Fuel poverty in the UK

PensionsersOver six million households in the UK currently need to spend more than 10% of their income on keeping warm – a figure that many predict to increase with the likely rise in fuel price over the next few years. Many of those vulnerable to fuel poverty are unemployed or retired. Therefore, they spend more time at home, so use more energy, but have less income to pay for it.

Many environmentalists are pleased – either publicly or privately – when energy prices rise, since this means that people will be more careful how they use energy and become more motivated to install energy efficiency in their home. However, for people in fuel poverty, a sharp increase in energy prices or a cold winter can mean the difference between life and death. Most years, around 20,000 more people die in the winter months than in the summer months, in part because of respiratory diseases brought about from living in cold and damp homes. If there is an outbreak of influenza, the winter ‘excess mortality’ may easily be double this.

Over the last two years, there has been a surge in fuel prices. Average household bills for domestic gas were £149 higher in 2009 than the year before, mainly because of the increase in the traded price of gas. And it is the most vulnerable that pay the most for their fuel. The fuel poor are more likely to use prepayment meters or standard credit than use direct debit to pay for their energy. They do this to help them budget to meet these costs. Someone who uses a prepayment meter will pay £118 more than someone who pays by direct debit. Unlike other goods and services, vulnerable people are charged a higher price for the same good because they are poor.       

The government set itself a legally binding target to eradicate fuel poverty in vulnerable households by 2010 and all households by 2016. For the last three years, the figures have been going the wrong way. What is government doing about this? There are three main approaches:

  • The first is providing subsidised or free insulation through Warm Front (grants to vulnerable private households) and Decent Homes (a programme to improve social housing and private housing occupied by vulnerable households) or provide poorer households priority access to the energy efficiency schemes (called CERT and CESP) run by the energy companies. However, some people with really high energy costs – those living off the gas network and those living in old, hard to insulate homes – face a double whammy. They have high energy costs and the schemes mentioned above have little to offer them because there are no cheap measures suitable for their homes that are presently subsidised. 
  • Another approach is to increase the income of vulnerable households through benefits like the cold weather payment or winter fuel payment. The latter is available to everyone above retirement age irrespective of their income or wealth. However, only 12% of pensioners are fuel poor, and the winter fuel payment costs the taxpayer over £2.5 billion a year – more than the spending on energy efficiency through Warm Front and the energy company’s CERT programmes combined. Do pensioners who pay higher rate income tax really need this pension top-up?
  • The third approach is to reduce the prices the vulnerable pay for their energy, or at least to ensure that the vulnerable do not have to pay higher tariffs just because they are compelled to use pre-payment meters, or do not have bank accounts so cannot pay by direct debit. Tucked away in the energy bill announced on the 18th November was a promise to introduce a mandatory price support so that vulnerable customers would have to pay less for their electricity. This policy has been welcomed by many fuel poverty campaigners.

There is no single solution to providing affordable warmth to the most vulnerable, not least because they are so hard to locate, and often too proud or too disconnected from the rest of society to access the available help. However, perhaps by focusing more effort on making their homes as energy efficient as possible and fitting renewable technologies if they live off the gas grid, we might get the numbers of fuel poor coming down once again, and help them stay warm through winter.

PrashantPrashant is the Chief Economist at Consumer Focus which campaigns for the fuel poor.


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