Fuel Poverty (Targets, Definition and Strategy) (Scotland) Bill: island communities impact assessment

Background

Section 95 (1) of the Housing (Scotland) Act 2001 ("the 2001 Act") provides that a person lives in fuel poverty if that person is a member of a household with low income, living in a home that cannot be kept warm at reasonable cost. In August 2002, under section 88 of the 2001 Act, the then Scottish Executive published the Scottish Fuel Poverty Statement with the aim of giving the definition of fuel poverty more precision. According to the Statement, a household is in fuel poverty if, in order to maintain a satisfactory heating regime, it would be required to spend more than 10% of its income (including Housing Benefit or Income Support for Mortgage Interest) on all household fuel. This definition of fuel poverty is what is currently used in Scotland.

The Scottish Fuel Poverty Statement also committed the Scottish Executive's successors to ensuring that, as far as reasonably practicable, people were not living in fuel poverty in Scotland by November 2016. When it became clear that this target would not be met, in 2015 the Scottish Government set up the Fuel Poverty Strategic Working Group and the Scottish Rural Fuel Poverty Task Force. These were two short life, independent bodies tasked with reporting on fuel poverty and making recommendations that could feed into the further development of Scottish fuel poverty policy and energy efficiency programmes. In particular, the latter group was tasked with exploring issues facing people in fuel poverty in rural, remote and off-grid areas and proposing solutions to these issues.

Both groups reported in October 2016, following this an independent, academic panel was set up to review the definition of fuel poverty in Scotland. This was done in acknowledgement that the definition would be crucial to the basis of any new statutory target and that the current definition is unhelpful to ensuring that support is delivered to those who need it most. The Scottish Fuel Poverty Definition Review Panel reported in November 2017. The majority of its recommendations have been incorporated into the Fuel Poverty Bill, which was introduced to the Scottish Parliament on 26 June 2018 and is about to enter Stage 3 of the Parliamentary process.

The Fuel Poverty Bill has four key aims:

• to set new targets relating to the eradication of fuel poverty that are ambitious but achievable;
• to introduce a new definition of fuel poverty that focuses our support on those low income households which need it most;
• to mandate the preparation of a new, long-term fuel poverty strategy; and
• to oblige the Scottish Ministers to produce periodic reports on fuel poverty.

Fuel prices and household incomes, two of the four drivers of fuel poverty, do not fall under the direct control of the Scottish Government. As a result, some households will move in and out of fuel poverty due to changes in their financial circumstances and/or in fuel prices. This is recognised in the target set by the Fuel Poverty Bill which, following amendment at Stage 2 of the parliamentary process, is as follows:

In the year 2040, as far as reasonably possible no household in Scotland is in fuel poverty and, in any event -

• no more than 5% of households in Scotland are in fuel poverty;
• no more than 1% of households are in extreme fuel poverty and
• the median fuel poverty gap of households in Scotland is no more than £250 adjusted in accordance with section 2B(5) of the Fuel Poverty Bill to take account of changes in the value of money.

Following amendment at Stage 2, the Bill also sets an interim target that, in the year 2030:

• no more than 15% of households are in fuel poverty;
• no more than 5% of households are in extreme fuel poverty; and
• the median fuel poverty gap of households in Scotland is no more than £350 adjusted in accordance with section 2B(5) of the Fuel Poverty Bill to take account of changes in the value of money.

Inserting targets on the median fuel poverty gap and extreme fuel poverty has the effect of ensuring that there is a focus on those who are deepest in fuel poverty.^[1]

Additional amendments at Stage 2 had the effect of:

• Imposing a duty on Scottish Ministers to ensure the 2040 target is met in each Local Authority.
• Including an uplift in the Minimum Income Standard used in the measurement of fuel poverty in the proposed new definition for households in remote rural, remote small town and island areas to reflect the higher cost of living in these areas, with the uplift for island areas to be determined separately.
• Recognising the increased costs of those with a care need or disability in the fuel poverty definition through the deduction of certain benefits from a household's net income after housing costs in part b) of the definition in order to determine whether the household has sufficient remaining income to maintain an acceptable standard of living.
• Strengthening the consultation process for the Fuel Poverty Strategy.
• Giving the Scottish Parliament more scrutiny over the consultation process for the Fuel Poverty Strategy, the strategy itself and any revision of it.
• Putting an obligation on Scottish Ministers to keep the Fuel Poverty Strategy under review and to revise it every 5 years or publish an explanation of why this is not being done.
• Increasing the frequency of the periodic reports on fuel poverty from every 5 years to every 3 years.
• Obliging Scottish Ministers to consult with certain groups of people for the periodic reports.
• Creating a statutory Scottish Fuel Poverty Advisory Panel, which will meet after the publication of each periodic report and report to the Scottish Ministers on progress towards targets and the extent to which the 4 drivers of fuel poverty are being addressed.

The new definition of fuel poverty establishes a two pronged test, which is explained in Annex B and illustrated by the following Diagram.

After housing cost income / adjusted net income - household net income with rent or mortgage costs, council tax, water rates and sewerage charges deducted.

Acceptable standard of living - at least 90% of the UK Minimum Income Standard (MIS) applicable to the household after deduction of the notional costs allocated within MIS to rent, council tax, water rates, fuel and childcare. There is also provision for an uplift in this percentage for households in a remote rural area, remote small town or island area to reflect the higher costs of living there. The uplift for island areas is to be determined separately.

Temperature regime - standard regime is 21°C in the living room and 18°C in other rooms for 9 hours on a weekday and 16 hours on a weekend. Enhanced regime is 23°C in the living room and 20°C for 16 hours a day.

How the new Fuel Poverty Definition will apply in remote rural, remote small town or island areas

To account for the higher cost of living faced by households in a remote rural area, remote small town or island area, provision has been made for an additional amount (or uplift) to be added to the amount (or sum), which would require to be calculated under the proposed new definition of fuel poverty to establish whether a remote rural area, remote small town or island area household is in fuel poverty. The wording of the Fuel Poverty Bill in this respect recognises that there could be cases, over the lifetime of the Act, in which the uplift is zero but does not allow for there to be a decrease below the MIS threshold contained in section 2(5).

What constitutes a remote rural area, remote small town or island area is to be defined in regulations. The person who is to determine the additional amount is also to be specified in regulations, allowing such person to be named in due course in the same way as is done for the UK MIS, but recognising that this cannot be done yet as a procurement exercise must be carried out first. The person so specified must make a separate determination on the additional amount to be allocated to an island area, the purpose being to ensure the proposed new definition of fuel poverty fully takes into account additional costs of living in an island area in the measurement of fuel poverty. In defining an island area, Scottish Ministers must ensure that the definition encompasses all island areas. This is to safeguard against any remote small town on an island expanding over the lifetime of the Act to the extent that it would no longer fall into category 4 of the Scottish Government's 6 fold urban/rural classification.

Extreme Fuel Poverty

The test for extreme fuel poverty in the Fuel Poverty Bill is the same as that for overall fuel poverty with the exception that, in the first part of the test for extreme fuel poverty, the question to be asked is whether a household requires to spend more than 20% of its after housing costs net income on fuel in order to heat the home to requisite temperatures for a requisite number of hours per day and meet its other reasonable fuel needs.