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 the picture is much less bright. Between 2005 and 2006 the number of fuel poor rose by around a million, to stand at roughly 3.5 million (around 14 per cent of all households), and some estimate that the figure will double, to seven million, by the end of 2008.
When the original fuel poverty strategy document was published in 2001 fuel prices were at their lowest in real terms since 1974. That paper 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 per cent to -10 per cent in real terms for domestic gas prices and +5 per cent to -2 per cent for domestic electricity prices. This has not exactly been justified by events. In August 2008 alone domestic electricity prices increased by around 20 per cent and gas prices by around 30 per cent, following 15 per cent increases in January, and National Grid recently warned that a further round of price rises is inevitable before the end of the year. But the sudden and steep escalation in fuel prices should not be allowed to distract us from the underlying issues that drive fuel poverty. These remain the same – poor efficiency and inadequate incomes. They affect us all to varying degrees; and the government has failed to tackle them adequately.
Elements in the Labour and Liberal Democrat parties and the trade unions still hanker after a windfall tax on energy companies, but that is not the answer. At the best of times 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 – in the present global financial crisis such an added burden on business would be insanity. We need energy companies to invest in the UK, in generation, distribution and metering; any diversion of funds will adversely affect capital expenditure plans at a time when the “cushion” between energy supply and demand is dangerously small. The legal process to impose a windfall tax would be drawn out and even if one were eventually imposed it is doubtful it would do the fuel poor any good. 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 the debate about fuel poverty, pre-payment meters are usually demonised, but they are not the root of all evil they are often painted. In fact only a quarter of pre-payment meter customers are fuel poor. Such meters are used by many people in the same way as pay-as-you-go mobile phone contracts – Energywatch has reported that 66% of all customers who choose pre-payment meters do so to control their energy spending, and Ofgem research has found that the majority are happy with this method of payment. The number of pre-payment meters has also risen in recent years as a preferable alternative to disconnection and as one way to repay accrued debt.
Pre-payment meters are costly to install and more expensive to administer than other methods of payment and some energy companies pass these costs on to the customer. It is not necessarily right to criticise them for doing so, any more than it would be to condemn them for sharing with their customers the benefits of cheaper payment processing methods. However, it is necessary 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 chronically thermally inefficient, probably because we have a temperate climate with no great extremes of heat or cold and because energy prices were low while North Sea oil and gas reserves remained high. But as large a sum as close to a billion pound sounds, it will 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 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. Let us look at each in turn.
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, oil and gas, coal (preferably with carbon capture and storage), renewables, local schemes, and micro-generation. It must take account of security of supply and the need to reduce our reliance on imports from politically unstable regions and susceptibility to economic blackmail.
2. Household incomes are dictated by salaries and wages, pensions, tax credits, disability allowances and other benefits. Vulnerable people should be able to afford the necessities of life, and payments should keep pace with necessities. Benefits such as winter fuel payments are directed to the elderly but wrongly exclude other deserving categories such as the very young and those will breathing difficulties.
3. Energy efficiency depends on the energy performance of dwellings, the efficiency of a dwelling’s heating technology and individual behaviour. Heating space and water accounts for 60 to 80 per cent of domestic energy use. Around 18 million homes are owner-occupied; three million are privately rented; two million have social landlords – mostly housing associations; and 2.5 million are under local authority control. Rented dwellings must have Energy Performance Certificates, but as landlords have no obligation to act on them the stipulation is pointless. Unfortunately, the heating technologies that cost least to install are often those which cost most to run. There therefore needs to be a requirement on landlords to improve the energy performance of the accommodation they provide. For privately owned and occupied accommodation, Energy Performance Certificates are more useful, although as they are they are now subsumed in the ineffectual and disliked Home Information Packs there is a danger they will become unpopular by association. Something more needs to be done to reduce the main barriers to improving housing stock: the high capital cost and the extended payback period, and the poorest must be given financial assistance to encourage them.
Above all the other issues stands individual behaviour – seldom mentioned in relation to fuel poverty. It encompasses both the choice of appliances and their use. We set thermostats and on/off settings for central heating and hot water and just as the fuel crisis of the late 1970s taught us all about mpg, so now we need to learn about kWh. We need to know how much energy appliances consume. We need to know how much we could save by taking certain actions. We need prompts for when to use and when not to use energy. 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 ch
anging behaviour is accurate, timely and understandable information which can readily be acted upon, which could range from energy efficiency labelling on appliances to indicators on 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 which was 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 the Department for Work and Pensions, while issues relating to dwellings are dealt with by 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 improving the least energy efficient dwellings and those with outdated heating technology, and towards helping people on the lowest incomes and those 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 better the energy efficiency of the housing stock.
In the meantime, many may feel the only answer is 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. A short term “sticking plaster” is inevitable, but this does not make permanent solutions any the less pressing.