Joel Hagan calls for a long term approach to combating Fuel Poverty.
A few years ago the Government claimed to be winning the war on fuel poverty. Ministers boasted that four million households had been lifted out of fuel poverty between 1996 and 2004. All of a sudden they seem to be in retreat. Between 2005 and 2006 the number of fuel poor rose by around a million to stand at roughly 3.5 million (around 14% of all households) and some estimates double the figure to seven million by the end of 2008.
Back in 2001 fuel prices were at their lowest in real terms since 1974. The original fuel poverty strategy document of that year said: “The main cause of fuel poverty in the UK is a combination of poor energy efficiency in homes and low incomes”. It went on to suggest that a reasonable range of price movements between 1999 and 2010 was +15% to -10% in real terms for domestic gas prices and +5% to -2% for domestic electricity prices. This has not exactly been bourn out by events. In August 2008 alone domestic electricity prices increased by around 20% and gas prices by around 30%, following 15% increases in January. But the sudden and steep rise in fuel prices should not be allowed to distract us from the underlying issues that drive fuel poverty. They remain the same – poor efficiency and inadequate incomes. They affect us all to varying degrees; and the government has failed to tackle them adequately.
A windfall tax is not the answer. Windfall taxes alienate business, which likes certainty in earnings and does not want profits periodically diverted to the Treasury when it is short of cash. We need energy companies to invest in the UK, in generation, distribution and metering; any diversion of funds will impact capital expenditure plans. The legal process to impose a windfall tax would be drawn out. Hypothecation, the devotion of tax revenue for specific purposes, although it happens from time to time, is not generally the way our tax system works in principle.
In the debate about fuel poverty, pre-payment meters are usually demonised, but they are not generally the root of all evil: in fact only 25% of pre-payment meter customers are fuel poor. Pre-payment meters are used by many people in much the same way as pay-as-you-go mobile phone contracts – Energywatch reported that 66% of all customers choose pre-payment meters to control their energy spending and Ofgem research found that the majority of customers are happy with this method of payment. The number of pre-payment meters has risen in recent years both as a (preferable) alternative to disconnection and as one way to repay accrued debt.
Pre-payment meters are more expensive to install and administer than other methods of payment and some energy companies pass this cost on to the customer. But it is not necessarily right to criticise them for passing on this cost, any more than it would be to condemn them for sharing with their customers the benefits of cheaper payment processing methods. However, it is right to ensure that those methods – direct debits and online billing – are available to all, and that they are explained to people in such a way that their concerns about them are allayed, as Ofgem is demanding.
It is good that the government has secured a commitment from the energy companies to spend £910m over three years on energy efficiency. UK housing stock is thermally inefficient, probably because we have a temperate climate with no great extremes of heat or cold and because energy prices were low while the North Sea remained productive. But as large a sum as close to a billion pound sounds, it does not go far. It will probably improve the insulation of somewhere between 100,000 and 200,000 homes in each of the three years – a drop in the ocean when there are around 22.5 million homes in the UK.
According to the definition of fuel poverty enshrined in law, in the Warm Homes and Energy Conservation Act 2000: “a person is to be regarded as living ‘in fuel poverty’ if he is a member of a household living on a lower income in a home which cannot be kept warm at reasonable cost.” This definition conflates several issues: 1. energy prices; 2. household income; 3. energy efficiency; and 4. vulnerability to low temperatures.
1. The key to containing energy prices is the development of a long-term generation strategy because price is a function of supply and demand. This strategy needs to set out what proportion of energy should be generated by nuclear, cleaned-up fossil fuels, renewables, local schemes, and micro-generation. It needs to take account of exposure to risk, currently called ‘energy security’.
2. Household incomes are driven by work, pensions, tax credits, disability allowances and other benefits. Vulnerable people should be able to pay for the necessities of life and payments should keep pace with necessities. Benefits such as winter fuel payments are directed to the elderly but exclude other relevant categories: the very young, those will breathing difficulties.
3. Energy efficiency can be sub-divided into energy performance of dwellings, the efficiency of a dwelling’s heating technology, and individual behaviour. Heating (space and water) accounts for 60% to 80% of domestic energy use. Around 18m homes are owner-occupied; 3m are privately rented; 2m have social landlords, and 2.5m are under local authority control. The obligation on landlords to have an Energy Performance Certificate without an obligation to act on it is pointless. Unfortunately, the heating technologies that cost least to install are often those which cost most to run. There needs to be a requirement on landlords to improve the energy performance of their accommodation. For privately owned and occupied accommodation, Energy Performance Certificates are welcome although they are now buried in the ineffectual and disliked Home Information Pack. Something more needs to be done to reduce the barriers to improving housing stock: the high capital cost and the extended payback period. The poorest must be given financial assistance with this.
High above all the other issues stands individual behaviour – seldom mentioned in relation to fuel poverty. It encompasses the purchase of appliances and the use of those appliances. We select appliances for our homes and use them. We set thermostats and on/off settings for central heating and hot water. Just as the fuel crisis of the 1970s taught us all about mpg, so now we need to learn about kWh. We need to know how much energy appliances use. We need to know what we could save by taking certain actions. We need prompts for when to use and when not to use. We need to know how much we use compared with other people. We need to know how we are performing against a target. At the beginning of the road to changing behaviour is accurate, timely and actionable information, from energy efficiency labelling on appliances to energy displays, from printed information to websites.
Fuel Poverty is an archetypal challenge to joined-up government. The establishment of the Department for Energy and Climate Change will go some way to achieve this as it will presumably take over the responsibility for fuel poverty, previously fragmented over a number of departments. We have yet to see how this will operate in practice, however, or how other departments with an interest in the area (especially the Treasury) will work with the DECC. Moreover, household incomes are still “owned” by Department of Work and Pensions, while issues relating to dwellings are dealt with by the housing and planning team at the Communities and Local Government Department so true co-ordination remains incomplete. Equally disappointingly, the important potential of the internet as a channel of information on energy usage seems lost in the Department for Culture, Media and Sport because it is assumed to be primarily a channel for entertainment. In fact it is fast becoming an essential utility.
What is irrefutable is that money to tackle fuel poverty should be directed at those with the lowest income, the least energy efficient dwellings, dwellings with outdated heating technology, and those that are most vulnerable to low temperatures – the youngest, the eldest, those with impaired mobility, and those with conditions that affect breathing. That means handouts until the infrastructural improvements can be made, and a much more vigorous programme to improve the energy efficiency of the UK housing stock.
Predictions about the rise in the number of the fuel poor are largely academic at the moment. It is only when winter bills arrive on the doormat in the spring that the true extent of the problem will be felt. In the meantime, let us hope people will not feel obliged to turn their heating down or off. If they do the government may be held responsible – through its failure to address the underlying issues in time – for a major tragedy.
