House of Commons Library briefing paper: Fuel Poverty
Posted on 19 Feb 2016 under Latest in Parliament
This briefing paper provides an overview of how fuel poverty is defined and measured and current policy initiatives designed to counter it. The term ‘fuel poverty’ is used to refer to households which struggle to afford to keep their homes at a reasonable temperature, but the precise definition varies across the UK.
Originally, a household was defined as being in fuel poverty if they would have to spend more than 10% of their income to keep their home at a reasonable temperature. This definition is still used in Scotland, Wales and Northern Ireland. Following a review, the definition in England changed in 2013. Households in England are now said to be in fuel poverty if they would have to spend more than the median amount on fuel to keep their home at a reasonable temperatureand if spending that amount would put their income below the poverty line. This is known as the Low Income High Costs (LIHC) indicator.
Fuel poverty trends
The most recent estimates of the fuel poverty rate in each nation in the UK are as follows:
- 10.4% of all households in England (2.35 million households) in 2013 using the LIHC defintion
And, using their separate definition:
- 34.9% of all households in Scotland (0.85 million) in 2014
- 30% of all households in Wales (0.39 million) in 2012
- 42% of all households in Northern Ireland (0.29 million) in 2011
The fuel poverty measures are sensitive to changes in income, energy prices and energy use (in practice, more energy-efficient housing requires less energy use). Data from the Department for Energy and Climate Change (DECC) for England indicates that households are more likely to be fuel-poor if they are larger, poorer, live in old properties with poor energy efficiency or use fuels other than gas.
Energy prices generally rose in the 10 years leading up to 2013 (more information on trends in energy prices is available in the Library’s Energy prices briefing paper). In the devolved administrations, this trend is reflected in a rise in the number of households defined as fuel poor. This is because the 10% measure is particularly sensitive to changes in energy prices.
In England, the number of households defined as fuel poor did not rise in the same way. This is because the LIHC indicator is designed to be less sensitive to energy prices. Because the measure is relative, price changes that have a similar effect on all households do not cause the number of fuel poor households to increase.
However, rising energy prices are associated with greater depth of fuel poverty. The LIHC indicator allows for measurement of the ‘fuel poverty gap’ – the difference between the average energy costs of fuel-poor households compared to the median for all households. The fuel poverty gap in England has generally grown as energy prices have risen. 2013 is an exception – the gap reduced despite an increase in energy prices, primarily because of rising incomes amongst fuel poor households.
Fuel poverty policy
The statutory requirement to address fuel poverty was at the centre of the Warm Homes and Energy Conservation Act (WHECA) which was passed with cross party support in 2000 and applied to England and Wales.
The Coalition Government published a new fuel poverty strategy for England in March 2015 (Cutting the cost of keeping warm: a fuel poverty strategy for England).
There are two types of measures aimed at combating fuel poverty: those funded through direct public-sector expenditure and those funded through legal obligations placed on energy suppliers to assist vulnerable customers and where the costs are recovered through all customer bills.
Public spending focuses on reducing the amount households spend on energy through the Winter Fuel Payment (aimed at older people) and Cold Weather Payments (aimed at people on certain benefits and paid when the local temperature reaches below 0°C).
There are currently two main energy supplier obligations. The Warm Home Discount requires suppliers to provide an electricity bill discount for certain customers. The Energy Company Obligation (ECO) provides funding to improve energy efficiency in difficult to treat housing and the homes of ‘those most in need’.