Heat in Buildings Bill consultation: Fairer Scotland impact assessment

Stage 2 – Evidence

What does the evidence suggest about existing inequalities of outcome, caused by socio-economic disadvantage, in this specific policy area?

17.1 This evidence suggested the potential for the following inequalities of outcomes in relation to the Heat in Buildings policy area:

Access to information and financial services

18.1 Households who are on a low income or in fuel poverty may not have savings to pay for/contribute towards decarbonisation measures. They also may not be able to access loans or payment plans to allow them to do so due to financial exclusion.

18.2 People experiencing socio-economic disadvantage are more likely to find it difficult to access financial services as they are often categorised as high risk for some products such as loans, and may already have debts that are difficult to manage. At the same time, they are also less likely to have savings to buffer any new financial pressures, such as the cost of a new heating system. This financial exclusion creates financial problems in a number of ways, including exclusion from affordable loans leaving people who need a loan with no option but to use high-interest credit; lack of savings making people vulnerable to financial shocks and not having a bank account prevents them from paying by direct debit. As an example, most utility suppliers charge more for using other methods of payment, such as pre-payment meters, pay-point cards in convenience stores, postal orders or cash.

18.3 Those particularly vulnerable to financial exclusion include: housing association tenants; young people not in employment, education or training; those leaving care; lone parents and divorced people; disabled people, those with mental health problems and carers; people living in isolated or disadvantaged areas; prisoners, ex-offenders and families of prisoners; members of ethnic minorities; migrants; asylum seekers and refugees; homeless people; older people; women; people with a Post Office Card Account or basic bank account; people with low incomes.

18.4 Some groups are particularly vulnerable for reasons which are separate from, or interact with, having a low income, such as disabled people and older people. Nevertheless, low income is an exacerbating factor for all groups.

18.5 Those responding to the 2021 consultation on the Heat in Buildings Strategy suggested that energy suppliers should work with government to educate and inform customers on the benefits of adopting low carbon heating and the choices available to them.

18.6 Access to the internet may affect peoples' ability to obtain information on their energy choices, the support available, local suppliers of zero carbon technologies and in other ways impact their ability to participate in installing, and getting the most out of zero and low carbon heating systems and energy efficiency measures.

18.7 The proportion of households in Scotland with internet access was at 88 per cent in 2019 (please note that the Scottish Household Survey 2019 has been used for these statistics due to issues of methodological consistency with newer versions). Household internet access increased with net annual household income. Home internet access for households with a net annual income of £10,000 or less was 65 per cent in 2019, compared with almost all households (99 per cent) with a net annual income of over £40,000. Access differed by area of deprivation: 82 per cent of households in the 20% most deprived areas in Scotland had internet access at home compared with 96 per cent of households in the 20% least deprived areas. Internet access also varied by tenure: 79 per cent of those in social rented housing had internet access compared with 91 per cent of households who owned their home. We need to ensure that all consumers have access to information and choice of zero and low carbon heating systems and energy efficiency measures.

Education and employment

19.1 Research shows that the benefits of decarbonising heating in, and improving the energy efficiency of, residential buildings are linked to employment opportunities.

19.2 Indoor temperature is linked to productivity and can therefore impact upon the ability of school-age children to carry out homework or study for exams at home, which can have a knock-on effect on their educational attainment, and ultimately their employment opportunities.

19.3 There is evidence that other links between educational attainment and warm homes exist. For example, according to the Energy Saving Trust avoidance of physical (particularly respiratory health in children) and mental stresses through warmer and more comfortable homes has been linked to decreased absenteeism from school by children and from work by adults; with potential impacts on academic performance, labour productivity and earning power.

19.4 Living in an energy inefficient home is costly, and the poorest housing is often occupied by the most vulnerable people, and households experiencing fuel poverty face difficult decisions about how much to spend on heating and how much to spend on food. A more energy-efficient home could therefore lead to better nutrition for people vulnerable to fuel poverty - by making fuel bills more affordable a 'heat or eat' situation can be avoided. Improved nutrition could subsequently lead to improved concentration and improved chances of educational attainment for school-age children, and better performance (and therefore future employment opportunities) for adults. However, there are also risks that low and zero emissions heating will increase running costs in some settings as a result of levels of insulation, size of property, heating system efficiency and energy prices.

Housing tenure

20.1 People who experience socio-economic disadvantage may be more restricted in their choice of housing tenure and neighbourhood. For example, evidence suggests that those on lower incomes are less likely to be home owners. This excludes them from the benefits associated with owning property, such as a greater level of security and an additional source of income for those that rent out property.

20.2 A higher proportion of single parents and people who are unemployed and seeking work live in socially rented properties than in other housing tenures.

20.3 There are differences in the proportion of people who report that they are managing well financially depending on the tenure of their property. In 2019 the proportions of each group are as follows: owned outright (75%), owned with mortgage (61%), private rented sector (45%) and social rented sector (28%)

20.4 In terms of relative poverty after housing costs, (the commonly used poverty indicator in Scotland), in 2017-2020, 7% of people buying with a mortgage and 14% who owned outright were in poverty. These compare to 39% for those living in social housing and 34% for those in private rented housing. In 2019-2022 the proportion of all working age adults in relative poverty was 21%

20.5 However, due to the size of the tenure, homeowners accounted for 370,000 (36%) of all people in relative poverty after housing costs in 2017-2020, i.e. more than in private rented housing (250,000 or 24%) and slightly lower than in social rented housing (410,000 or 40%)

20.6 Any increase in property prices related to requirements to finance upgrades and heating system conversion may also make it more difficult for those renters who are trying to buy property. Research on the relationship between property prices and energy efficiency in England and Wales has found that properties with a higher EPC rating achieve a higher sale price. This is a positive impact for property owners, however it may have negative implications for renters and exacerbate existing housing inequalities experienced by socio-economically disadvantaged households.

Location

21.1 Evidence also suggests that location of households across Scotland can influence the level of social housing available, the prevalence of fuel poverty rates, health outcomes and rates of those who can manage well financially.

21.2 Differences in housing costs between areas can limit the neighbourhoods that people on lower incomes can live in. For example, while not all people living in deprived areas will be on low incomes, they are more likely to be. In 2019, 47% of socially rented households were in the most deprived areas compared to 17% of privately rented households and 12% of owner-occupied households. This has been increasing since 2013.

21.3 The Scottish House Condition Survey 2021 stated that the fuel poverty rate for rural (23%) households was similar to the fuel poverty rate for urban (19%) households. However, the rate of fuel poverty for rural households (29%) is higher than for all other areas.

21.4 The rate of fuel poverty among households using electricity as primary heating fuel was 41%, higher than for households using gas (16%), oil (23%) and other fuel (22%) as their primary heating fuel. This reflects the higher per unit cost of electricity relative to gas, and oil.

21.5 The National Islands Plan acknowledges that extreme fuel poverty rates are higher for most of the island authorities and provides a framework for action in order to meaningfully improve outcomes for island communities.

Health

22.1 Living a cold home can have negative impacts on health. Energy efficiency measures (e.g. insulation, draught proofing) reduce heat loss in a building and therefore reduce cold areas where moisture can condense and create damp, mouldy conditions. A fabric first approach may therefore have a positive impact by making it easier for people to heat their homes, and tackling health inequalities in Scotland associated with cold homes. Housing improvements are considered to have most powerful impact when targeted at vulnerable or disadvantaged groups as they are more likely to live in poor quality housing.

22.2 Housing is recognised as having an important influence on health inequalities in Scotland, with key pathways through housing quality and fuel poverty. Cold and damp homes may cause or exacerbate a number of health outcomes, primarily excess winter mortality, respiratory health conditions and mental health problems. Health, housing quality and fuel poverty are therefore closely linked: cold and damp homes are harder and more expensive to heat, and this has implications for the health and resources of people living in them. Income is often key to this relationship as housing quality and housing affordability are closely linked. People with more wealth can typically afford a 'better' place to live, which are generally more efficient and cheaper to heat, whereas "deprived and vulnerable households – especially those who do not have access to social housing - are more likely to live in energy inefficient housing, and less likely to have the resources or resilience to deal with the negative impacts of cold homes and reduced income".

22.3 Caution is required around any unintended consequences of retrofitting – there is an increasing evidence base on the possible adverse impacts of air tightness on indoor air pollution from radon and other pollutants, and the need for better (and correctly used) ventilation to address this.

Poverty

23.1 Consultation responses on the draft Heat in Buildings Strategy highlighted a concern that heating costs are likely to rise for a significant proportion of consumers who opt for low and zero emission heating and that the cost of installing and running low and zero emission heat systems could tip some households at the margins of affordability into financial stress. Groups identified as worthy of particular consideration included households just below the radar of interventions that are firmly targeted on those already clearly in fuel poverty and those experiencing in-work poverty.

23.2 The Scottish House Condition Survey (2019) estimates 24.6% (around 613,000 households) of all households were in fuel poverty, with 12.4% or 311,000 households living in extreme fuel poverty. Fuel poverty is increasingly recognised as a multidimensional complex phenomenon, and households may move in and out of fuel poverty as conditions and circumstances change (Baker et al., 2018). It is often linked to other elements of socio-economic disadvantage.

23.3 The Scottish House Condition Survey (2021) reports 495,000 households (19.6% of all households) were estimated to be in fuel poverty, of which 241,000 (9.5% of all households) were in extreme fuel poverty. Overall rates of fuel poverty differed between the social (34%) and private sector (15%). Similarly households in the social sector were more likely to be in extreme fuel poverty (15%) compared to households in the private sector (8%). Households that are in both income poverty and fuel poverty tend to live in more energy efficient dwellings than other fuel poor households, potentially because of high energy efficiency standards in the social rented sector. They are more likely to use gas for heating, live on the gas grid and live in urban locations compared to other fuel poor households. These characteristics point to low income as a key reason for their experience of fuel poverty.

23.4 Conversely, households who are not in income poverty but experience fuel poverty have a higher likelihood of living in low energy efficiency properties, using electricity for heating, and living in rural areas compared to those households in income and fuel poverty and Scotland overall (Scottish Household Survey, 2019).

23.5 Lived experience research into fuel poverty in Scotland also highlighted that tenants in fuel poverty, whether private or social, can feel that they have little control over replacing or changing their heating system as decisions are made by their landlord. These barriers were more likely to be present for households in extreme fuel poverty and echo findings in the Evidence Review.

What does the evidence suggest about any possible impacts of the policy/programme/decision, as currently planned, on those inequalities of outcome?

24.1 The Proposals for a Heat in Buildings Bill are not directly aimed at any particular socio-economic group, but are aimed at the homes they live in and buildings they visit. It is anticipated that in the long term these proposals will impact positively on all sectors of society through the provision of buildings that are easier, cleaner and greener to heat.

24.2 However, in the short term issues such as the installation and running costs of low and zero emissions systems might have an effect on certain groups who experience socio-economic disadvantage, including those who experience inequality of outcome in terms of:

• Access to information and financial services
• Education and employment
• Housing,
• Location
• Health
• Poverty

Inequality of outcome: Access to information and financial services

25.1 There is opportunity to reduce inequalities of outcome through the Proposals for a Heat in Buildings Bill by ensuring that financial incentives offered to people to install zero and low carbon heating systems and energy efficiency measures are designed to support all citizens, including vulnerable groups who may be suffering from financial exclusion.

Financial support and advice

26.1 The Scottish Government currently provides free and impartial advice and support through the Home Energy Scotland (HES) and Local Energy Scotland (LES).

• HES provides in-depth advice to householders on low and zero emissions heating technologies, other domestic renewables, and more complex energy efficiency improvements. It also acts as a referral scheme for Scotland's flagship fuel poverty scheme, Warmer Homes Scotland, and as a gateway to domestic grants and loans programmes from Scottish Government for energy efficiency improvements to homes in Scotland.
• LES manages CARES – the Scottish Government's Community and Renewable Energy Scheme. CARES supports communities across Scotland to engage with, participate in and benefit from the energy transition to net zero emissions.

Future Support

27.1 We are committed to working on the design and scope of our support and advice schemes - making sure that they reflect our regulations and help those who need it the most in the best way possible. We will continue to work closely with as many stakeholders (including those representing groups with lived experience of fuel poverty) as possible as we continue to do so in order to ensure these schemes are fit for purpose and help reduce fuel poverty. We know how concerned people will be about these potential costs – especially in the light of the recent and current surge in our cost of living. That's why we are absolutely determined to get this right, and to make sure that we deliver a just transition.

27.2 Public funding, support and independent advice services will continue to play a big part in helping people make the changes needed by the proposals in this document – but it can't and won't meet all of the costs, and we will need private finance and investment to play a big part. That is why our Green Heat Finance Task Force is looking at new ways to help people and organisations make their properties warmer, greener and more efficient, and to overcome the upfront costs.

27.3 Place or area based delivery can also help achieve the right outcomes and reduce the costs involved. Our long running Area Based Schemes, delivered by Local Authorities, are good example of this, and can attract larger scale institutional investors and regenerate entire neighbourhoods. We will work with local government to explore ways to build on our Area Based Schemes and achieve these goals.

Inequality of outcome: Housing tenure

28.1 We will take steps to ensure that everyone, including owner occupiers, tenants, private and social landlords, SMEs and communities, has the opportunity to help shape the decisions we take at a national and local level on how we heat our homes and buildings in the future. We will consult extensively with stakeholders and citizens as on these proposals through a wide ranging public consultation that will seek to engage with consumers on a number of levels, and will follow up with another impact assessment that builds on the findings of this impact assessment.

Inequality of outcome: Location

29.1 We acknowledge that the transition to zero emissions buildings may look different in different communities and require approaches tailored to place. It will be important for local communities to shape and be involved in decisions about solutions that are most appropriate for their local area.

29.2 Scotland's local authorities will use Local Heat and Energy Efficiency Strategies (LHEES) and Delivery Plans to set out the long term plan for decarbonising heat in buildings and improving their energy efficiency across an entire local authority area. Local government also has a key role in initiatives like Area Based Schemes, leading heat network development, and efforts to improve the heat and energy efficiency in our social housing. We will work with Local Government to determine its role as part of the regulations which will come from this Bill, and what powers and resource might be needed.

29.3 LHEES could also help people receive appropriate support and advice, with support and advice tailored to local areas and communities across Scotland. Local authorities should publish their first LHEES by the end of 2023 and on a five yearly basis after that – meaning that these plans can help target support and advice as our new regulations are introduced.

29.4 We also recognise that the costs of delivering energy efficiency measures are higher in rural and island areas, where fuel poverty is most prevalent. A rural uplift included in the new HES grant applies to both the heat pump and energy efficiency grants. This is on top of funding for heat pumps up to £7,500 and for energy efficiency improvements – up to 75% of the combined cost of the improvements and up to the maximum grant amount of £7,500. This uplift increases the heat pump grant flat rate and the maximum limit of the energy efficiency grant to £9,000.

29.5 In 2019, the Scottish Government published a National Islands Plan. Included within this plan's objectives are commitments to reduce levels of fuel poverty and to contribute to climate change mitigation and adaptation and promote clean, affordable and secure energy. Work is ongoing in relation to these commitments.

29.6 We continue to target areas and communities with higher levels of fuel poverty through our Area Based Schemes. Local schemes are designed and delivered by councils, in conjunction with utility companies and local delivery partners, targeting fuel poor areas to provide energy efficiency measures to a large number of Scottish households and help reduce fuel poverty. ABS funding enables local delivery partners to offer energy efficiency measures at no cost or a reduced cost to owner occupiers and private landlords with fewer than four properties.

29.7 Local Energy Scotland manages the Community and Renewable Energy Scheme (CARES), which helps communities to engage with and benefit from the energy transition to net zero emissions. It provides advice and support – including funding – to communities across Scotland, looking to develop renewable energy, heat decarbonisation and energy efficiency projects.

Inequality of outcome: Health

30.1 There are a number of positive health impacts that the Bill proposals may play a role in delivering. For example, a shift away from fossil fuel removes combustion and therefore the risk of carbon monoxide poisoning. Efforts to improve energy efficiency and heating in buildings could positively impact on infant physical development, long-term physical and mental health and education (with less missed days at school due to illness). Moving towards zero emissions heating technologies such as heat pumps can also provide a more constant heating regime for a home or building due to the operational requirements of a heat pump. This may also benefit occupants by providing more consistent levels of comfort.

30.2 However, if a property is not kept well ventilated through construction, technological or natural mean, energy efficiency measures which improves airtightness, can lead to increased indoor air pollutants; risk of overheating in the summer months and rise in humidity, which can result in increased dust mites and mould impacting respiratory conditions and allergies.

Ventilation

31.1 These proposals recognise that it will be important to understand the need for passive measures, such as ventilation and shading, that could be applied to buildings during the course of improving their efficiency.

Energy Efficiency Standards

32.1 We know that in order to mitigate potential health impacts, robust standards for energy efficiency installations are required.

32.2 We are proposing to include powers in the Heat in Buildings Bill to set a minimum standard of energy efficiency. While the details of how this will operate in practice will be laid out in a future consultation, our current thinking is based on the installation of a straightforward list of measures. This list will be developed to prioritise those that could have the most impact for homes with the lowest amount of cost and disruption. Any homeowner who had installed these measures – or as many of them as are feasible for the type of home they live in – would be considered to have reached a good level of energy efficiency and met the new standard.

Inequality of outcome: Poverty

33.1 The Scottish Government currently provides free and impartial advice, support and in some cases finance, through Home Energy Scotland (HES)

33.2 The HES advice service acts as a referral scheme for the Scottish Government funded financial support schemes. These include our Area Based Schemes (ABS) and our flagship fuel poverty scheme, Warmer Homes Scotland, which provides installation of grant funded heating and energy efficiency measures. It is also a gateway to domestic grants and loans programmes for heat and energy efficiency improvements, including the PRS Landlord Loan scheme and HES Grant and Loan Scheme. The new HES grant provides funding for heat pumps up to £7,500 and for energy efficiency improvements – up to 75% of the combined cost of the improvements and up to the maximum grant amount of £7,500. A rural uplift of £1,500 applies to both the heat pump and energy efficiency grants. This uplift increases the heat pump grant flat rate and the maximum limit of the energy efficiency grant to £9,000. An additional £7,500 of funding is available as an optional interest free loan for both heat pumps and energy efficiency measures.

33.3 We know that property owners are all different, with different means and facing different circumstances. We plan to let people apply for an abeyance based on different factors, including ability to pay including risk of or being in fuel poverty.

Evidence

34.1 We continue to build the evidence base on the interactions between our fuel poverty, child poverty and climate commitments, and are applying that knowledge to our policy design and to our programmes, mitigating any risk of unintended consequences, and tracking progress and learning by doing in order to adjust immediately where unintended consequences nevertheless arise.

Evidence that suggests alternative approaches to the policy / programme / decision? E.g. Evidence from around the UK? International evidence?

35.1 The UK Government Heat and Buildings Strategy was published on 19 October 2021 and sets out the broad direction of UK Government policy making in regards to this area. The Scottish Government will continue to work with the UK Government as it implements its Strategy.

35.2 More recently the UK Government^[6] announced revised plans in regards to its progress towards Net Zero, with the following changes relating to the built sector:

• Delay the ban on installing oil and LPG boilers, and new coal heating, for off-gas-grid homes to 2035, instead of phasing them out from 2026. Many of these homes are not suitable for heat pumps, so this ensures homeowners are not having to spend around £10-15,000 on upgrading their homes in just three years' time.
• Set an exemption to the phase out of fossil fuel boilers, including gas, in 2035, so that households who will most struggle to make the switch to heat pumps or other low-carbon alternatives won't have to do so. This is expected to cover about a fifth of homes, including off-gas-grid homes - those that will need expensive retrofitting or a very large electricity connection.
• Scrap policies to force landlords to upgrade the energy efficiency of their properties, but instead continue to encourage households to do so where they can.
• Raise the Boiler Upgrade Grant by 50% to £7,500 to help households who want to replace their gas boilers with a low-carbon alternative like a heat pump.

35.3 Scottish Government officials keep track of the policies and regulatory frameworks being introduced in European countries and further afield to help inform our own decision making.

Key evidence gap? Is it possible to collect new evidence quickly in areas where we don't currently have any? For example, through consultation meetings, focus groups or surveys?

36.1 We have collected a large base of evidence from both regularly updated statistics publications and continual work undertaken to build knowledge in this area. When further data becomes available we will seek to incorporate it into further impact assessments.

Involving communities of interest in the process (including those with lived experience of poverty and disadvantage

37.1 Key stakeholder groups representing households and businesses that stand to be impacted most significantly by these proposals will be asked to provide input and opinion on the impacts of the Heat in Buildings Bill Proposals on them and the groups and people they represent. Following the publication of the draft consultation, we will engage widely through public-facing events and focused discussions with stakeholders in discussion of specific issues in the consultation.

37.2 We are also carrying out other Impact Assessments including an Islands Communities Impact Assessment, Child Rights and Wellbeing Impact Assessment and Equalities Impact Assessment . Residents of Island Communities, children and those with protected characteristics are all impacted differently by these proposals and many of these impacts have related or crosscutting impacts that also fall under the scope of the Fairer Scotland Duty. For example, they are subject to different building types, geographies, heating systems, costs, access to information and technology and can be impacted by fuel poverty.

37.3 Specifically, the Scottish Government will undertake the mitigating actions outlined within this FSD and subsequent policy development will have regard to the Fairer Scotland guidance and undertake additional FSDs as relevant.