Commenters on a number of blogs and mainstream media outlets are concerned about growing fuel poverty in the UK stemming from rising energy prices and misguided energy policy. This post aims to provide a simplified summary of some of the key issues and findings detailed in recent government reports on this topic [1, 2].
- Fuel poverty is a measure of a household’s ability to pay for home fuel (electricity, gas, heating oil and coal). The UK government recently changed the way fuel poverty is defined. According to the old measure the number of fuel poor households increased sharply from 2003 to 2009. According to the new measure the number of fuel poor households stayed the same but the level of fuel poverty has deepened for those affected.
- Disposable incomes in the UK have been by and large static for 5 years.
- Winter fuel payments (a form of welfare) have been rising, in line with an ageing population
- Cold weather payments (another form of welfare) have shot up in the 5 year period since 2009 reflecting prolonged periods of cold winter weather.
- Low income groups spend >7% of their income on home fuel while for high income groups the figure is <2%.
- Higher international energy prices are part of the problem made worse by misguided energy policy in the UK.
- The energy efficiency of UK homes has improved significantly since 1996 and from the data presented low income households evidently live in more energy efficient homes than high income households.
Fuel poverty redefined
The UK government recently changed the way fuel poverty is measured and reported. The old way was called The 10% Measure defined as:
A household is said to be fuel poor if it needs to spend more than 10 per cent of its income on fuel to maintain an adequate level of warmth. The adequate standard of warmth is usually defined as 21 degrees for the main living area, and 18 degrees for other occupied rooms. Fuel poverty is therefore based on modelled spending on energy, rather than actual spending.
Fuel poverty ratio = Modelled fuel costs / Income
If this ratio is greater than 0.1 then the household is fuel poor.
The new way (proposed by Professor Hill) is called the Low Income High Cost Measure and is defined as:
Under this definition a household is considered to be fuel poor where:
- They have required fuel costs that are above average (the national median level)
- Were they to spend that amount, they would be left with a residual income below the official poverty line
In my opinion, the old measure is simpler to understand, but I will not pass judgement on the relative merits. One consequence of introducing the new measure is that the UK Government lifted 632,000 households out of fuel poverty in 2011 with one stroke of the pen. The two measures are compared in Figure 1 which shows that under The 10% Measure, fuel poverty rose sharply in England between 2003 and 2009 – which is what one would expect with rising energy prices and slowing income growth. The new Low Income High Cost measure shows the number of households defined as fuel poor to be relatively static at around 2.5 million but that the extent of fuel poverty in affected households has deepened significantly since 2003.
Figure 1 The old 10% measure (orange) and new Low Income High Cost measure (red and dashed) compared. Under the old measure the number of households affected by fuel poverty rose sharply from 2003 to 2009. Under the new measure the number of affected families is static but the extent of fuel poverty in those families has deepened.
The official 2013 reports on fuel poverty  are detailed and use a lot of statistics. The remainder of this post is based around a selection of charts taken from a sister publication called Fuel Poverty Monitoring Indicators 2013 which provides a series of easy to understand charts. This is not intended to be an exhaustive review but a simple overview of some key indicators that may be of interest to the public.
DECC says: Real disposable household income increased every year between 1996 and 2010, with the largest increases seen in the late 1990s and early 2000s. In 2011, real incomes fell slightly, representing the first decrease in the last 15 years. However, they then rose again between 2011 and 2012, by just over 2 per cent. This differs from the fuel poverty dataset, where incomes have risen every year throughout this period. This is because the fuel poverty dataset considers income in cash terms, whereas the ONS data considers income in real terms.
EM says: The time of more has turned into the time of less. Note that it is only in 2011 where we all actually became poorer. The main trend is slowing growth in income. Income is still rising, but not by much. The cause is the double whammy of rising energy prices (European resource scarcity and misguided energy policies) combined with the banking crisis and recession.
Winter fuel payments
DECC says: Expenditure on Winter Fuel Payments fell to around £2.2 billion in 2011/12, from around £2.8 billion the year before. This was because the payment amount reverted to 2007/08 levels following three winters of higher payments. In 2011/12, approximately 13 million older people benefitted from a winter fuel payment.
EM says: The number of individuals entitled to winter fuel payments is growing (left hand chart) which I imagine reflects the ageing population. The amount paid out (right hand chart) spiked in 2009, 10 and 11 owing to cold winters that result from a switch in the North Atlantic Oscillation (NAO) to negative mode – nothing whatsoever to do with rising CO2 levels.
Cold weather payments
DECC says: Cold Weather Payments reflect extended cold periods within a winter, and therefore do not always follow average winter temperatures. A winter could be very cold on average, but if there were few extended cold spells of a week or more, then fewer cold weather payments would be made. The areas involved also affect the number of payments and expenditure. For example, if large cities such as London and Manchester have a sustained cold spell, this would result in far more payments than if a smaller, rural area did so. In combination, these two reasons appear to be responsible for the smaller number of payments than expected in 2012/13, given the average temperature.
EM says: A feature of the negative NAO is a meandering Jet Stream that may pass back and forth across the UK. If we are on the North side of the Jet Stream in winter it can be very cold whilst on the South side it can be unseasonally warm, hence the average is near meaningless. In its energy strategy, the UK government should have a contingency plan for perhaps 20 years of periodically very cold winters and for the possibility of the Polar Vortex visiting Britain.
Actual expenditure on fuel
DECC says: The proportion of expenditure on fuel has changed over the last 15 years for both the lowest and highest income groups. Whilst there was an overall reduction in the proportion spent by both groups between 1994/95 and 2004/05, and a subsequent increase between 2004/05 and 2010, a significant difference existed between them throughout this period.
EM says: Low income groups spend a much higher and significant proportion of their income (>7%) on fuel compared with high income groups.
DECC says: This indicator shows changes in average domestic fuel prices throughout the UK. Since 2004, prices have risen sharply (with some exceptions), mainly due to increasing wholesale gas prices, higher international oil and coal prices and the resulting increase in wholesale electricity prices.
Between 2011 and 2012, the prices of gas, electricity, heating oil and coal increased in real terms by 9 per cent, 4 per cent, 1 per cent and 2 per cent respectively. These increases were of a similar magnitude to those seen between 2010 and 2011, with the exception of heating oil, which increased by much more (22%) between 2010 and 2011.
EM says: Whilst international energy prices are part of the story, the UK government has abandoned any form of sensible energy policy aimed at providing plentiful, secure and affordable supplies of energy. This paralysis will continue to exist for so long as the 2008 Climate Change Act and a series of futile CO2 reduction targets are allowed to steer policy.
DECC says: The average (mean) SAP09 rating has increased by more for dwellings occupied by households in the lowest three income deciles than for all households between 2010 and 2011. Whilst SAP ratings increased by an average of 2.2 points for low income households, they only increased by an average of 1.6 points across all households. After an unusual year in 2010, where the average SAP of all households was higher than for those with low incomes, 2011 saw households with low incomes having the higher average SAP rating once again.
EM says: I am very surprised to learn that low income groups live in more energy efficient homes than high income groups and look forward to some form of explanation in comments. SAP 09 = The Government’s Standard Assessment Procedure for Energy Rating of Dwellings 2009.
Fuel poverty has got worse in the UK since 2003, in part due to higher international energy prices and in part due to misguided energy policies. A series of cold winters since 2009 has made matters worse offset in part by improved energy efficiency of the housing stock.