Memorandum by energywatch
energywatch is the statutory body responsible for representing the interests of gas and electricity consumers. As part of our statutory duty, we have a remit to help disadvantaged consumers and so tackling fuel poverty forms a major part of our activities.
In Section A of this submission we set out our views on six crucial areas that any investigation into tackling fuel poverty must consider. We then go on to answer the specific questions posed by the Trade and Industry Committee in Section B.
Section A: Six key areas for consideration
1. AFFORDABLE WARMTH AND LIGHTA BASIC HUMAN RIGHT
1.1 Affordable warmth is a basic human right. It is embodied in Article 25 of the UN Declaration of Human Rights and also Article 34 of the EU Charter of Fundamental Rights. The passing of the Warm Homes Act 2000 commits the UK Government to ensuring that every household in Britain enjoys this right by 2016.
1.2 Subsequent to the passing of the Warm Homes Act and the publication of the draft Fuel Poverty Strategy, the Government conducted an investigation into the long-term future of the energy market to 2050.
1.3 It is important that affordable warmth remains a key principal of energy policy after 2016 and fuel poverty does not re-occur as a result of wider changes in energy policy or as a result of failure to replace energy saving measures installed under New HEES or other similar projects.
1.4 Government is committed to joined up thinking and action. In relation to fuel poverty this has covered health, social services and housing. Government's long-term energy policy must be added to this list.
energywatch believes that it is vital that Government's commitment to affordable warmth does not end in 2016, but forms an integral part of the long-term energy strategyhand in glovein order for the Government's energy policy to be truly sustainable into the future.
2. THE ENERGY MARKET
2.1 The Right to Fuel. energywatch believes that the first principal of tackling the problems of high fuel prices should be to establish an absolute baseline that consumers cannot fall below. In other words, consumers should never be forced from a position of fuel poverty to that of fuel bankruptcywhere they simply cannot afford to remain connected or to charge their pre-payment meter. This precedent has already been set by the water industry.
energywatch believes that all consumers have a right to fuel and that ending disconnection in all its forms should be a fundamental commitment in the Government's fuel poverty strategy.
2.2 Universal Access to Competitive Offerings. The poorest members of society are often paying more for their energy than those who are more easily able to afford it. Many low-income pre-payment meter customers do not have access to the same choice of tariffs as direct debit customers. They are prevented from moving to a different supplier through the process of debt blocking. Even if not in debt, they are often prevented from moving to a credit meter because of high security deposits.
2.3 This situation is set to worsen with the recent removal of relative price controls for pre-payment meter consumers this April. The Competition Act has the potential to require suppliers to increase pre-payment meter prices to cost-reflective levels if suppliers were charging at less than market rates to reflect social objectives.
2.4 So far there is little evidence that the industry will make the required investment either to reduce the costs of prepayment meter services or to introduce new tariffs or products that would make the exisiting prepayment meters redundant.
2.5 If we believe in the principle that the poorest members of society should not be paying more for goods and services, including energy, we must address the differential between the cost of fuel for many low income consumers, such as prepayment meter customers, and the cheaper costs of fuel enjoyed by more affluent consumers.
energywatch believes that all consumers should have access to the cheapest available tariffs and that the Government's priorities on social justice should be applied with urgency to the competitive energy market.
2.6 Access to Affordable Fuel. There are curently 4.5 million households that do not have access to the mains gas supplyover a million of them are living in fuel poverty.
2.7 Whilst the Fuel Poverty Strategy recognised this problem and agrees that extending the gas network could deliver tens of thousands out of fuel poverty, it has not committed the funds to achieve this.
energywatch believes that the Government must act now to provide rural consumers with a greater choice of more affordable types of fuel, including extending the gas network, if it is to successfully eradicate fuel poverty.
2.8 Developing a Social Obligation for Suppliers. Through Ofgem's Social Action Plan, suppliers are encouraged to develop products and services aimed at helping low income consumers. However, whilst there is a high degree of innovation amongst suppliers' schemes the scale and ambition of them remains modest.
energywatch believes that the Government should develop a framework to formalise their contribution to tackling fuel poverty. This "Social Obligation" should reward suppliers for achieving targets, thus incentivising suppliers to deliver solutions to help lift their customers out of fuel poverty.
3.1 Fuel prices and benefits. It is important to recognise that fuel prices, energy efficiency and housing stock improvement are not enough to take consumers out of fuel poverty. Income measures are needed which focus on the needs of fuel poor consumers.
3.2 Whilst there is a clear link between housing costs and housing benefits there is no longer a clear link between fuel prices and benefits.
3.3 energywatch would like to see the link between fuel prices, benefit levels and the energy efficiency of homes established. There needs to be a more direct link between income and running costs of homes than that currently provided by broad-brush RPI related increases.
energywatch believes that the Government should re-establish the link between levels of benefit and fuel prices.
4. HOUSING MEASURES
4.1 Improving the housing stock. In the longer term, the only permanent solution to fuel poverty is to improve the overall level of the housing stock. However, in the short term a combination of energy efficiency improvements driven by grant schemes, fiscal measures and through obligations on social landlords should deliver huge benefits to fuel poor households.
4.2 However, we remain concerned as to whether the existing packages will be sufficient to take people out of fuel poverty.
energywatch believes that energy efficiency measures are well represented in the Fuel Poverty Strategy but, on their own, will not be sufficient to eradicate fuel poverty.
5. CO -ORDINATIOn
5.1 Co-ordinarion at a Strategic Level: Developing a Truly Sustainable Energy Policy. Fuel poverty must be properly incorporated into Government's wider poverty agenda. It must also be recognised in the context of the Energy Policy Review. Future energy policy must protect not only the environment but low income consumers as well.
5.2 Fuel poverty must take a high profile in all relevant Government departments encompasing health, building regulations, work and pensions, regions and, not least, all aspects of the DTI and DEFRA.
All relevant Government departments and agencies must consider their impacts on fuel poverty at the earliest possible opportunity, for example, through a process similar to the Regulatory Impact Assessment, and seek to integrate solutions into their proposals.
As part of this holistic approach to poverty the effects of the Energy Policy Review, including increases in fuel prices brought on by the need to reflect the environmental cost of energy generation, must be fully mitigated for the fuel poor, in order to achieve true sustainability.
5.3 Co-ordination at a local level at a local level it is not uncommon for fuel poverty schemes to ``compete'' for customers, with more than one surveyor being sent to a household.
5.4 The exception to this is Warm Zones, which should provide valuable lessons leading to a better approach for future schemes.
5.5 However, it is important that solutions to fuel poverty are developed with each community, and not parachuted in on them if they are to be successful.
energywatch believes that the Government should formalise co-ordination at a local level, to ensure that resources are not wasted and that consumers receive all of the possible grants that they are entitled to.
5.6 Co-ordination at a scheme level. Low incomes, high fuel prices and inefficient housing and heating regimes combine together to create fuel poverty. It is therefore vital that all three are tackled together to alleviate fuel poverty. Currently the majority of schemes tackle only one of these aspects.
energywatch believes that identifying fuel poor households is a major problem and that, once identified, fuel poor consumers should be offered schemes that tackle fuel poverty holistically, incorporating income, fuel and energy efficiency measures.
6. EVALUATION OF THE FUEL POVERTY STRATEGYWILL IT WORK?
6.1 The Government's Fuel Poverty Strategy is an excellent summary of the current initiatives that are underway to tackle fuel poverty. However, the strategy does not seek to quantify the effect that these schemes will have on alleviating fuel poverty, nor does it seem to integrate the existing fuel poverty measures.
6.2 Because of this it is impossible to ascertain whether or not the Government will achieve its targets of eliminating fuel poverty, and impossible to know whether more resources need to be identified to solve the problem.
energywatch believes that the Government should calculate the likely impact of the policies proposed in the Fuel Poverty Strategy and commit extra resources, where necessary, to ensure that the targets of 2010 and 2016 are met.
Section B: Responses to specific questions posed by the Trade & Industry Committee
1. Is the Government target of ensuring that by 2010 no members of ``vulnerable households'' need risk ill health due to a cold home, adequate? Can it be achieved?
1.1 The Government's target of eradicating fuel poverty amongst vulnerable groups by 2010 is an admirable one. This Government is the first to truly acknowledge the concept of fuel poverty and energywatch is extremely supportive of the target that the Government has set and the target set by the Warm Homes and Energy Conservation Act 2000 to eradicate all fuel poverty within 15 years.
1.2 energywatch believes that the 2010 target may be achievable, bar a minority of cases, and barring changes in life circumstances that will unavoidably plunge extra people into fuel povertypossibly for only a short period of time.
1.3 However, energywatch does not believe that the goal is achievable given the current programme of activity. The Fuel Poverty Strategy has not been analysed to assess the contribution of each of its elements to the eradication of fuel poverty so it is impossible to ascertain whether or not extra resources are required to achieve the targets.
1.4 Furthermore, we are concerned that fuel poverty may be eradicated officially, but still remain a reality, because of the definition that the Government is using. This is only compounded by different Nations using different definitions. energywatch believes that definitions should be harmonised across the UK to allow comparisons to be made.
2. Why has the number of fuel poor households fallen recently? Can this reduction be maintained?
2.1 energywatch does not have primary data on the number of consumers taken out of fuel poverty, however, a recent report by the Building Research Establishment suggests that changes in income may have been the most important factor followed by lower fuel prices.
2.2 However, energywatch does not believe that the contribution from lower fuel prices can be relied upon to deliver households out of fuel poverty. Fuel prices are determined by many external factors such as the European market, crude oil prices and wider market pressures. As such they should be viewed as an uncontrollable risk. The recent doubling of both LPG prices and wholesale gas prices illustrates this point. Since the publication of the report many of the major gas suppliers, including British Gas, have increased their prices significantly.
2.3 Further progress on the impact of fuel prices on fuel-poor customers can only be made by studying the impact of fuel prices at a micro level. There are a number of ways in which fuel-poor consumers can potentially benefit even if fuel prices remained constant. These include the removal of debt-blocking, the development of innovative payment methods to replace pre-payment meters and a narrowing of the differential between pre-payment tariffs and other methods of payment.
3. What is the relative significance of factors such as poor energy efficiency, low incomes or the cost of fuel?
3.1 The major causes of fuel poverty are an energy inefficient home or heating regime, a low income and high fuel prices. The level of occupancy of a dwellng may also be a contributory factor. Each of the factors identified by the Committee is a key contributor to fuel poverty. However, whilst energy efficiency of housing stock is often the largest single factor, we are concerned that sufficient emphasis is not being placed on the contribution of income and fuel prices to fuel poverty. This is particularly the case in relation to fuel prices in the light of work carried out by PIU on the review of energy policy.
3.2 Without tackling all of the factors together solutions will not eliminate fuel poverty. Adequate levels of income and access to affordable fuel such as mains gas, and appropriate tariffs, are equally important.
3.3 Finally it should be recognised that fuel poverty rarely occurs in isolation from more general poverty. To reinforce this point, the Money Advice Trust found that customers in debt to their gas and electricity supplier were also in debt to several other creditors.
4. How effective are the industry-led initiatives?
4.1 The contribution of suppliers' schemes to tackle fuel poverty has not yet been publicly analysed. This is set to change with industry-led initiatives being adopted as an indicator by the Fuel Poverty Monitoring and Technical Group (FPMTG) which is chaired by DTI.
4.2 However, energwatch believes that current supplier initatives do not even scratch the surface of fuel-poverty. Whilst many are innovative and can deliver real benefits, they remain small in scale and only appropriate to a limited proportion of the fuel poor. With few exceptions, schemes appear to be still at the ``trial'' stage, with little relationship between the number of consumers that a supplier has and the uptake of their schemes, and no clear signs of mass roll-out. energywatch does not believe that suppliers will invest sufficiently in tackling fuel poverty without firm direction from the Government and the regulator.
4.3 Over the coming year energywatch will be complementing the work of the FPMTG by comparing the contribution of individual schemes and directing consumers to the schemes most suitable to their needs.
5. How can Government promote the take-up of energy efficiency measures in households whose income is just above benefit level?
5.1 enegywatch believes that there are a number of indicators which can be used to identify groups of low-income consumers who are not on benefit. Some examples include prepayment meter customers, consumers who are in debt to their supplier and areas with high overall levels of deprivation.
5.2 This is also an area where consumer networks such as energywatch and Energy Advice Centres can play an important role. energywatch will be conducting a number of outreach sessions throughout the coming months and years aimed at identifying and helping fuel poor customers.
6. How much could better co-ordination between agencies or fiscal measures help?
6.1 Lack of co-ordination is a significant threat to achieving the eradication of fuel poverty. This is true at Government level and also at regional and local level. Fuel poverty must take a high profile in all relevant Government departments encompassing health, building regulations, work and pensions, regions and, not least, all aspects of the DTI and DEFRA.
6.2 At a local level it is not uncommon for fuel poverty schemes to ``compete'' for customers, with more than one surveyor being sent to a household. Warm Zones represents a welcome model of learning, the results of which are eagerly anticipated.
6.3 With regard to fiscal measures, these certainly have an important role in promoting energy efficiency both for homeowners and those living in rented accommodation, however, they will need to be carefully targeted at the fuel poor if their impact is not to be diluted or have detrimental consequences.
7. What contribution to the elimination of fuel poverty might be made by technological advances?
7.1 Technology can play a part in alleviating fuel poverty. However, if it is to be fully harnessed, a concerted programme of investment will need to be put in place. For example, pre-payment meter technology is available that can reduce call-out costs and increase awareness of energy use by consumers. Suppliers will not fit this technology unless they consider it profitable to do so. Similarly, domestic CHP units are now coming on to the market but if take-up is no quicker than current levels of boiler replacement their impact will be gradual.
7.2 In summary, technology will need to be harnessed in a concerted, and well funded attempt to eliminate fuel poverty but, as mentioned above, will only be one factor out of many.
4 UK Fuel Poverty Strategy p 19. Back
5 Fuel Poverty in England in 1999 and 2000: A summary report produced by the Building Research Establishment. Back