Energy and Climate Change CommitteeSupplementary written evidence submitted by the UK Government’s Fuel Poverty Advisory Group

1. At the same time as the energy Industry sets course for a low carbon transformation and EMR, the future of fuel poverty, its measurement, definition, mitigation schemes and the welfare benefits system will all change.

2. For the first time since 1978 there will no longer be a government funded fuel poverty programme in England. The devolved assemblies of Scotland and Wales, however, will keep their funded schemes which will be in addition to a GB wide new energy supplier obligation.

3. The Government is not on track to meets its legally binding target to eradicate fuel poverty by 2016.

4. Of the UK’s circa 6M fuel poor households as currently measured—a few figures:

50% are pensioners (10% contain a person 75 or over), 34 % have a disability or long-term illness, 20% have a child aged 5 or under;

32% live in properties built prior to 1919;

30% have a very old boiler;

20% have no boiler at all; and

20% have a condensing boiler of some kind.

5. Over 1.5 million Fuel Poor households in GB in 2011, (22% of all FP households), lacked access to mains gas:

40% of all oil consumers are fuel poor; and

60% of all solid fuel consumers are fuel poor.

6. Energy price rises in real terms since 2000:

a 50% increase if you have access to mains gas, a 102% increase if you use oil;

Annual mean income of the fuel poor consumer £11,000 per annum; and

Average income for the non-fuel poor consumer £32,000 per annum.

7. Those who need to spend most on fuel are least able to do so and live in the most thermally inefficient properties as the table below clearly shows:

Fuel
expenditure
as a % of
income

Number of
households
(thousands)

% of
whole
stock

Average
full income
(£)

Average
fuel costs
(£)

Average
SAP

<5%

9,900

45.8%

41,963

1,244

59.1

5–10%

8,164

37.8%

19,832

1,338

54.0

10–15%

2,275

10.5%

12,549

1,497

47.0

15–20%

641

3.0%

9,649

1,644

42.0

>20%

620

2.9%

6,567

1,954

36.0

Total

21,600

100.0%

28,526

1,338

54.7

Source: Detailed Tables published by DECC in 2012

8. How a bill is made up according to British Gas;

9. Government costs added to bills and perceived benefits:

The LCF will increase from £2.35 billion today, to £7.6 billion per annum by 2020.

FPAG believes this will cost a dual fuel customer £241 per annum from its current £94 per annum.

The LCF excludes for example—ECO, CPF nor EUTS.

Despite EMR bills will continue to rise.

EMR is estimated to reduce bills by 1% by 2020 compared to no policies.

Further reductions are estimated of 6 to 8% by 2030.

Government makes no estimate of what bills might be in 2020 or 2030 hence nor can mitigating strategies be developed.

EMR is also expected to reduce wholesale costs.

With coal generation now closing sooner and more expensive gas being required what is the sensitivity to wholesale prices?

All consumers pay for ECO but not all will benefit.

Only c.6% will be lifted out of fuel poverty through Affordable Warmth etc.

Current DECC analysis of distributional impacts of government policies does not include the new LCF nor the impact of Welfare Reform.

The increased LCF will hit those with electricity heating particularly hard, given that the costs will be borne entirely by electricity consumers (as will the costs of FIT, ETS, CPF and WHD).

More progressive means of recovering LCF are not considered by DECC.

DECC analysis suggests that the bottom three income deciles see the greatest benefit of policies, with energy bills reducing on average by between 0.4% and 1.2% as a proportion of total energy expenditure. The comparable figure for the remaining deciles is an average reduction of 0.1% and 0.3%. Lower income groups are considered particularly likely to benefit from ECO and WHD.

However, FPAG is concerned about averages as there is likely to be considerable variation within low income groups receiving measures, according to, for example:

the type of property they live in, for example its suitability for ECO measures;

tenure, eg social housing generally has higher energy efficiency standards than private rented housing;

whether they have gas heating;

whether they claim passport benefits (some of the lowest income households are those that do not claim benefits to which they are entitled), hence, the need for BECs;

the extent to which they will (or are able to) reduce consumption as a result of feedback from smart meters;

the extent to which they are likely to buy new efficient appliances (of the various policy measures, DECC expects “products policy” to have by far the biggest impact on consumer bills); and

the extent to which they are likely to install micro-generation measures.

10. FPAG believes DECC should explore potential options for achieving greater consumer equity which should include:

Suppliers to provide a protected block of consumption upon which policy costs are not levied, with costs recovered from consumption above the threshold—Smart meters could facilitate this.

Moving fixed supplier costs onto unit costs (including those not policy-related such as distribution charges).

This would be an incentive for all consumers to use less energy and be in concert with the principle of the polluter pays.

FPAG estimates that 85% of the fuel poor would benefit from such a development.

For those Fuel Poor households using electric heating a special measure would be required.

Providing social tariffs, for example a national uniform social tariff guaranteed to provide the best offer.

A tax funded compensation payment.

11. The Hills review and FPAG’s main concerns:

A low income high cost measure does not sufficiently encapsulate the problem.

Affordability being determined by reference to median household expenditure.

The perceived interpretation by the Hills review of the Warm Homes and Energy Conservation Act 2000.

The large numbers of low-income households no longer being classed as “fuel poor” yet cannot afford their fuel costs.

That “reasonable costs” does not reflect affordability.

Linking high energy costs to median expenditure creates an insensitive fuel poverty measure to progress and energy price changes.

By including disability benefits such as DLA in the income calculation makes it look like those households in receipt of disability benefits are on higher incomes and exclude more of them from the fuel poverty calculation.

The proposal takes no account of the type of occupancy in considering the factors for reasonable energy costs.

Minimal recognition of the cogent arguments put forward by stakeholders in the final Hills proposals.

12. Suppliers profits:

The waters are muddied by the media and suppliers—customers need clarity and honesty.

Retail profits tend to be modest with some making no profit at all in retail.

Generation profits and transfer pricing is not transparent to consumers.

Suppliers will have made good profits in generation particularly coal and old nuclear. Old nuclear will get even better profits after the CFP.

The low price of coal has accelerated the run hours of coal generation.

Does Ofgem need additional powers for greater depth of visibility of generation profits?

Some European Suppliers are going to run generation on a Pan European basis’ does this reinforce the visibility requirement?

March 2013

Prepared 26th July 2013