Cost of Living (Tenant Protection) (Scotland) Bill: island communities impact assessment

2. Gathering Data and Identifying Stakeholders

Key stakeholders in island communities in regard to these measures are tenants and landlords, and representative bodies of both, including providers of and students in college and university halls of residence and Purpose Built Student Accommodation (PBSA) as well as local authorities.

Cost Crisis

The cost crisis exacerbates existing social and economic pressures faced by those living in a rented home, making them more vulnerable, and this is likely to be the case both in island communities and in communities on mainland Scotland.

Despite UK Energy Price Guarantee, from October 2022 energy prices will rise relative to April 2022, and will be much higher than in October 2021. The rise is of such a magnitude that there will be substantial pressure on household budgets despite the various mitigation packages announced. We consider that this will lead to a significant increase in fuel poverty, and extreme fuel poverty, with particularly high levels in the rented sectors.

With the price cap frozen at £2,500, we estimate that there will be around 860,000 (35%) fuel poor households in Scotland, of which 600,000 (24%) will be in extreme fuel poverty, from October 2022.

Rented households are more likely to have lower household incomes, higher levels of poverty and to be financially vulnerable: 63% of social rented households and 40% of private rented households in Scotland are estimated to be financially vulnerable, with savings which would cover less than one month of income at the poverty line, compared to 24% of households buying with a mortgage and 9% of households owning outright^[1].

Rented households are also more likely to be in fuel poverty; with the price cap frozen at £2,500, we estimate that 54% of households in the social rented sector and 48% of households in the private rented sector will be in fuel poverty. This compares to 24% of owner occupied households^[2].

The share of households on prepayment meters is also higher in the rented sector – these households will be particularly affected in winter when the majority of heating is required, since they are unable to spread the costs over the year.

In addition to the impact of the surge in energy prices, households are also facing general inflationary pressures. Even when stripping out the impact of energy prices, inflation is higher than the average growth in earnings, and the gap is even larger for benefit income. Households in the rented (social and private) sector, especially those on lower incomes, in general pay more of their income on housing costs than owner occupiers, have higher rates of income and child poverty, and have less resilience to cope with financial shocks.

General Cost of Living on the Islands

A Scottish Government report from 2021 estimates that cost of living in remote and rural Scotland including the islands is between 15% and 30% higher than urban parts of the UK^[3]. This is due to a number of factors including additional costs related to items including food, clothing, household goods and most of all the significantly higher costs associated with travel. While costs of living in remote and rural areas of Scotland are higher than in urban areas, those living in remote and rural areas are less likely to experience income poverty than those living in the rest of the country, however, poverty in rural areas is heterogeneous and may be difficult to identify within wider populations^[4]. This higher cost of living is reflected through an uplift to the Minimum Income Standard applied to remote rural, remote small town and island (RRRSTI) areas as part of the Scottish definition of fuel poverty. The Centre for Research in Social Policy at Loughborough University undertook research for the Scottish Government to determine the percentage uplifts to the UK MIS required in RRRSTI areas. In 2021, 90% of the UK MIS ranged between £8,140 and £21,160 depending on the household type and between £10,260 and £24,590 in RRRSTI areas to reflect the higher cost of living.

Fuel Poverty on the Islands

The way that homes are heated in remote and rural Scotland, including the islands, varies from urban areas, in that homes in rural Scotland are less likely to use mains gas as their primary source of heating and are more likely to use heating oil, solid fuel, bottled gas or even electric heat than their urban counterparts. In 2019 levels of fuel poverty among households using electricity as their primary heating fuel were the highest, at 43%, compared to households using gas (22%), oil (28%) and other fuel (31%) as their primary heating fuel^[5]. Under the £2,500 price cap for October 2022 these figures are now estimated to be 54% for electricity, 32% for gas, 36% for oil, and 49% for other fuels. Furthermore, over the 2017-2019 period Na h-Eileanan Siar (40%), Highland (33%), Argyll and Bute (32%), Moray (32%), Shetland Islands (31%) and Orkney Islands (31%) had significantly higher fuel poverty rates than the national average^[6] of 24%.

Under the Scottish definition of fuel poverty as set out in the Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act 2019, a household is in fuel poverty if:

• in order to maintain a satisfactory heating regime, total fuel costs necessary for the home are more than 10% of the household's adjusted (i.e. after housing costs) net income (and more than 20% in the case of extreme fuel poverty); and
• if, after deducting those fuel costs, benefits received for a care need or disability and childcare costs, the household's remaining adjusted net income is insufficient to maintain an acceptable standard of living.

Under this definition, a household’s adjusted after housing costs net income is net of income tax, national insurance contributions, mortgage or rent payments, childcare costs, council tax, water and sewerage charges.

The remaining adjusted net income must be at least 90% of the UK Minimum Income Standard (MIS) to be considered an acceptable standard of living. To account for the higher cost of living in remote rural, remote small towns and island (RRRSTI) communities, an RRRSTI uplift is added for these areas, which results in a higher MIS threshold for households to be considered in fuel poverty.

As shown in the tables above, both in 2019 and after the October 2022 energy price guarantee, remote rural households have higher rates of fuel poverty than other rural urban classification types such as large urban, other urban, accessible small towns, and accessible rural areas.

Lived experience research on fuel poverty in Scotland, as well as work specifically undertaken in the Outer Hebrides^[7], suggests that there are a number of characteristics of remote and island areas that make heating homes to comfort more challenging than in urban areas including: difficulty making homes wind and water tight; more extreme weather; higher fuel costs associated with off-grid fuel types; poorer availability of qualified tradespeople for upkeep and energy efficiency measures^[8]; as well as a lack of economies of scale and a higher percentage of restricted meters which restricts energy efficiency interventions and ability to switch to cheaper energy tariffs.

Rented housing supply in island communities

Although published external data is not always broken down to cover specific individual island communities, the recently published Isle of Arran Local Island Plan^[9] includes the output of local engagement with the community on the Isle of Arran. Comments in the Plan also referred to private sector housing being in short supply as owners may generate a greater income from holiday lets, as well as concerns about ‘island premium’ costs – the greater costs of living experienced by those in island communities.

We are aware that PRS properties are important in remote, rural and island communities, allowing people to move into the area to take up jobs or to support seasonal working in particular localities.

We are also aware of college and university halls of residence and Purpose Built Student Accommodation (PBSA) in island communities and their wider role on the islands in retaining students in communities, expanding educational opportunities, further diversifying housing stock and contributing to local economic growth.

There are some local authority level figures available on levels of rented housing stock, although we are conscious that in general, levels of PRS and social housing provision and need may differ between different local island communities and the effects of any changes in the sector may therefore be felt differently in each community.

Available local authority level figures on the number of private rented households and social rented housing stock for the three island local authorities are shown in the table below.

Private rented stock as proportion of all households is estimated to be 6% in the Shetland Islands, 7% in Na h-Eileanan Siar, and 9% in the Orkney Islands. These percentage figures are all lower than the national level Scotland estimate of 14%, although there will be a margin of error in the local authority level estimates from the use of survey data.

Social rented stock as proportion of all dwellings is 15% in Na h-Eileanan Siar, 15% in the Orkney Islands, and 21% in the Shetland Islands. These figures are all lower than the national Scotland average of 23%, with figures on social rented dwellings being based on social landlord stock data, and not subject to any margins of error.

Sources:

Scottish Household Survey 2019 estimates of the proportion of private rented households.

Scottish Government Annual Housing Statistics – Stock by Tenure tables for 2019 on social rented stock.

We consider that the emergency housing measures are not likely to affect landlords and tenants disproportionately in island communities compared to communities on the Scottish mainland.

However, the data referred to above suggests that the impacts of the cost crisis may be higher in island communities, due to the already higher cost of living and the higher prevalence of fuel poverty experienced in these communities.

The measures being put in place measures to stabilise housing costs to support people to stay in their homes may therefore be even more necessary to mitigate some of the effects of the cost crisis than in many communities on the Scottish mainland, particularly those in less remote areas.

The higher cost of living in island communities may also impact on some landlords living in those communities. Although the Bill aims primarily to support tenants, it is recognised that the impacts of the cost crisis may also be felt by some landlords so appropriate safeguards have been considered as part of the Bill development process and provided for within the Bill.