FUEL POVERTY: THE IMPACT OF RISING FUEL PRICES IN THE UK

Jonathan Bradshaw and Antonia Keung

University of York

13 October 2021

Background

Fuel poverty emerged from poverty as a separate notion during the oil crisis of the late 1970s when energy prices rose very rapidly.[1] Basically, the drivers of fuel poverty are rising prices which have risen faster than general inflation, low income, and the poor thermal efficiency of the UK housing stock. Households with high energy costs living in poverty or on its margins face extra costs to keep warm, above those for typical households with much higher incomes. These costs are largely outside the control of those households – given the capital investment that would be required to reduce them – except through trading off the temperatures at which they live against other necessities, exacerbating the difficulties faced by all on such low incomes.

Policy on fuel poverty, and on energy efficiency, which is one of the key methods for alleviating fuel poverty, can have effects on a number of additional policy areas. For example, cold homes can have negative impacts on both mental and physical health, potentially adding to demand on the NHS and social care providers, and directly contributing towards excess winter deaths. Health impacts of cold homes include increased risk of heart attack or stroke, respiratory illnesses, poor diet due to “heat or eat” choices, mental health issues, and worsening or/slow recovery from existing conditions.[2] Those most at risk of ill health from fuel poverty include children, the elderly, and long-term sick and disabled people. It has been estimated that insulating homes to the highest standard could reduce NHS costs by roughly £1.4 billion each year in England alone.[3] The health service is estimated to save £0.42 for every £1 spent on retrofitting fuel poor homes.[4]

Definitions of fuel poverty

Traditionally a household was said to be in fuel poverty if it needs to spend more than 10% of its income on fuel to maintain a satisfactory heating regime (usually 21 degrees for the main living area, and 18 degrees for other occupied rooms). The Expenditure and Food Survey can tell us which households spend more than 10 per cent of their net income (after tax and national insurance contributions) on fuel. Using the 2005/6 survey we found[5] that average weekly expenditure on fuel (in England and Wales) was £14.51 or 4.4 per cent of net income. Then only 7.3 per cent of households were spending more than 10 per cent of their net income on fuel.

 

Then the definition of fuel poverty became much more complicated. In his government review of fuel poverty[6], John Hills pointed out that we should also take into account the thermal efficiency of the housing that people lived in and recommended a measure based on low income and high costs. He proposed that fuel poverty existed if the household required fuel costs that are above the median level; and were they to spend that amount they would be left with a residual income below the poverty line. The latest proposal from the previous government[7] was to broaden this measure to capture all low-income households living in homes with inherently inefficient energy use. So, the focus of fuel poverty is becoming much less on income and more on inefficient energy use. The government now employs the English Housing Survey (EHS) to assess fuel poverty.

Using the Hills definition and applied to the 2018 EHS the Resolution Foundation[8] found 21% households on income related benefits and 9% not on income related benefits were in fuel poverty.

Estimating fuel poverty

We have reverted to the original 10% measure to produce estimates of the impact of rising fuel prices on fuel poverty using the Living Costs and Food Survey (LCFS) 2019/20[9]. After removing cases with nil expenditure on fuel, light and power the mean weekly energy expenditure is £24.75, median is £21.39 (equivalised £16.25 mean and £13.85 median). In 2019-2020, 9.4% of valid households in the UK are living in fuel poverty. This proportion varied from 21.1% in Northern Ireland and 13.1% in Scotland to 5.4% in the Eastern region. Fuel poverty was higher for LA tenants 22.7% and Housing Association tenants 17.6%  and for lone parents with two or more children 28.1% and single pensioners 35.7%. Fuel poverty is concentrated in the lowest decile of the equivalised income distribution with 37.4% of households in fuel poverty. While only 2.6% of households not in income poverty are in fuel poverty, 38.4% pf those in income poverty are also in fuel poverty.

We do not know how much energy prices are going to rise, not least because they are determined by the price cap which is due to be reviewed but the BBC[10] have suggested that it might be 12%. We have assumed a hike in fuel prices of 15%. This would increase fuel poverty from 9.4% to 12.5% of households. If the fuel price hike is 10%, 20%, 25% or 30% the fuel poverty rates would be  11.4%, 13.3%, 14.4% and 15.6% respectively.[11] If fuel prices rise by 15% the proportion also in income poverty would increase from 38.4% to 46.8%.

£20 per week cut in Universal Credit

That analysis was based on 2019/20 data before the £20 increase in UC. If the UC top-up had been maintained the fuel price hike would have had much less impact on fuel poverty – reducing it from 12.5% to 5.6% or 1.5 million households. Thus, as a result of the UC cut fule poverty is doubles from what it would have been: that is around 3.4m households with 6.3m people.  46.8% of UK households in income poverty (i.e. 2.5 m households with 4.7m people) would now also be at risk of facing fuel poverty. Thus half of poor households in the UK will be doubly poor – income poor and fuel poor

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[1] Bradshaw, J.R. and Harris, T. (eds.) (1983). Energy and Social Policy, London: Routledge and Kegan Paul.

[2] Public Health England (2017). Cold Weather Plan for England, making the case; why long-term strategic planning for cold weather is essential to health and wellbeing, p. 24.

[3] All Party Parliamentary Group for Healthy Homes and Buildings (2018). Building our Future: Laying the Foundations for Healthy Homes and Buildings, White Paper

[4] UK Green Building Council (2017) Regeneration and Retrofit Task Group Report.

[5] Bradshaw, J. (2008). “Who is fuel poor?”, Poverty 131, Autumn, pp. 9-11.

[6] Hills, J. (2012). Getting the measure of fuel poverty: Final Report of the Fuel poverty Review.http://eprints.lse.ac.uk/51237/1/__libfile_REPOSITORY_Content_CASE_CASEreports_CASEreport72.pdf

[7] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/819606/fuel-poverty-strategy-england-consultation.pdf

[8] Reported in Torsten Bell’s weekly email 24/9/21.

[9] Office for National Statistics. (2021). Living Costs and Food Survey, 2019-2020. [data collection]. UK Data Service. SN: 8803, http://doi.org/10.5255/UKDA-SN-8803-1

[10] https://www.bbc.co.uk/news/business-58090533

[11] As this is based on 2019/20 data it takes no account of either the uplift or cut to Universal Credit.