A landmark day for fuel poverty

’A step in the right direction’ is CSE’s reaction to the Hills Review

18 October 2011

The interim report of the Hills Fuel Poverty Review was published last week (19 October) and has since then been digested thoroughly by the many organisations engaged with the fuel poverty agenda, CSE among them. It can be downloaded here (note, 6mb file).

The headline item from the interim report was Professor John Hills' stated intention to change the definition of fuel poverty. The current definition (that a household is in fuel poverty if it needs to spend more than 10% of its income on fuel to maintain a reasonable standard of warmth) doesn't necessarily reflect people's incomes and the pressure that fuel costs put on their wider finances. As a consequence it is a blunt instrument for targetting fuel poverty programmes at the most needy.

The proposed new definition seeks to address this by combining a threshold of poverty (expressed as 60% of the median) as a proportion of 'after-housing-costs' income with a measure of high energy requirement expressed in monetary terms relative to the wider population.

In other words looking at both a household's disposable income and at the amount of heating it needs.

CSE's Ian Preston is broadly in favour of this shift.

"A definition of income that's both 'equivalised' and takes into account housing costs better reflects how much cash people really have available to spend on fuel," he said.

"The critical thing to remember is that the new definition neutralises the impact of fuel price rises. It is therefore no longer the case that an increase in fuel prices like the one we've recently experienced casts millions more into fuel poverty. From now on households will be judged as fuel poor relative to other households, not by a proportion of income spent on fuel."

The new definition reduces the numbers in fuel poverty in 2009 from 4 million to 2.7 million, so is this not just massaging figures to reduce the perceived problem? Ian argues that it isn't.

"In 2004 the same approach would have added 1 million households to fuel poverty. So rather than defining fuel poverty out of existence it's a change in the identification of the fuel poor and the way we prioritise our resources. It's likely that this new definition would increase the proportions of single persons and lone parents in fuel poverty and reduce the share for the elderly.

"If we can then identify houses within the 'after-housing-costs' definition of fuel poverty with high relative fuel needs, i.e. those above equivalsed median fuel costs, we could focus resources on households that need the most support.

"Our main concern is for certain low-income households that won't qualify under the new proposed definition. Many of these will be households with very low incomes and low energy needs [i.e. those living in very efficient houses] for whom fuel poverty is driven by income and where there is little further role for energy efficiency.

"But there remains a group of households whose required energy spend is above average, but whose 'after-housing cost income' doesn't fall below the new fuel poverty threshold. Can we be sure that their income is really sufficient to meet their fuel needs amongst other essentials like clothes, food and transport?"

CSE's response to the Hills Fuel Poverty Interim Review was among the most detailed of all organisations in the sector and can be downloaded here.

There are references to pieces of CSE's fuel poverty research in the Hills Review – a testament to the extensive body of work we've built up over recent years. These are:

  1. You Just Have to Get By: A study of the coping strategies of low-income households in Great Britain
  2. Shedding light on low-income, high energy consumers: a project that sought to understand this little known sector of households

The Hills Review was set up in October 2010 after the Government announced it would commission an independent review of the fuel poverty target and definition.

The terms of reference for the Hills Fuel Poverty Review are as follows:

  1. To consider fuel poverty from first principles: to determine the nature of the issues at its core, including the extent to which fuel poverty is distinct from poverty more generally, and the detriment it causes.
  2. As appropriate and subject to the findings under (1), to develop possible formulations for a future definition and any associated form of target, which would best contribute to the following four:
  • addressing the underlying causes identified
  • helping government focus its resources (which are set out in the Spending Review for the period to 2014-15) and policies on those who need most support
  • measuring the cost effectiveness of different interventions in contributing to progress towards any target
  • developing practical solutions, particularly around identification and targeting of households and measuring progress resulting from government action

The Warm Homes and Energy Conservation Act 2000 required the publication of a strategy setting out policies to ensure that as far as reasonably practicable no-one lives in fuel poverty. In 2001, the Government published its Fuel Poverty Strategy for England. The strategy set an interim objective of eradicating fuel poverty in vulnerable households as far as reasonably practicable by 2010; under the terms of the Warm Homes Act, no household should be in fuel poverty as far as reasonably practical by 2016.

The graph above shows the initial progress towards the target with fuel poverty falling to a low of 1.2 million in 2003 from 4.3 million in 1996. The liberalisation of the energy market and a healthy economy helped generate this trend which has subsequently been eroded as energy prices continue to rise. Fuel poverty now stands at 6.6 million households with nearly a quarter of homes falling into this category.

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