The cost of remoteness - reflecting higher living costs in remote rural Scotland when measuring fuel poverty: research report

2 Approach and scope

The Fuel Poverty (Targets, Definitions and Strategy) (Scotland Act) 2019 adopted the Minimum Income Standard (MIS) as the benchmark for determining whether after meeting the fuel costs necessary for the home, a household would have insufficient remaining net income to maintain an acceptable standard of living. The Act also provided that the remaining net income required would be adjusted in light of additional costs for households in remote rural areas, remote towns and island areas, as calculated by a 'person' appointed by statutory regulation. This study reports to the Scottish Government the calculation specified by that provision.

The definition uses 90% of MIS as the threshold of adequate income, following the assessment of the Scottish Fuel Poverty Review Panel (2017) that being below this level is a better predictor of adverse outcomes than other income indicators considered. The MIS threshold is derived principally from a 'consensual budget standard' process, whereby groups of members of the public agree on what needs to go into a minimum household budget. Box 1 summarises the essentials of MIS.

The main MIS research takes place in urban areas of the UK, outside London, and does not attempt to capture any differences in costs in rural areas. Two previous studies (Smith et al., 2010; Hirsch et al., 2013) have investigated different and additional costs in rural areas, using a MIS 'additionality' method that has also been used to investigate costs in London (Padley et al., 2021) and for people with sensory impairments (Hill et al., 2015, 2016). The additionality method assembles groups of people in the areas or household circumstances under investigation, presents them with the main MIS urban budgets and asks them to consider how they would vary in these different situations or locations. An important aspect of this in the case of remote rural areas is establishing where goods and services would be purchased, and where this implies different prices, following up with re-costing by researchers of the items affected. Following Smith et al.'s 2010 study of MIS in rural England, the 2013 study of remote rural Scotland was able to assess additional costs in a range of settlement types, based both on different pricing and affected by other sources of additional costs including different travel requirements such as longer journeys to work, higher domestic fuel consumption and delivery charges for goods. This research has informed the present study in terms in particular of how costs are structured.

Box 1: MIS in brief

What is MIS?

The Minimum Income Standard (MIS) is the income that people need to reach a minimum socially acceptable standard of living in the UK today, based on what members of the public think. It is calculated by specifying baskets of goods and services required by different types of households to meet these needs and to participate in society. Specifically, the minimum is defined as follows, based on consultation with groups of members of the public in the original research:

'A minimum standard of living in the UK today includes, but is more than just, food, clothes and shelter. It is about having what you need in order to have the opportunities and choices necessary to participate in society.'

How is it arrived at?

Members of the public have detailed negotiations, in groups, about the things a household needs to achieve an acceptable living standard. Each set of groups has a different role. The first groups go through all aspects of the budget, in terms of what goods and services would be needed, of what quality, how long they would last and where they would be bought. Experts make selective inputs, notably to check the nutritional adequacy of the food baskets, calculating domestic fuel requirements and advising on motoring costs. Subsequent groups check and amend the budget lists, which are then priced at various stores and suppliers by the research team. Groups typically comprise six to eight people from a range of socio-economic and ethnic backgrounds, but all participants within each group are from the household category under discussion. So, parents with dependent children discuss the needs of parents and children, working age adults without children discuss the needs of single and couple adults without children and pensioner groups decide the minimum for pensioners. In all, over 160 groups have been used to research MIS since its inception in 2008, involving a new set of participants on each occasion.

A crucial aspect of MIS is its method of developing a negotiated consensus among these socially mixed groups. This process is described in detail in Davis et al., (2015). The MIS approach uses a method of projection, whereby group members are asked not to think of their own needs but of those of hypothetical individuals (or case studies). Participants are asked to imagine walking round the home of the individuals under discussion, to develop a picture of how they would live, to reach the living standard defined above. While participants do not always start with identical ideas about what is needed for a minimum socially acceptable standard of living, through detailed discussion and negotiation they commonly converge on answers that the group as a whole can agree on. Where this does not appear to be possible, for example where there are two distinct arguments for and against the inclusion or exclusion of an item, or where a group does not seem able to reach a conclusion, subsequent groups help to resolve differences.

What does it include?

As set out in the definition above, a minimum is about more than survival alone. However, it covers needs not wants, and necessities not luxuries: items that the public think people need to be part of society. In identifying things that everyone requires as a minimum, it does not attempt to specify extra requirements for particular individuals and groups who may have additional needs – for example, those resulting from living in a remote location or having a disability. So, not everybody who has more than the minimum income can be guaranteed to achieve an acceptable living standard. However, someone falling below the minimum is unlikely to achieve such a standard.

To whom does it apply?

MIS applies to households that comprise a single adult or a couple, with or without dependent children. It covers most such households, with its level adjusted to reflect their composition. The needs of more than a hundred different family combinations (according to numbers and ages of family members) can be calculated. It does not cover families living with other adults in the main calculations, although supplementary reports on single adults sharing accommodation (Hill et al., 2015) and single adults in their 20s living with their parents (Hill and Hirsch, 2019) estimate variations for these household types.

Who produces it?

The main MIS research is supported by the Joseph Rowntree Foundation and carried out by the Centre for Research in Social Policy (CRSP) at Loughborough University.

The study design was guided by the need to have overall uplift figures across remote rural Scotland. This requirement has shaped the study and its scope, including the areas covered, how it covers these different areas of Scotland, different household types and different budget areas.

a) Which parts of Scotland are covered?

The study's objective is to produce uplift percentages for categories 4 and 6 of the Scottish Government's sixfold urban-rural classification, which is defined as:

1 Large Urban Areas: Settlements of 125,000 people and over.

2 Other Urban Areas: Settlements of 10,000 to 124,999 people.

3 Accessible Small Towns: Settlements of 3,000 to 9,999 people, and within a 30 minute drive time of a Settlement of 10,000 or more.

4 Remote Small Towns: Settlements of 3,000 to 9,999 people, and with a drive time of over 30 minutes to a Settlement of 10,000 or more.

5 Accessible Rural Areas: Areas with a population of less than 3,000 people, and within a 30 minute drive time of a Settlement of 10,000 or more.

6 Remote Rural Areas: Areas with a population of less than 3,000 people, and with a drive time of over 30 minutes to a Settlement of 10,000 or more.

Categories 4 and 6 between them correspond to the 'remote rural areas, remote towns and island areas' mentioned by the legislation. In practice, they cover everywhere that is 'remote' in the sense of being more than a 30 minute drive from a settlement with at least 10,000 people; since there are no towns of more than 10,000 in the Scottish Islands, all island areas are also included. Thus technically the areas covered by this report can be described as 'remote Scotland'. However, we refer to them in this report as covering 'remote rural Scotland', which has commonly been used to describe parts of Scotland distant from larger urban areas (e.g., Scottish Fuel Poverty Review Panel, 2017). Whereas small towns of 3,000-10,000 people are distinguished from 'rural' areas in category 4 compared to category 6, in other contexts, small towns are generally included as part of rural rather than urban areas; UK official definitions make this explicit. However, the study does not include non-remote rural areas – such as villages close to large towns or cities – so it is not accurate to describe areas in categories 4 and 6 as 'remote and rural Scotland'.

b) Approach to heterogeneity across these areas

Within these remote rural areas of Scotland, a vast range of conditions apply, ranging from very remote islands, each with unique characteristics, to a mainland location 31 minutes from Inverness. To capture every feature of this heterogeneity would have required a vast study, reporting multiple results for different situations. However, the research was designed to produce a best estimate of the overall effect of higher living costs on Scotland's fuel poverty rates, rather than to describe additional living costs in each type of community. In this respect, it differs significantly from the previous study (Hirsch et al., 2013), which estimated uplifts for a wider range of settlement types. These were neither comprehensive nor structured to allow any given location in remote Scotland to be easily classified so the results could not have been applied to household locations in the annual Scottish House Conditions Survey, which is used to calculate fuel poverty.

The simplified design used in this study creates two uplift percentages for each household type: one for the islands and one for remote rural mainland areas of Scotland. These uplifts do not describe differences within each of these broad areas, but rather make a best estimate of what single uplift percentage would best represent the overall effect on fuel poverty of higher costs. The starting point was to create a cost model for the areas in which the greatest number of people live: either in small towns or in areas accessible to small towns. In the previous research, these two types had produced similar results when looked at separately, with most people in villages near small towns expecting to drive to those towns to do most of their regular shopping, creating at most minor differences in travel costs. The MIS research therefore talked to groups made up of people living in and around small towns to establish a cost model. However, some significant additional costs of living in more remote rural areas of the islands, particularly those where all regular shopping would be done at a local community store rather than a supermarket, or those where inter-island ferry trips affected transport costs, were also taken into account at the pricing stage. The final uplift percentages adjust for these more remote island results, weighted for population size, and therefore factor in some of the most clear-cut costs of living in the most remote areas. We are not however able to report full budgets for such areas, where we have not been able to carry out MIS groups that give a rounded picture of differences in life in these locations that affect living costs.

c) Distinguishing between household types

The main MIS results allow the calculation of over 100 combinations of household types - defined by the number of pensioners and working age adults, and the number of children in each of four age categories. The present study simplifies this, looking at three types of household: working age adults without children, pensioners and families with children. For the first two of these household types, results for both singles and couples are calculated, with an average of the two being used for the uplift figure. For families with children, the calculations are based on a couple with two children, aged 4 and 7. All these results are expressed in terms of percentage uplifts, which when applied to the UK MIS budgets, will reflect differences in household size. Thus, for example, the actual uplift in pounds for a lone parent with one child will be much smaller than for a couple with four children, based on a different starting point in terms of the UK MIS budget for each of these.

d) Which household costs are included?

Finally, an important aspect of the remote rural Scotland uplift figures specified by legislation is that they are net of certain important costs, which will be captured in the survey used to calculate fuel poverty, according to the situation of individual households. These are costs over which households have limited day to day control, some of which can vary greatly from one household to another:

• Rent, Council Tax and water rates are subtracted from income in the 'after housing costs' measure of household income, used in making fuel poverty calculations.
• Childcare costs are also subtracted in making the fuel poverty calculation, and not included in the benchmark MIS figures.
• Domestic fuel costs are deducted according to the assessment of how much a household needs to spend on fuel to maintain thermal comfort, given the characteristics of their home. Thus, no fuel requirement is included in the MIS calculation against which net incomes are compared.

Since the fuel poverty measure accounts for the above costs at the individual level, rather than as part of the MIS benchmark as covered by this study, the study does not in itself capture all aspects of additional costs in remote rural Scotland. In the case of most of the items mentioned above, this is not particularly significant, because there appears to be no systematic variation in costs making life more expensive in remote rural areas. For example, available data suggests that private rents are systematically neither high nor low in remote rural areas of Scotland, compared to the rest of the country. This can be illustrated by looking at a modest (lower quartile) rent on a modest-sized (2 bedroom) home. In 2019, out of Scotland's 19 housing market areas, the lower-quartile rent for a two-bedroom property was fifth-highest in Highlands and Islands, 12^th in Dumfries and Galloway, 13^th in Argyll and Bute and lowest (19^th) in the Scottish Borders (Table 16 of private rent statistics).

On the other hand, for fuel costs, the situation is very different: as reflected in the 2013 MIS study, fuel costs are systematically higher in remote rural locations due to the compounded effects of severe weather, off-grid fuel sources and the low thermal efficiency of older homes. This is particularly important in contributing to fuel poverty in these parts of Scotland. It is important to bear in mind that the additional costs reported here therefore present only part of the picture of higher costs in remote rural Scotland. This does not compromise the accuracy of the fuel poverty calculations into which they feed, because they take account of additional fuel costs at the level of the individual household. But it means that the uplifts calculated here should not be reported as if they represent the full additional living costs faced by residents of remote rural Scotland.