Memorandum submitted by the National Right to Fuel Campaign (FP 48)

 

The National Right to Fuel Campaign was established in 1975 with the single aim of ensuring that every household was able to afford adequate heat, light and power, to end fuel poverty by securing a warm, dry, well-lit home for all, regardless of income and location. Energy is vital to life, health and well-being and not something that we can live without and remain part of society.

The Campaign has a membership comprising voluntary organisations, local authorities, trade unions, individuals, academics and professionals in housing, social welfare and environmental health and has taken a leading role in putting fuel poverty high on the political agenda.

1. General Comments

1.1. We continue to think that the Government is complacent in its approach to fuel poverty. A single example provides evidence to this effect with the increased level of winter deaths during last winter, almost 50%, which was one of the coldest on record for some time. (Source - The Poverty Site). The implication is that not enough has been done to protect a vulnerable group from the impacts of severe weather patterns. It is worth noting that this only shows figures for one particular group of vulnerable people.

1.2. Our own research undertaken a few years back also indicated that the homes off low income households had not had adequate energy efficiency investment to protect them from falling into fuel poverty with the massive price increases during the years 2007-9. (The Fall and Rise of Fuel Prices and Fuel Poverty 2005) There is nothing to indicate that this situation has much improved.

1.3. We have said it before and will continue to repeat that there needs to be a huge step change in the approach to energy efficiency investment in the homes of low income and vulnerable households.

1.4. The creation of the Department of Energy and Climate Change had led to a hope that there might be more holistic thinking about resolving the problems of fuel poverty and climate change. To date we have seen little evidence of this. Fuel poor households will suffer the brunt of both the effects of climate change, for example, see point about excess winter deaths above. They will also suffer disproportionately from any additional levies or increases to fuel prices resulting from climate change initiatives.

1.5. At a recent NRFC Stakeholder Forum, we discussed who should pay for the eradication of fuel poverty. There was general consensus that the Government, through taxation, should be the major contributor. Contributors to the discussion mentioned the regressive impact of using fuel bills.

 


1.6. There is evidence of the level of concern about this when even the representative from Ofgem, the regulator, expressed worries about whether the fuel poor will get the benefits from increased costs of environmental programmes and suggests that there needs to be a more sophisticated approach to thinking about these issues.

1.7. The Government will say that they are pouring some 20 billion into their fuel poverty initiatives but a very large percentage of this is comprised of the Winter Fuel Payment which goes to all pensioners and is generally seen as compensation for a lack of increase to pension rates in recent years.

1.8. Although many commentators have mentioned this in different contexts, there is a real irony that billions of pounds can be found to bail out our banks, with the resulting outrageous level of bonuses paid to bankers this winter, and yet the Government is incapable of implementing an effective fuel poverty eradication programme which, we would add, would help with economic regeneration by providing jobs in the energy efficiency investment sectors.

1.9. The Campaign has consistently argued that, as a minimum, pensioners paying a higher rate of tax should not receive the Winter Fuel Payment and, along with other organisations, this payment should be taxed.

2. Progress against Government targets

2.1. It is clear that that the Government will not meet its 2010 target as we are already here and we continue to see vulnerable households suffering fuel poverty.

2.2. We are also pessimistic about the Government reaching its 2016 target in the light of the recent impact of fuel prices and severe cold winter weather.

3. The definition of households in fuel poverty commonly used
- ie, those households where more than 10% of income has to be spent on fuel for adequate heating

3.1. The Campaign has long argued that the amount of income used for the definition of fuel poverty should exclude housing costs from the assessment of household income. We are aware of considerable support for this position.

3.2. We have put the relevant extract in Appendix 1 for ease of reference to the detail on this issue.

4. The coherence of the Government's initiatives on energy efficiency

4.1. We support the NEA's National Energy Efficiency Scheme as there are clear gaps in current delivery programmes which mean that households in fuel poverty may miss out on energy efficiency investment.
It is clear that, in order to meet both fuel poverty and climate change targets, the Government must oversee a step change in its approach to energy efficiency investment and this proposal for a national energy efficiency scheme works towards this.

4.2. Additionally, members of the Campaign would advocate higher energy rating standards for existing housing to ensure that all housing that has had energy efficiency improvements is fuel poverty proofed for any future occupants.

5. The methods used to target assistance at households which need it most

5.1. The Campaign has cautiously accepted the use of data sharing to target pensioner households in the DWP pilot for fuel cost support. However, we still have reservations about whether this should be extended given the Government track record on security of data.

5.2. We provided our detailed comments on this to the DWP in October 2009.

5.3. One concern worth mentioning here is the potential for suppliers and their agents to misuse the data for purposes other than that agreed. For example, anecdotal evidence from research we are in the process of analysing shows that there is still bad practice in doorstep selling so we are concerned if data should be used for selling other services.

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

6.1. The Campaign is very supportive for plans to put social prices support on a statutory footing.

6.2. However, we would argue strongly that this should be available to all those eligible for the Cold Weather Payment and all low income households with school age children. This still excludes groups such as those with disabilities and long term illnesses whose energy needs are as great or greater.

7. Winter fuel payments and cold weather payments

7.1. The Campaign thanks that, as a minimum, eligibility for Winter Fuel Payment should be brought into line with that for Cold Weather Payments.

7.2. We are still concerned that there are many groups who will fall outside these criteria and will suffer fuel poverty. Another finding in the research mentioned above is that there is a group of householders who fall outside all state support but who have real problems with their heating and household energy costs. These are those whose income is just above benefit eligibility and there is no support for these apparently from any source.

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

8.1. By establishing a national energy efficiency scheme, there is more flexibility to deal with homes that are off the gas grid and hard to treat homes.

8.2. Energy efficiency should be the priority to ensure the minimum requirements for energy needs, aiming to improve the home to a very high standard.

8.3. We would also argue that, as installation costs come down and fuel prices rise, the case for using alternative energy sources gets increasingly stronger and can, therefore, be considered alongside traditional energy sources. Although we have not done any cost calculations, we suggest that these should be done to compare costs for extending the gas network and using alternative energy sources such as solar and wind.

February 2010


APPENDIX 1

Extract from submission to Work and Pensions Committee, June 2009

1. How DECC Measure/Define fuel Poverty

1.1.1. The National Right to Fuel Campaign believes that the Government's definition of fuel poverty seriously distorts both the number and distribution of households that are truly fuel poor. We submit that the current official definition omits many households least able to afford their fuel costs and, consequently, that the UK fuel poverty strategy is being neither targeted nor monitored adequately.

1.1.2. The definition of fuel poverty is a crucially important issue, having implications for households in fuel poverty, and for the Government in monitoring progress, targeting resources and the delivery of targets.

1.1.3. Members of the National Right to Fuel Steering Group have been addressing the problem of the current definition of fuel poverty as they are concerned that household in fuel poverty are excluded from fuel poverty programmes as they do not fit the current criteria.

1.1.4. As part of this work, we held a workshop on the fuel poverty definition which was attended by a number of key figures with expertise in this field. One key outcome from the session was that the majority of participants believed that housing costs should be excluded from income in the main definition of fuel poverty. This would result in the fuel poverty definition being a fuel spend of more than 10% of income after housing costs.

1.2. The distribution of fuel poverty

1.2.1. The Government's target definition of fuel poverty is based on the full income of the household, including their housing costs[1]. The NRFC believes that the case for omitting net housing costs from income in the definition of fuel poverty is largely self evident.

1.2.2. In theory, income poverty can be measured including net housing costs, as it can be argued that households who own or rent properties that are above their incomes are taking the cost benefits in better accommodation. However, DWP's Households Below Average Income series (HBAI) recognises that this is not always the case in practice and therefore measures income both including and excluding housing costs.

1.2.3. Unlike income poverty, however, fuel poverty is specific to the households existing home. The ability of the household to afford the fuel costs necessary to achieve satisfactory heating and other standardised energy usage in their particular home is dependant on their disposable income after housing costs. Households cannot spend their housing costs on fuel, any more than they can spend their national and local taxes on fuel. The Government's definition excludes all national and local taxes from income, but includes all housing costs.

1.2.4. Excluding housing costs, while keeping the same 10% of income threshold for fuel costs, would raise the 2006 estimate for fuel poverty from some 2.4 million (or 11.5%) to over 4.4 million households (20.9%). However, the equivalent of 10% of full income, before housing costs (BHC) is around 13.5% of residual income, after housing costs (AHC), in that this thresholds gives the same number of households in fuel poverty. To highlight the distributional differences, the following analysis uses this higher 13.5% thresholds as well as showing the figures for 10% of residual income.

1.2.5. Figure 1 shows the overlap between the household populations defined as fuel poor under each of these definitions. One in three of the 2.4 million households who are fuel poor on the comparable (13.5%) residual, AHC, definition are not in fuel poverty on the full income definition and vice versa.

 

 

 

 

 

 

 

 

 

10% of

 

 

 

 

13.5% of

 

 

Full

 

 

 

 

Residual

 

 

Income

 

 

 

income

 

 

BHC

 

 

 

 

AHC

 

 

2,432 k

 

 

 

 

2,432 k

 

 

 

 

 

 

 

 

 

 

 

814k 

1,618k

814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10% of

 

 

 

 

 

 

 

Residual

 

 

 

 

 

 

income

 

 

 

1,195k

 

AHC

 

 

 

 

 

 

 

4,441 k

 

 

 

 

 

 

 

 

 

 

 

Figure 1 Venn diagram showing the overlap between definitions, 2006

1.3. Fuel poverty and income poverty

1.3.1. Households defined as fuel poor under the comparable (13.5%) residual income definition are in substantially greater income poverty than those classed as fuel poor under the full income definition (Table 1). The average equivalised income, AHC, of all households deemed to be in fuel poverty drops by nearly 25% from 9,896 to 7,460 after excluding housing costs and raising the threshold to 13.5%. The proportion of all households in fuel poverty also in income poverty (having equivalised incomes of under 50% and 60% of the national median) also increases from some 37% to 60% and from 50% to 72% respectively.

1.3.2. Using 10% of residual income, the average equivalised income (9,161) is also lower than that for 10% of full income, despite the former definition covering nearly twice as many households. The proportion of fuel poor households in income poverty (on both the 50% and 60% of median thresholds) is also significantly higher.

Table 1: Average income and general poverty by fuel poverty definition, 2006

Equivalised income AHC

10% of full income, BHC

13.5% of residual income, AHC

10% of residual income, AHC

 

number

percent

number

percent

number

percent

 

 

 

 

 

 

 

Average income

9,896

7,460

9,161

 

 

 

 

 

 

 

Under 50% of median

890k

36.6

1,462k

60.1

1,960k

44.1

Under 60% of median

1,224k

50.3

1,740k

71.6

2,617k

58.9

 

 

 

 

 

 

 

Total in fuel poverty

2,432k

100.0

2,432k

100.0

4,441k

100.0

 

1.4. The distribution of fuel poverty by tenure

1.4.1. Figure 2 shows the number of households in fuel poverty in each tenure under each definition in 2006. Under the full income definition, the majority (52%) of all fuel poor households are owners who own their homes outright. Despite being classed as fuel poor, these owners often possess large amounts of housing equity - an average of nearly 210,000 nationally and over 320,000 in London. After excluding housing costs from income, fuel poverty shifts dramatically away from such asset rich owner occupiers to mortgagees and, particularly, to tenants with no equity, renting from private or social landlords.

Figure 2: Number of households in fuel poverty on each definition by tenure, 2006

1.4.2. Excluding housing costs also fundamentally changes the distribution of the households groups classed as fuel poor. With the 13.5% of residual income definition, the proportion of all fuel poor households that include elderly members aged 60 years or more is reduced from 53% to 35%, while conversely the proportion that includes dependent children (and no elderly residents) increases from under 16% to 25%. Using the 10% threshold for residual incomes, retains a greater proportion of elderly households (40%) but also further increases the proportion of fuel poor households with children (to 26%).

1.4.3. The shift from small elderly households to larger, low income families bring in fuel poverty is further substantially increased if, as well as excluding housing costs from income, incomes are also equivalised. Equivalised incomes reflect the common sense notion that larger households need a higher income than smaller households to achieve a comparable standard of living. It is a standard method for measuring income poverty and there is a case for also using equivalised incomes in the definition of fuel poverty.

1.5. The distribution of fuel poverty by region

1.5.1. The changes in definition also have a dramatic effect on the regional distribution of fuel poverty. London moves from having the lowest proportion of households in fuel poverty (8.3%) under the full income definition to having the highest proportion (13.9%) when using 13.5% of residual incomes, after housing costs. This is due to the Capital's higher gross housing costs - in 2006 an annual average of 8,432 compared to 6,255 for all households in England on low income (under 50% of the national median)[2]. On the 10% of residual income definition, London again has the highest number, but fourth largest percentage of fuel poor households. (See table next page)

1.5.2. The 10% of residual income definition of fuel poverty has been adopted by the Greater London Authority and was the preferred definition in the Mayor's Energy Strategy of February 2004.

1.6. Comment

1.6.1. The UK Fuel Poverty Strategy, 6th Annual Progress Report, 2008 includes, for the first time, a brief analysis of the effects of using incomes after housing costs in the definition of fuel poverty. However, this is based on the 2004 EHCS dataset rather than the current 2006 statistics, as reported elsewhere in the Report, and the Report makes it clear that "There is no intention to change the fuel poverty definition to an After Housing Costs basis".

1.6.2. Despite the lead shown by the GLA and a number of Beacon local authorities and despite having revised the definition significantly in other ways, the Government appear unwilling to consider a change in the income definition for fuel poverty. In the past, ministers have argued that that this would be a distraction from the task of alleviating the problem. However, in practice, actual strategies tend not to be concerned with the detailed definition, but with making housing generally 'fuel poverty proof'. The different distribution of fuel poverty would have implications for targeting, but the basic way the programme is implemented need not necessarily change as a result of adopting a definition based on incomes after housing costs.


 

Table 2. GO Regions ranked by highest percentage of households in fuel poverty, 2006

10% of

full income

BHC

In fuel

poverty

13.5 % of residual income AHC

In fuel

poverty

10% of

residual income AHC

In fuel

poverty

thou

%

thou

%

thou

%

 

 

 

 

 

 

 

 

 

North East

179

16.4

London

428

13.9

North East

294

27.0

North West

415

14.2

North West

393

13.5

North West

682

23.4

West Midlands

304

13.7

North East

145

13.3

Yorks & Humber

490

22.8

East Midlands

236

12.9

East Midlands

211

11.6

London

690

22.5

Yorks & Humber

273

12.7

South West

250

11.3

West Midlands

471

21.3

South West

256

11.6

Yorks & Humber

238

11.1

East Midlands

382

21.0

East of England

224

9.7

West Midlands

234

10.5

South West

444

20.1

South East

291

8.5

South East

352

10.2

South East

603

17.5

London

254

8.3

East of England

181

7.8

East of England

385

16.6

 

 

 

 

 

 

 

 

 

England

2,432

11.5

England

2,432

11.5

England

4,441

20.9

 

1.7. Numbers in Fuel Poverty

1.7.1. When the extent of fuel poverty was first estimated using data from the 1996 English House Condition Survey (EHCS), the survey collected data on the actual fuel prices paid by households. However, for the 2001 EHCS, the collection of fuel price data was dropped from the survey and since that date fuel poverty has been calculated using DTi/BERR/DECC data on the average regional fuel prices for different tariff types.

1.7.2. Table 3 reproduces the 2006 DECC regional fuel price data for the fairly typical Southern gas and electricity regions. The Table shows the average fuel prices for all companies in the region on which the calculations of fuel poverty are based, but in addition shows that within each region and tariff type, average prices also vary considerably depending on the particular company used.

1.7.3. The NRFC believes that the use of these average regional costs in measuring fuel poverty has the effect of seriously under-estimating the scale of the problem. This is because there is good evidence that lower income groups, at risk of fuel poverty, particularly elderly households, are less inclined to regular switch their fuel supplier and to be, in practice, on higher than average tariffs[3].


Table 3 - Average Unit Costs (pence per KWh) in Southern fuel regions

 

Standard Credit

Direct debit

Prepayment

Southern gas region

 

 

 

Largest

2.84

2.52

2.86

Average

2.62

2.33

2.75

Smallest

2.28

2.13

2.37

Southern electricity region

 

 

Largest

11.94

11.94

14.36

Average

10.15

9.39

10.79

Smallest

9.67

8.61

8.97

 

 

 

 

The range shows the average unit cost for all companies in the region, as well as the average cost for the companies with the largest and smallest average costs in the specified region

1.8. Conclusions

1.8.1. The definition is critically important to monitoring progress and to determining the overall success of the Strategy at the national and regional level. If, as the statistics suggest, the current definition is not directed at those least able to afford their fuel costs, it is difficult to see how progress in alleviating fuel poverty can be adequately monitored and the future success or otherwise of the UK Fuel Poverty Strategy can be properly determined.

 



[1] The Government also publishes statistics for the basic income definition. This also includes housing costs, but omits housing benefit, income support for mortgage interest (ISMI) and mortgage payment protection insurance (MPPI) from income.

[2] Average housing cost across all tenures, including owned outright.

[3] See, for example, Ofgem, Switching Rates for Vulnerable Customers, Summary Report, March 2008.