With the right policies, tackling fuel poverty can deliver two vital government objectives. It can help to reduce carbon emissions by improving the energy efficiency of the housing stock, and it can improve the welfare of low-income households by reducing their energy costs. An effective, long-term fuel poverty strategy should therefore be a top priority for this Government, particularly given the new Prime Minister’s focus on tackling social injustice.
There are two elements to the government definition of fuel poverty. First, the required fuel costs of the household must be above average for the type of property. Second, paying the required fuel costs must take the household below the poverty line, which is currently defined as 60% of the median income.
The most recent figures show that there were 2.38 million fuel poor households in England in 2014, which is equivalent to around 10.6% of English households. This is a significant number of families in absolute terms, which has remained roughly flat across the last Parliament.
Policies for tackling fuel poverty
The government has had a legal obligation to monitor and provide a strategy to address fuel poverty since the passage of the Warm Homes and Energy Conservation Act 2000. The most recent strategy was published under the Coalition Government in 2015. This set out the target to have as many fuel poor homes as possible achieve by 2030 at least a C rating on the Energy Performance Certificate (EPC), one of the government’s measures for assessing a home’s overall energy consumption. The Conservative Party 2015 General Election manifesto promised to improve the energy efficiency of at least one million fuel poor homes over the life of this Parliament.
There are two types of policy for addressing fuel poverty: giving customers discounts on their fuel bills through cash transfers and installing energy efficiency measures that reduce a home’s energy consumption.
Cash transfers are important, as they ensure that vulnerable groups are able to stay warm in the short-term. There are three schemes with this purpose. First, the Winter Fuel Payment, with an annual budget of £2.1 billion, is paid to all pensioners. Second, the Cold Weather Payment is a discretionary benefit paid to individuals on income support. In 2014/15, just £11 million was spent under the scheme. Third, the Warm Homes Discount is paid to those in receipt of pension credit and is estimated to have an annual cost of £320 million.
But a long-term, sustainable approach to tackle fuel poverty by upgrading the housing stock and permanently reducing energy bills is also needed. The Government’s policy for this is the Energy Company Obligation (ECO), a mandate imposed on energy suppliers to find carbon savings in the customers’ homes. The government sets criteria about which homes are eligible for energy efficiency measures and what measures can be installed. The £640 million cost of the scheme is borne by energy suppliers, who in turn raise consumer prices.
Reforms to this scheme have recently been proposed in a government consultation. Previously, ECO had been focused jointly on reducing fuel poverty, improving energy efficiency of properties in deprived rural areas, and delivering more expensive energy efficiency measures across all households. The reforms will transition the policy towards an exclusive focus on alleviating fuel poverty while reducing the overall cost of the scheme.
Some regressive effects
Many believe that tackling fuel poverty using a supplier obligation is regressive. As described above, there are over two million fuel poor households in England. Yet the government has promised to improve just one million homes in this Parliament. That means that there are over one million fuel poor households that will have higher bills over the lifetime of this Parliament as a result of the costs of the supplier obligation, without receiving any subsidised measures to help them lower their bills. Moreover, as energy suppliers have discretion about how they pass on policy costs to customers, they often choose to increase the bills of those that do not switch providers. This group is disproportionately populated by those on low incomes. This increases the likelihood of a regressive effect of supplier obligations.
There is also concern about effective targeting of cash payments for the fuel poor. There were reports earlier in the year of a disagreement between the Treasury and the then Department for Energy and Climate Change over whether the Warm Homes Discount could be better targeted. The government’s response to the Warm Homes Discount consultation does promise to “explore ways for better targeting of those identified as living in fuel poverty.” But this vague formulation falls short of a concrete commitment to refocusing the scheme. In addition, there are long-standing criticisms of the non-means tested Winter Fuel Payment for pensioners.
The Government is right to want to reduce fuel poverty. It can make a significant contribution to the Prime Minister’s social reform agenda, and enable the UK to cost-effectively meet its climate change commitments. However, the current suite of policies must be reviewed to mitigate regressive effects. Government support must be focused on the most vulnerable.
Sam Hall is researcher at Bright Blue