Draft Fuel Poverty Strategy for Scotland 2018

A New Approach

The Fuel Poverty (Target, Definition and Strategy) (Scotland) Bill

This significant and new legislation is a key element of the new long-term strategy to eradicate fuel poverty and improve energy efficiency. Through this legislation we aim to:

• Establish a new definition of fuel poverty, the first to apply a Minimum Income Standard, and set out how we will measure levels of fuel poverty;
• Enshrine in legislation a new target that in 2040 no more than 5% of households in Scotland are in fuel poverty; and
• Place a duty on Scottish Ministers to produce a long-term fuel poverty strategy, within a year of commencement of the Bill, and to publish a report every 5 years to update on progress towards the long term target and the plans for the next 5 years. The strategy will set out how delivery of the fuel poverty target will be achieved, including sub-targets and milestones and will propose a monitoring framework to oversee progress in meeting the target.

We are proposing that when the Fuel Poverty (Target, Definition and Strategy) (Scotland) Bill is enacted section 95 of the 2001 Housing Scotland Act will be repealed in its entirety – removing the legal basis for the un-used current statutory definition of fuel poverty.

There is already a wide range of legislation which gives powers and duties to the Scottish Government, local

authorities and energy suppliers to improve the energy efficiency of buildings, and reduce emissions associated with their energy and heat supply, across housing, building standards, local government, energy and climate change legislation. We have also committed to develop, if appropriate, a wider Energy Efficient Scotland Bill for later in this Parliament, and this would be the vehicle for any further legislative changes needed to support Energy Efficient Scotland, beyond the fuel poverty provisions contained in the Fuel Poverty (Target, Definition and Strategy) (Scotland) Bill.

A new definition of Fuel Poverty

The definition of fuel poverty used in Scotland under this Bill will form the bedrock of our targets and the strategy we put in place to achieve them. Taking account of recommendations from the independent panel that reviewed the Scottish Fuel Poverty definition in 2017, we intend to adopt the following revised definition of fuel poverty:

Households should be able to afford the heating and electricity needed for a decent quality of life. Once a household has paid for its housing, it is in fuel poverty if it needs more than 10% of its remaining income to pay for its energy needs, and if this then leaves the household in poverty.

This is the same simplified definition used by the independent review panel.

In the Bill, more technical language is used. In it, a household is defined to be in fuel poverty if:

• the fuel costs necessary for the home in which members of the household live to meet the conditions set out in section 2(2) ^[4] of the Bill are more than 10% of the household’s adjusted net income ^[5] , and
• after deducting such fuel costs and the household’s childcare costs (if any), the household’s remaining adjusted net income is insufficient to maintain an acceptable standard of living for members of the household.

Underpinning the overarching definition, there are some areas where we have made changes to how we will measure the number of households experiencing fuel poverty, including:

• introducing a new income threshold based on the UK Minimum Income Standard ( MIS)
• moving the 10% fuel cost to income ratio from a Before Housing Costs ( BHC) basis to an After Housing Costs ( AHC) basis
• for households that we anticipate to be most affected by the adverse outcomes of living in a colder home, enhancing the temperature regime that will be applied in order to contribute to a healthy, indoor living environment.

The changes are set out in detail in the technical annex.

National measurement of fuel poverty will continue to be through the annual Scottish House Condition Survey ( SHCS). Although we currently use a state of the art model to estimate a household’s required energy consumption as part of estimating fuel poverty, taking account of concerns raised by rural and island stakeholders, we will further review the weather and fuel price information used in the model with the aim of making these more localised where possible.

What this definition means

This new definition will:

• focus in on low income households by introducing a new income threshold which will be 90% of the UK MIS after housing, fuel and childcare costs are deducted; and
• help us to better target our resources at those who are most in need of support, no matter where they live in Scotland.

The following diagram illustrates the improved targeting which the new definition offers, in comparison to the definition currently being used, and shows how the new definition is much more focussed on those most likely to struggle to pay their fuel bills.

This diagram shows the differences in households who are both fuel poor and income poor under the current and the proposed new definition. Currently, approximately 249,000 or around 38% of fuel poor households are not income poor. Under the proposed new definition this drops to around 18%, demonstrating that the proposed new definition is better aligned with low income.

Initial analysis of the proposed new definition indicates that fuel poverty rates are likely to be highest amongst households:

• in social sector housing and in the private rented sector
• in the most deprived areas
• where the highest income householder is female or aged under 35
• where at least one member has a long-term sickness or disability.

In addition, families with children are likely to have a higher rate of fuel poverty than under the current definition, whilst older households are likely to have a lower rate.

These patterns reflect poverty levels more generally ^[6] where, on average over the period 2014/15 to 2016/17:

• social and private rented households (over a third) are more likely to be in relative poverty than those who own their property outright or with a mortgage (less than 10%);
• people living in households with a disabled person (24%) are more likely to be in relative poverty than those without (17%);
• children (24%) and working age adults (19%) are more likely to be relative poverty than pensioners (13%).

The new definition therefore supports the targeting of action at those who need it most.

Fuel Poverty Target

In bringing forward this bold new legislation we will set a new statutory target relating to the eradication of fuel poverty, ensuring that:

In the year 2040, no more than 5% of households in Scotland are in fuel poverty.

This is an even more ambitious statutory target than initially proposed in the fuel poverty strategy consultation and takes account of feedback we received through the consultation process.

We also propose to put in place the following non-statutory interim targets to measure progress:

By 2030:

• The overall fuel poverty rate will be less than 15%
• Ensure the median fuel poverty gap is no more than £350 (in 2015 prices before adding inflation)
• Make progress towards removing poor energy efficiency of the home as a driver for fuel poverty ^[7]

By 2040:

• Ensure the median fuel poverty gap is no more than £250 (in 2015 prices before adding inflation)
• Remove poor energy efficiency of the home as a driver for fuel poverty ^[8]

The 2030 interim targets are also more ambitious than initially proposed, for consistency with the 5% target for 2040.

The 2040 target date aligns with other Scottish Government action, including targets relating to the Energy Efficient Scotland programme – linking to the multiple aims of this 20 year transformational Programme, including removing poor energy efficiency as a driver of fuel poverty; reducing heat demand, contributing to targets set out in the Climate Change Plan; reducing the carbon intensity of our heat supply; and supporting Scottish jobs.

Setting the fuel poverty target at 2040 will enable it to be achieved in a sustainable way and one that is consistent with other government priorities, such as mitigating climate change.

Achieving the target by this date will require the use of cost-effective low carbon heating technologies. Setting an earlier date for meeting the target would mean that the technologies required to meet it would rely on existing higher carbon heating fuels, which may then require households to implement further upgrades to move to low carbon technology in the future, in order to meet Scotland’s climate change targets.

Further innovation in the coming years is needed to drive down the price of low carbon heat technologies. Currently, there is uncertainty on how best to decarbonise the heat supply in Scotland, with decisions on the operation of the gas network reserved to the UK Government. Working with the UK Government, the Scottish Government will undertake research, gather evidence and put in place a credible and deliverable plan for decarbonising Scotland’s heat supply. In the absence of this evidence base, there would be a risk of creating an uncertain climate for investment in low carbon heat. Alternatively, if low carbon technologies were utilised, without further time for innovation to drive down cost, then the result would be such that fuel poverty levels may increase due to the current operating costs relating to low carbon technologies

Our initial analysis ^[9] of the proposed new definition suggests that, in 2016, the rate of fuel poverty would be 23.8% and the fuel poverty gap would be £648 in 2015 prices. This demonstrates the level of ambition in the target presented.