Fuel poverty strategy for Scotland: consultation

Section 1: Legislative Context

The first Fuel Poverty Statement was published by the Scottish Executive in 2002 under section 88 of the Housing (Scotland) Act 2001 and set out Scotland's definition of fuel poverty, i.e. that a household was fuel poor if energy costs to keep their home sufficiently warm were not less than 10% of their income (informally known as the '10% definition'). Backed by legislation, the statement also set a target to ensure, so far as reasonably practicable, that people are not living in fuel poverty in Scotland by November 2016.

At the time of the target being set, when fuel prices were substantially lower than now, around 16% of Scottish households were thought to be experiencing fuel poverty, based on the 10% definition. The measurement of fuel poverty using that definition is very sensitive to changes in fuel prices and since 2003, fuel prices have risen far higher and far faster than inflation. In 2015, fuel prices were more than two and a half times - 170% - higher than their level in 2003, a much faster growth than general inflation over the same period, which increased at almost 30%. This reality has made achieving the fuel poverty target increasingly challenging, especially given that the Scottish Government has no powers over the regulation of fuel prices.

In June 2016, the Minister for Local Government and Housing informed Parliament that, based on the advice received by experts, it was unlikely that the statutory fuel poverty target would be met. This was despite significant Government investment well in excess of half a billion pounds since 2009 in domestic energy efficiency - helping to deliver over one million energy efficiency measures to over one million households.

At this time, the SWG and the RFPTF had already been instructed by Ministers to consider the issues and make recommendations on what more could be done to tackle fuel poverty. Both groups reported on their findings in October 2016 and set out a vision for a new fuel poverty strategy which would be firmly based on the principle of social justice and creating a fairer, more equal society. The SWG also set an immediate action to commission an independent, academic review of the existing definition, which Ministers did.

Review of the Fuel Poverty Definition

The recommendations from those working groups provided the scaffolding for a comprehensive review which was carried out by an independent panel of academic experts, which reported in September this year. http://www.gov.scot/ISBN/9781788512428.

The Scottish Government is grateful to the Panel which has, in a very short timeframe, set out a series of evidence based recommendations with a clear aim of making improvements to the current fuel poverty definition.

In its report, the Panel made clear that continuing to use the existing 10% definition would be unsatisfactory. The Panel was also clear that any definition should not be based on household income before housing costs ( BHC) and therefore proposed a definition as follows:

Households in Scotland are in fuel poverty if:

• they need to spend more than 10% of their after housing cost ( AHC) income on heating and electricity in order to attain a healthy indoor environment that is commensurate with their vulnerability status; and
• if these housing and fuel costs were deducted, they would have less than 90% of Scotland's Minimum Income Standard ( MIS ^[1] )(*) as their residual income from which to pay for all the other core necessities commensurate with a decent standard of living.

(*) For clarification, the corresponding housing and fuel cost elements of MIS are also subtracted from the MIS total. The Panel also recommends that the Childcare cost element of MIS is subtracted from the MIS total, prior to deriving a residual income level. Childcare costs would therefore also be deducted from the household's residual income to ensure that we are comparing like with like.

The Panel's report demonstrates that the proposed new definition should be better targeted on those likely to be experiencing adverse outcomes associated with fuel poverty - such as being unable to heat the home to a comfortable level; impacts on the physical condition of the dwelling such as damp and mould; financial problems, including debt, directly related to fuel; broader financial difficulties; and indicators of poor wellbeing.

Based on the evidence the Panel presented, the Scottish Government agreed that the current definition of fuel poverty that has been used in Scotland is no longer fit for purpose. We propose to implement the main components of the revised definition recommended by the independent Panel and to refer to it in the Warm Homes Bill.

The new definition will include an income threshold based on 90% of the UK MIS (after subtracting housing, fuel and childcare costs) and the 10% fuel cost to income ratio will be based on an AHC basis.

We recognise that the use of MIS within the measurement for fuel poverty is a different approach to measurement of other forms of poverty. However, the Scottish Government agrees with the Panel that fuel poverty is distinctly different from other forms of poverty in its drivers and we want to ensure that the most appropriate measurement indicators are used to identify those experiencing it.

Some of the detail of the measurement of the definition proposed by the independent panel will not be taken forward:

• the MIS thresholds will not be adjusted upward for households living in remote rural areas or where at least one member of the household is long-term sick or disabled. These elements are inconsistent with the broader approach taken by Scottish Government in measuring income poverty and policy towards national minimum and living wages; and

• the enhanced heating regime for vulnerable households will not be applied for households with children under 5 since this is inconsistent with established NHS guidance. This will be subject to further review and medical expert advice on optimum temperatures for children.

In addition to those specific points, the Panel concluded that age should not become a proxy for those who are likely to be vulnerable to the adverse health outcomes of fuel poverty until a much older age than is presently used as a threshold in Scotland (which is 60 years). Based on the evidence available at this time, the Panel commented that a threshold nearer 75 to 80 years might be more appropriate. However, it recommended further work is undertaken to develop a specific list of health and disability categories, as well as age bands, which would satisfactorily encompass the term " vulnerable to the adverse health and wellbeing impacts of living in fuel poverty".

The Scottish Government will consider whether to take forward such work in relation to the fuel poverty definition. However, we are determined that this should not delay implementation of a revised definition which will form the bedrock of our statutory targets and we want to keep consistency with our overall approach to measuring income poverty. The Scottish Government proposes that, for older households, where a person does not suffer from any long-term ill health or disability, they will not be considered vulnerable until they reach 75 years of age. Analysis of the 2015 Scottish House Condition Survey ( SHCS) data suggests that 60% of households with any adults aged between 60 and 74 inclusive will remain classed as vulnerable to adverse health outcomes of fuel poverty because of health issues or because they also contain another adult aged 75 or over. Overall, around 80% of households classified as vulnerable under the existing definition will remain so under the new definition.

The new definition will accept the independent panel's recommendation on heating regimes for vulnerable households, by increasing the bedroom temperature from 18°C to 20°C and maintaining the living room temperature of 23°C. This removes the potentially harmful impact of a 5°C temperature difference between different rooms in the home.

Initial modelling indicates that adopting the Panel's recommended definition, with the adjustments to the measurements set out above, would result in fuel poverty in Scotland decreasing from 30.7% of households to 25.7%. This mainly results from the introduction of an income threshold to the fuel poverty definition. As a result, higher income households are excluded from being defined as fuel poor, addressing a common criticism of the old definition. It would also lead to a significant shift in some aspects of the demographic profile of those considered to be fuel poor, including a shift away from older owner occupiers towards younger people and those with families and towards households with higher housing costs compared to their income, primarily in the social rented and private rented sectors. Importantly, fuel poverty would show a stronger relationship with low income and the Scottish Government believes that this proposed definition would allow better targeting of support at those who need it most.

Questions:

1) Do you have any comments on this new definition of fuel poverty, in particular, what do you think about the proposal to use AHC and MIS as means to measure fuel poverty in Scotland?

a) What, if any, challenges do you think this approach could present in enabling targeting of resources to those most vulnerable to fuel poverty;

and

b) If this definition is to be used, how would you propose these challenges are overcome?

2) Do you have any views on the proposal of using 75 years of age as a threshold for identifying those who are likely to be vulnerable to the adverse health outcomes of fuel poverty?