fuel needs.

 

And whereas those connected to the gas network must be offered a range of payment methods and budgeting schemes by their fuel suppliers to spread the cost of their fuel, there is no requirement for oil or LPG suppliers - who are unregulated - to do the same. Nor do they offer social tariffs which can offer reduced tariffs to their most vulnerable customers who may struggle to pay for their fuel.

 

Ofgem's work on extending the gas network may offer some solace to customers, though larger incentives should be introduced to speed this work up. In addition, there would seem to be a strong rationale for seeking to ensure that those off the gas grid should be among the first to benefit from measures such as the Renewable Heat Incentive (RHI) and Feed-In Tariffs (FIT).

 

In our opinion, fundamental regulatory reform is also required. There is a compelling case for DECC to extend Ofgem's regulatory oversight to cover customers who are off the gas network and who therefore have to rely on domestic heating oil and LPG. As part of this extended remit Ofgem should, as a matter of priority, make sure that the protections and assistance currently provided to customers on the gas network are also offered to those who rely on heating oil or LPG.

 



[1] Radical action needed to help millions who cannot afford their energy bills, NEA, Press Release, 17 November 2009

[2] Project Discovery - Options for delivering secure and sustainable energy supplies, Ofgem, February 2010

[3] Programmes to reduce household energy consumption, National Audit Office, July 2008

[4]Energy efficiency and fuel poverty, Environment, Food and Rural Affairs Committee, May 2009

[5] Cold Weather Payments - Standard Note SN/SP/696, House of Commons Library, 22 January 2010

[6] Energy prices, fuel poverty and Ofgem, Business and Enterprise Select Committee, July 2008