Energy and Climate Change CommitteeWritten evidence submitted by Barnardo’s

Introduction

1. Barnardo’s works directly with over 200,000 children, young people and their families every year through over 800 projects across the UK. We use the knowledge gained from our work with children to campaign for better policy and to champion the rights of every child.

2. Alleviating poverty is an inescapable element of nearly all of our services. Many of the families we work with are in financial difficulty, many have debts and are struggling to pay bills, and a number are already living in fuel poverty. The substantial rise in energy prices in recent months along with many families feeling the effects of government welfare cuts, means we are now working with large number of families who are struggling to pay their fuel bills—in a recent survey of our services over 90% of respondents reported working with families who are in debt to their gas or electricity supplier.1

Summary

3. Barnardo’s is concerned that the number of children living in fuel poverty looks set to rise, this is primarily due to raising fuel bills, although reduced incomes (primarily caused by government welfare cuts) is also likely to have an impact. We do not believe that current policies in this area are adequate, and are concerned that there has not been enough focus on how this issue impacts on families with children. Barnardo’s has experience of working with families experiencing fuel poverty. Some of our services provide practical support for families who are having difficulty with fuel debt, for example by helping support families to access social tariffs, or to access energy efficiency schemes.

4. In 2012 we published a report “Priced-Out”.2 This report included a survey of 80 of our services across England that deliver direct support to vulnerable children, young people and families. The survey was a snapshot of some of Barnardo’s services and demonstrated some of the issues related to fuel poverty that our workers were experiencing.

5. This submission highlights evidence from our “Priced Out” report which we believe is particularly relevant to the Committee’s enquiry. It draws particularly on the survey of Barnardo’s case workers conducted for that report as well as case studies and comments gathered from service users experiencing fuel poverty. As our expertise is particularly in relation to fuel poverty—rather than changes to the energy market in general—we have confined our answers to the third section of the Committee’s enquiry notice.

6. We believe there needs to be a review of policy initiatives on fuel policy, with particular focus on the following issues, which we know are key for families struggling to pay fuel bills:

A focus on working with energy companies to review their price bands for pre-payment meters to bring them in line with other forms of payment.

Initiatives aimed at working with banks and the post office to improve access to bank accounts which offer families direct debit facilities and thus ensuring that more families have access to lower cost payment methods for their fuel bills.

Substantial increases in the funding available for energy efficiency schemes through using the money generated through carbon taxes (rather than money generated through increased energy bills) to fund an ambitious scheme with the aim of making homes in the UK super energy efficient.

Working to bring forward requirements on landlords to ensure all homes in the private rented sector meet minimum energy efficiency requirements.

Is the Government on track to meet its target of eliminating fuel poverty by 2016 and will reduced Government spending in this area affect their ability to achieve this target?

7. Barnardo’s believe that the Government is not on track to meet its target of eliminating fuel poverty by 2016. The rises in the rates of fuel poverty in recent years have been well documented. Rates of households in fuel poverty rose every year from 2003 to 2010. In relation to children, families living in fuel poverty increased significantly during this time period from one in 50 in 2003, to one in 10 by 2009.3 While the slight fall in fuel poverty rate in 2010 was welcome we are concerned that the main reasons for this was rises in incomes and this reduction is unlikely to be sustained in the coming years.

8. With particular regard to children living in poverty, figures due to be released at the end of February 2013 on behalf of Energy Bill Revolution, of which Barnardo’s is a member, are expected to show that the number of children living in fuel poverty is now rising again. This does not take into account any change to definition of fuel poverty which could be implemented as a result of the Hills Review. If a new definition of fuel poverty was to be adopted the number of children affected could be expected to increase quite substantially (possibly even double).

9. We feel that reduced government spending in this area is likely to have a profound impact. We particularly urge the Committee to consider government policy not just in relation to fuel poverty but also government policies towards low income families in general. The combination of policies which reduce spending on fuel poverty, at a time when other policies are likely to push those reliant on welfare benefits further below the income poverty line are likely to have a devastating effect on some families.

10. In relation to fuel poverty spending we believe that the Government’s decision to cut government funding on energy efficiency completely to be highly problematic. The entire obligation for funding energy efficiency measures now sits with energy companies and their consumers—this is a highly regressive model. As a result all families will see an increase in their energy bills, yet poor families may well not benefit from the measures and will be more likely to struggle to pay the premium—expected to be as high as £88 per year, rising to £120 per year in 2020.4

11. The problem of reduced funding is exasperated by the substantial reductions to the welfare budget in recent years—the most recent proposal being to limit increases to benefits to only 1%—meaning a real term cut for most claimants. Living with a low income generally is a known risk factor for a family being in fuel poverty—33% of the poorest fifth of households are in fuel poverty.5 Such cuts are therefore highly likely to impact upon families’ ability to pay for fuel increasing fuel poverty rates still further.

Has the Hills Review resulted in any changes to fuel poverty policy? How could its findings be used to improve the efficacy of fuel poverty policy?

12. Barnardo’s did not submit a response to the Hills review although we share concerns that focus on fuel poverty should be on action to address the issue, rather than on how the measure is defined. We do however feel there is merit in a fuel poverty measure which would “equivalise” incomes for household size and composition—so a family of four will no longer be considered equally as well off as a single person if the income coming into the household is the same. This is consistent with the method used to assess income poverty and would better reflect the realities of families who struggle to pay their fuel bills. If this was done we anticipate that many more families would be defined as living in “fuel poverty” than currently.

13. However while the increased recognition of the plight of families and children contained in the Hills review is welcome, we have seen little impact when it comes to policies in this area. We feel that policy in a number of areas is failing to fully recognize the needs of low income families struggling with high fuel bills. In particular the Warm Homes Discount (which replaces social tariffs) will only be given automatically to those receiving pension credit. Families with children under 5 are in the broader group and although many will be eligible they will not automatically receive it. The money is at the discretion of energy companies, and is likely to be given on a first come first served basis, since there will not be enough money to help all of those who need it.

Will the Government’s proposals to ensure that consumers are on the cheapest tariff have any impact on fuel poverty?

14. We are supportive of the Government policies to introduce a simpler range of tariffs. Restricting energy companies to only four tariffs, plus requiring them to provide individual statements on the best tariffs for each customer (as well as establishing a network of voluntary organisations to deliver advise to vulnerable customers) will go a long way to alleviate our concerns that the current system is too difficult to negotiate.

15. However, a key concern will remain that those on prepayment meters will still miss out on discounts provided to those who opt for “lower cost payment methods” ie those who are able to pay by direct debt. Such discounts will still be allowed under the new system. Research has found that vulnerable households in or on the margins of poverty are forced to pay an extra £1.1 billion a year through energy bills above those on high incomes6 and the fact that they often have to opt for higher cost payment method is a key reason for this. For example Barnardo’s works with many families and young people who use pre-payment meters for their gas and electricity. Such customers are much more likely to be in low income households, yet an annual dual fuel bill for a customer would be £1,255 per year for someone on a pre-payment meter compared to £1,176 for someone paying by direct debit7.

“I pay [gas and electricity] in cash… I get charged £280 a year more for having them there meters [card/key]... People that pay by direct debit get a discount. But I pay in cash... I never get a bill so I should get a discount... But it’s like speaking to a brick wall speaking to these people... They get the poor people all the time. People that can’t afford to pay standing orders because they haven’t got bank accounts, they’re the people who get shafted.”8 (Barnardo’s service user)

16. Barnardo’s is concerned that the Government’s plans to simplify the charging system will still allow fuel companies to charge higher prices for those who pay for their electricity and gas through pre-payment meters rather than by direct debit. While energy companies have argued that the costs of providing and servicing pre-payment meters are higher than other payment methods, the relatively reasonable cost of the Northern Ireland keypad shows that pre-payment meters do not necessarily need to have a large premium and demonstrates what can be done through innovative and rigorous regulation.9

17. Barnardo’s would like the Committee to recommend that the Government puts pressure on energy companies to review their price bands for pre-payment meters to bring them in line with other forms of payment.

To what extent do fuel-poor households engage in switching? What are the barriers to greater levels of switching from these groups?

18. We are constantly told by the families that we work with that they do not engage in switching. There is frequently scepticism that switching can save money in the long term as well as well as concerns that switching suppliers could result with them being faced with a big bill. When incomes are tight families often do not have the flexibility to alter their payments even if this will result in savings in the long term.

“you do get people knocking on the door claiming if you go with them it will be cheaper but it isn’t!—it may be cheaper for a little while but not for long!” (Barnardo’s service user)

19. Families scepticism in relation to switching is exacerbated by difficulties in getting sufficient information to understand the consequences of switching providers. A report from the Office of Fair Trading (OFT) found that 40% of the public believe the energy market is too confusing and believe it is too difficult to calculate the amount due, with 61% finding it difficult to choose a supplier.10 We know this can be a particular problem for many of the families we work for. In our survey many services reported that the families they work with did not have access to the internet to understand information about tariffs and were generally confused about the different tariffs and support which was available to them. This is confirmed by other research which shows that vulnerable families and young people are the least likely to know about or be able to access the best deals as many do not have access to the Internet or bank accounts.11 In the past fuel debts have also been a significant barrier to switching with customers feeling tied into a specific supplier until the debt was paid off. OFGEM raised the amount of debt that can be transferred between suppliers from £200 to £500 in November 2012 which we welcomed. This policy will need careful monitoring to assess whether or not it is successful in enabling those in energy debt to switch suppliers.

20. One in 10 low income households do not have a bank account which means that they cannot take advantage of the cheapest direct debit tariffs.12 As recommended in Barnardo’s report—A vicious cycle,13 the UK Government should adhere to the commitment in the Coalition Agreement and extend access, through the Post Office Card Account (POCA), to accounts which allow payment of bills by direct debit. Barnardo’s would like the Committee to recommend that work is done with the banks to ensure that anyone can open a bank account with proof of an address.

To what extent are current fuel poverty policies reaching the right people? Are there any particular groups that are currently not getting the necessary support? And will this change under the move to ECO? And to what extent do fuel-poor households current take advantage of energy efficiency schemes? Could anything be done to increase uptake?

21. Targeting the energy efficiency of fuel poor households by permanently reducing energy consumption is one of the most effective ways of tackling fuel poverty. However, evidence from Barnardo’s services demonstrates that despite the wide number of schemes in this area—including Warm Front, the Carbon Emissions Reduction Target (CERT) and Community Energy Savings Program (CESP) accessible information and advice about energy efficiency schemes is very limited. In Barnardo’s survey almost 70% of respondents reported that families do not know what support is available, such as the Home Heat Helpline, free insulation or energy company grants, whilst almost 60% of respondents reported that families rarely know how to make their homes more energy efficient.

22. Overcoming this lack of knowledge and awareness is going to be a key challenge if the ECO program is to deliver improvements where other schemes have failed. However we see problems from the outset. Funding for the ECO scheme is woefully inadequate if it is to reach the most vulnerable. We expect that given a focus on profit, many energy companies will focus their ECO resources on those vulnerable households which are easiest to identify, rather than spending large amounts of time and effort trying to identify and get information to some of the hardest to help which may well be those in the greatest need.

23. Barnardo’s is calling on the government to change the preferred funding model for energy efficiency schemes, so these are funded by the government through the use of carbon taxes, rather than from energy companies. Over the next 15 years the Government will raise £63 billion in carbon taxes. If this was recycled to households it could help to insulate millions of homes and lower energy bills.

24. In addition to problems with inadequate funding, there is also likely to be a problem engaging with those in the private rented sector. Private rented housing is often some of the lowest Standard Assessment Procedure (SAP) rated housing stock with the highest rates of fuel poverty. However, we know that there are few incentives on landlords to increase the energy efficiency of their properties and over 50% of respondents to our survey thought this was not a priority for landlords. In fact many tenants feel their position is so vulnerable that they report fear of eviction as a reason for not complaining.

“Private landlord homes are much less efficient and much more costly for young people and families to run. Very little is ever done to improve the heat efficiency in private homes.” (Barnardo’s worker)

25. The government is looking to increase responsibilities on landlords. From April 2016 private residential landlords will not be able to unreasonably refuse requests from tenants for consent to energy efficiency improvements and from 2018, all private rented properties must be brought up to a minimum energy efficiency standard rating. However, the lead in time for this policy does appear to be excessively long, particularly when you consider that energy companies will begin to spend their ECO money from later in 2013—three years before there is any obligation on landlords to accept money if offered.

26. Barnardo’s is calling on the UK Government to bring forward the new regulations on private residential landlords so that families living in substandard accommodation can benefit from energy efficiency improvements.

February 2013

1 Barnardo’s policy, research and media department (2012). Priced Out, available on line at http://www.barnardos.org.uk/pricedoutreport.pdf

2 Barnardo’s policy, research and media department (2012). Priced Out, available on line at http://www.barnardos.org.uk/pricedoutreport.pdf

3 Department for Energy and Climate Change (2011). Trends in Fuel Poverty in England 2003-2009.DECC, London. Refers to families with at least one dependent child.

4 Oilfiredup (2011). Time To Reconsider UK Fuel And Energy Policies? www.oilfiredup.com/site/news/item/1448

5 Marmot Review Team (2011). The Health Impacts of Cold Homes and Fuel Poverty. Friends of the Earth and the Marmot Review Team, London.www.foe.co.uk/resource/reports/cold_homes_health.pdf

6 Hills, J (2011). Fuel Poverty: The problem and its measurement. Centre for Analysis of Social Exclusion,London. www.decc.gov.uk/assets/decc/11/fundingsupport/fuel-poverty/3226-fuel-poverty-review-interimreport.pdf

7 Figures are based on GB Average Medium User Gas and Electricity consumption of 16,500kWh and an average Electricity consumption of 3,300kWh per annum. Based on Consumer Focus Data, GB Average Medium User Gas, Electricity and Dual Fuel, 1 October 2011.

8 Barnardo’s policy, research and media department (2012). Priced Out, available on line at http://www.barnardos.org.uk/pricedoutreport.pdf

9 Boardman, B (2010). Fixing Fuel Poverty. Earthscan, London.

10 Office of Fair Trading (OFT) (2010). Annexe H: A consumer’s view of the advertising of pricing. Office of Fair Trading, London. www.oft.gov.uk/shared_oft/market-studies/AoP/Annexe-H.pdf

11 A third of low income households have access to the Internet compared with 60 per cent of the population as a whole. www.oft.gov.uk/shared_oft/research/OFT1268.pdf

12 DWP (2010). Family Resources Survey. DWP, London.

13 Mathers I and Sharma N (2011). A Vicious Cycle: The heavy burden of credit on low income families, available on line at http://www.barnardos.org.uk/a_vicious_cycle_report_online.pdf

Prepared 26th July 2013