Fuel and poverty, beyond the theory
Gathering an evidence base for UK anti-poverty strategies
Project duration: October 2013 to June 2014
The Joseph Rowntree Foundation (JRF) commissioned a series of literature reviews in 2013 to provide a comprehensive and robust evidence base to inform the development of anti-poverty strategies for the UK. CSE lead one of these reviews, to explore factors associated with energy needs, fuel costs and poverty, in the context of policy and practice.
Poverty and energy policy
Fuel costs and energy needs are now significant factors in UK poverty.
Energy policy in the UK has undergone significant change over the last 18 months. There is no longer a UK-wide, state-funded energy efficiency programme. Instead, support for measures now typically relies on energy supplier-based obligations (the Energy Company Obligation) alongside a householder-based finance mechanism (the Green Deal). Beyond energy, in the broader poverty context, the Government’s approach to poverty alleviation remains focused on welfare reform, with the introduction of Universal Credit in 2013.
The design and implementation of Government policy – both energy policy and more broadly - has fundamental implications for the fuel costs experienced by consumers and the level and distribution of poverty in the UK.
Understanding fuel and poverty
The review explored a wide range of issues associated with the cost of fuel and poverty, including addressing questions such as: Who are the “fuel poor”? What are the implications for households living on a low income and facing unaffordable energy bills? What impact do environmental and social obligations placed on private companies by the Government have on energy prices? And what opportunities are there for developing policy and practice to alleviate fuel poverty in the UK?
Reviewing the evidence
The methodology applied in the evidence review adopted an ‘expert informed’ Rapid Evidence Assessment (REA) approach in identifying key sources and evidence for review. The expert-informed REA approach combines expert knowledge of relevant information sources with a focused search of peer-reviewed and grey literature, making best use of the available resources and expertise of the project team.
The rising cost of energy is a key factor putting pressure on household budgets. The end of 2013 saw all of the largest energy suppliers, the so-called ‘Big 6’, once again increase their prices (by 4-11 per cent). The average household annual energy bill was more than £1,350 in 2013.
The main components which determine whether a household is defined as being in “fuel poverty” are: the cost of fuel, the household income, and the energy efficiency of the property.
In England, a new approach to measuring fuel poverty was adopted in 2013. Under this new “low income, high cost” definition, a household is defined as fuel poor if it has both a low income and above average fuel costs. The inclusion of an income threshold in the measure of fuel poverty puts greater focus on the experiences of low-income households. Scotland, Wales and Northern Ireland continue to define fuel poverty as needing to spend more than 10 per cent of income on fuel to maintain adequate warmth in the home. Households in fuel poverty risk not only having cold homes but cutting back on other essentials to afford to keep warm. This can involve serious hardship and poses risks to physical and mental health.
Policies to address fuel poverty have often focused on energy efficiency, which continues to be important. However, low-income households’ experience of fuel poverty is influenced by how much they pay for their fuel, and not just how much they ‘need’ to use.
The review identifies four key issues related to high energy costs and low incomes in the UK:
- General retail price of fuel. Increases driven by higher wholesale prices are hard to avoid. However, greater transparency and competition in the market are needed, especially where energy companies are effectively selling wholesale to themselves as retailers.
- Accessibility of the energy market. An inability or unwillingness to engage with the energy market combined with preferences for certain methods of payment result in some low-income households paying higher than average fuel prices. Regulators and trusted intermediaries must help create a fairer, more accessible energy market.
- The impact of public policies on fuel bills. Low-income consumers pay a disproportionate share of the cost of some policies, such as the feed-in tariff, but stand to benefit least. Public policy must ensure low-income consumers are safeguarded.
- Energy efficiency of low-income homes. New approaches are needed to bring homes up to a minimum standard, particularly in the private rented sector. Referrals by health professionals and area-based initiatives can help support those most in need.
The final chapter of the evidence review includes a set of recommendations and presents some practical examples of policies to address these issues.
A summary report from JRF on reducing poverty in the UK, which includes CSE’s report on fuel and poverty alongside another 32 JRF-funded studies is available here.
Image: See Wah Cheng, flickr, reproduced under Creative Commons