Heat in buildings strategy: fairer Scotland duty

Summary of Evidence

Evidence was gathered from responses to a public consultation on the draft Heat in Buildings Strategy. 178 respondents submitted a response. Online consultation events were also held with stakeholders invited from a range of representatives from various sectors including the environmental and energy sectors, local authorities, fuel poverty, social landlord representative bodies, consumer advice and information bodies, stakeholder groups and the building and construction sector.

Evidence was also gathered via an internal workshop; from the Scottish Household Survey; Scottish House Condition Survey and a social research project on the likely equality implications of heat decarbonisation in buildings for consumers in Scotland. This research looked at each of the protected characteristics, and has also informed an Equality Impact Assessment (EQIA) which was carried out separately.

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

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.

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.

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.

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.

In some current approaches to low and zero emissions schemes, the benefits have generally flowed to those who are financially better off. For example, both the Renewable Heat Incentive (RHI) and Feed in Tariff (FIT) are usually accessed by those with higher incomes reflecting the fact that they are more able to afford the upfront costs and that their property types and tenure make them more suitable for such initiatives.

There are also concerns about the design and overall impact of GB schemes targeting households on a low income and/or vulnerable to the effects of cold. The current Energy Company Obligation ((ECO) and Warm Home Discount (WHD) benefit some low income households. However the costs of these schemes are applied to all household electricity bills. Typically these charges are applied on a volumetric basis and no account is taken of households' ability to pay or needs for energy (e.g. electric heating rather than gas, larger households, illness etc.). These charges on bills are regressive, increase numbers of households in fuel poverty and deepen fuel poverty.

The Committee on Fuel Poverty (CFP), citing UK-wide data, have highlighted that up to 1.5 million households struggling with fuel poverty do not automatically qualify for the Warm Home Discount on their bills. The CFP made the comments in response to a government consultation, pointing out that almost half – 46.1 per cent – of households currently in fuel poverty are not in receipt of benefits, and thus don't qualify for an automatic discount.

Consultation respondents to 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.

In a UK study, most fuel poor participants would not consider borrowing money to increase the energy efficiency of their homes, with debt seen as a last resort.

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.

The proportion of households in Scotland with internet access was at 88 per cent in 2019. 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

Poorer skills attainment associated with socio-economic disadvantage may influence people's ability to gain secure and well-paid employment. These groups of people may be more likely to miss out on job opportunities created through the heat transition. They may also experience greater difficulty in understanding the transition to zero emissions buildings and the energy systems being introduced to their homes.

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

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.

There is evidence that other links between educational attainment and warm homes exist. For example, 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.

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

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.

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

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

In terms of relative poverty after housing costs (the commonly used poverty indicator in Scotland), 7% of people buying with a mortgage and 14% who owned outright were in poverty. This compares to 39% for those living in social housing and 34% for those in private rented housing.

However, due to the size of this tenure type, home-owners 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%).

While responses to the consultation on the draft Heat in Buildings Strategy identified that tenants may be impacted by increases in rent in the social sector resulting from the requirement to achieve EPC band B by 2032, social rent increases are monitored by the Scottish Housing Regulator.

Evidence suggests tenants who might want to engage in the heat transition might not be able to if their landlord is unwilling to engage or invest as the property owner. The length of time a tenant has lived in, or intends to live in, a property also acts as a barrier to engagement with improving their home and affects their willingness to engage in updating their heating system. Tenants may also face rent increases, depending on how landlords decide to cover costs, which could push some into rent poverty and, as fuel poverty is measured after housing costs, any rent increases could also hamper efforts to alleviate fuel poverty.

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-economic disadvantaged households.

The socially rented sector enjoys relatively high levels of energy efficiency. Twenty-four percent of Scotland's domestic dwellings are social housing, and over half (56%) of this social housing is in band C or better under SAP 2012, compared to two-fifths (40%) in the private rented sector and owner-occupied sector (41%). This reflects the finding that nearly half of Scottish households with weekly income of £400-499 live in a EPC rated property of C or above (Scottish House Condition Survey, 2019).

Location

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.

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.

In 2019, the fuel poverty rate for rural (29%) households was higher than for urban (24%) households. Levels of fuel poverty for remote rural households are higher than for all other urban rural locations and have increased by 9 percentage points from 33% in 2018 to 43% in 2019. This increase reflects the high proportion of rural households which use electricity and other fuel types (such as solid mineral fuels) as their primary fuel type and the associated increase in fuel prices for these fuel types between 2018 and 2019.

The latest update of the Scottish Index of Multiple Deprivation (SIMD) 2020 has been published by Scotland's Chief Statistician. This shows:

• the least deprived area is in Stockbridge, Edinburgh. This represents a change since SIMD 2016, when the least deprived area was in Giffnock
• the most deprived area is in Greenock town centre. This represents a change since SIMD 2016 and 2012, when the most deprived area was identified as Ferguslie Park, Paisley
• the area with the largest local share of deprived areas was Inverclyde, with 45% of data zones among the 20% most deprived areas in Scotland
• Glasgow City has similar deprivation levels at 44%
• other local authorities with relatively high levels of deprivation include North Ayrshire and West Dunbartonshire at 40% and Dundee City at 38%
• Na h-Eileanan an Siar, Shetland and Orkney have no areas among the 20% most deprived in Scotland, however, this does not mean there are no people experiencing deprivation living there
• over half of people on low income do not live in the 20% most deprived areas in Scotland
• levels of deprivation have fallen in Glasgow City, Renfrewshire and City of Edinburgh compared to SIMD 2016. Glasgow City showed the biggest fall, from 48% of data zones in the 20% most deprived areas in Scotland, to 44%
• levels of deprivation have increased in Aberdeen City, North Lanarkshire, Moray, East Lothian, Highland and North Ayrshire. None of these increases are greater than 2 percentage points

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.

We will publish an Islands Energy Strategy in 2022 with a focus on resilience and sustainability of island energy systems for the future, and on supporting islands' transition to net zero emissions.

Health

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. For example, it was reported in an evaluation of the Scottish Government's Energy Efficient Scotland (EES) pilot programme that installation of energy efficiency measures led to increased internal temperatures and a reduction in people feeling cold over winter. A significant improvement in housing problems such as damp, mould and condensation was also found. 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.

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.

Caution is required around the unintended consequences of retrofitting where a lack of ventilation caused negative implications for health and indoor air pollution.

Poverty

Internal workshops highlighted that some groups in fuel poverty, or income poverty, live week-to-week and cannot prioritise heating. Consideration of assessing the benefits of a new heating system for those groups in terms of cost, efficiency and operation was highlighted.

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 under current market conditions, 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.

It is estimated that 24.6% (around 613,000 households) of all households are 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. It is often linked to elements of socio-economic disadvantage.

It is reported that 73% of fuel poor households are also income poor. 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 in homes 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.

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.

In 2019, the fuel poverty rate was higher for rural households (29%) than for urban households (24%), while levels of fuel poverty for remote rural households (43%) were significantly higher than for all other urban rural locations. Levels of extreme fuel poverty were also higher in rural areas (19%) compared to urban areas (11%) with extreme fuel poverty rates significantly higher (33%).

An evidence review on the lived experiences of fuel poverty in Scotland suggests that socio-economically disadvantaged households experiencing fuel poverty are not always eligible for help. For example, disabled people who have not been able to access the disability benefits used as eligibility criteria, elderly people with small occupational pensions, and self-employed people who struggled to prove eligibility in circumstances where their income fluctuated significantly by month and year.

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.

Fuel type has implications for fuel poverty. The levels of fuel poverty among households using electricity as their primary heating fuel have remained the highest, at 43%, compared to households using gas (22%), oil (28%) and other fuel (31%) as their primary heating fuel. A key implication of this is that there is a strong link between electricity for fuel and fuel poverty. This suggests that switching to zero and low emissions heating systems that use electricity may exacerbate fuel poverty.