For many years the problem of poor heating systems, badly insulated housing, combined with a low income and unaffordable, rising fuel costs has contributed to significant health problems and exacerbated health inequalities. The new figures on the number of excess winter deaths for England and Wales last winter show a worrying increase of 29% to 31,100 deaths. An estimated 30% of winter deaths in Europe are caused by cold housing[1].
Consumer surveys reveal energy costs as a source of even greater worry to fuel-poor[2] households (with incomes below the poverty line -- taking into account energy costs -- and paying higher than typical energy costs for their household type) and hard-working families than in previous years. The National Audit Office[3] says utility bills will increase over the next ten years to fund large-scale infrastructure spending, but the UK government does not know by how much, or whether bills will be affordable. The Fuel Poverty Advisory Group (FPAG) has raised this fundamental issue in its previous annual reports.
The current political conflict about energy bills does nothing to convey that energy bills will be more affordable in the years ahead. While any temporary financial assistance, in whatever form, towards an energy bill is helpful, there are other fundamental issues that the UK government must consider. Energy bills will increase. According to the Department of Energy and Climate Change’s (DECC) own figures, by 2020 policy costs on electricity bills will reach 26% of the bill. This added burden on poor and fuel-poor consumers means many households will have to ration their energy use due to a lack of income. If the intention is to continue funding energy infrastructure, green and social costs in this way, then consideration must now be given to a more progressive energy-charging regime.
Political conflict and the uncertainty it creates about the industry per se adds additional price escalation risk for the nation in general and fuel-poor households in particular. Political uncertainty will increase the cost of borrowing. According to Ofgem the industry needs to invest about £200bn[4] to replace ageing power stations and related network infrastructure over the coming years. A failure to replace generating capacity and other infrastructure means capacity shortages could drive wholesale prices even higher.
While the government’s intention to extend some aspects of the revised Energy Company Obligation[5] (ECO -- legal obligations on the larger energy suppliers to deliver energy efficiency measures) to 2017 is welcome, it remains manifestly inadequate to deal with the scale of the fuel poverty challenge. As part of these proposals, FPAG expects that the new easy-to-treat measures in the ECO Carbon Emissions Reduction Obligation (CERO) will be targeted to poor and fuel-poor homes that need the most help, over homes that could otherwise afford them.
In his final report, Professor John Hills states that the rate of return of investing in energy efficiency programmes for low-income vulnerable households significantly outweighs the cost of implementation. Fuel poverty is on the rise again and the government needs to significantly increase the level of resources available to stop the annual cold homes crisis during winter in England and reduce excess winter deaths.
Government policy costs on energy bills combined with a rise in wholesale global energy prices drive a compelling ethical case for the use of revenues from the Carbon Tax Floor and EU Emissions Trading Scheme (£540m in 2014, rising to £2.3bn per year by 2020), to fund an additional, ambitious energy efficiency programme. This would provide new support[6] to tackle fuel poverty. A high level of insulation with an efficient heating system is the only way to bring down bills permanently.
Since last year’s report, following recommendations from Professor Hills, the DECC has led an exercise to redefine fuel poverty to find the least energy efficient homes, lived in by those on the lowest incomes. As the government moves to a new target underpinned by an updated strategy, it ought to set out a clear direction for tackling fuel poverty, which meets the scale of the challenge.
Business as usual simply won’t do. With the new strategy, now is the time for all government departments, and not just DECC, to commit to an ambitious approach, leaving ‘no stone unturned’ in pursuit of additional relief for the 2.4m households in England struggling with fuel poverty.
Derek will be speaking at The Economist’s UK Energy 2014 event on June 10th 2014.
[6] Fuel Poverty Advisory Group, tenth Annual Report 2011
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
