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

Key Findings: Definition

The purpose in changing the definition is to align more closely with income poverty and help us to target our resources at those most in need of support, no matter where they live in Scotland. This ambition has been supported widely by stakeholders, including those within island communities. However, after comparing fuel poverty rates between the old and new definitions and performing this impact assessment, it is clear that there will be a significant drop in the number of people in island communities who will be classed as in fuel poverty compared to the status quo.

The bulk of this ICIA will consider this issue, ensuring that we understand the implications and consider the extent to which this will be addressed by the fact that the new definition (including the proposed new enhanced heating regime under the Fuel Poverty definition) now seeks to fairly reflect the reality of fuel poverty within island communities through the addition of an uplift in the Minimum Income Standard threshold, to be used in the measurement of fuel poverty, for island areas.

Definition: Uplift in the Minimum Income Standard threshold to be used in the measurement of fuel poverty to account for the higher cost of living in remote rural, remote small town or island areas, with the uplift for island areas to be determined separately

The purpose of changing the definition of fuel poverty is to allow us to target support more effectively to those who do not have enough money after fuel costs, to have a reasonable standard of living. In doing so, the definition of fuel poverty aligns more closely to relative income poverty. Many stakeholders support this aim, including those from island communities. The Shetland Islands Council and the Shetland's Fuel Poverty Action Group in their responses to the call for evidence stated:-

"We welcome the use of the Minimum Income Standard (MIS), as a responsive method for understanding need in an area."

THAW Orkney stated:-

"From our experience with fuel poor households, the change to the definition to include a Minimum Income Standard will help focus resources on those in the greatest need, particularly when highlighting households well below both definitions."

Dion Alexander of the Highlands and Islands Housing Association's Affordable Warmth Group (HIHAAW), gave the following oral evidence to the Local Government and Communities Committee at Stage 1:

"We welcome the fact that the minimum income standard is being used to underpin and inform the evidence-based understanding of poverty and the amount of disposable income that people have."

However strong views were expressed and evidence provided that living costs are higher in island communities, and that this needs to be taken into account.

Dion Alexander, in the same oral evidence session, expanded on this issue:-

"As you are aware, evidence has been gathered for remote rural Scotland on exactly the same basis as for the minimum income standard UK data. It was first gathered in 2013 and refreshed in 2016. We are saying, "Please, please use this evidence.""

It should also be noted that the Scottish Independent Rural Task Force in their 2016 Report recommended that a Scotland MIS should be commissioned "once every 3 years to provide top quality information on cost of living contexts and trends by 6-fold urban and rural classification."^[3]

Comhairle Nan Eilean Siar stated in their written evidence: -

"It is essential to factor in higher living costs to an understanding of poverty in remote and rural areas. Poorer households in the islands are likely to be significantly worse off financially than an equivalent earning mainland household because of the higher cost of living".

This was further highlighted throughout the stakeholder meetings we had with island communities. Concerns were expressed over the higher costs of living, and also the additional installation costs for energy efficiency improvements in remote locations.

The response received by the Committee from the Shetland Islands Council agreed with these concerns: -

"……by failing to consider the evidence provided by the Remote Rural MIS and ignoring the advice of the Independent Panel, to make an adjustment upward for households living in remote rural areas, we do not support full implementation of the proposed definition."

At the Western Isles ICIA stakeholder meeting, concerns were also expressed that the base level data on fuel poverty in the islands must be robust in order for the issue to be tackled effectively. If the levels of fuel poverty are incorrectly estimated at the beginning, then it cannot be effectively tackled. This concern was echoed in the ICIA stakeholder meetings in Orkney and the Highlands.

Initial assessment of fuel poverty levels under the current definition and the proposed new definition across island community local authorities does show a significant reduction in fuel poverty which is mainly due to the inclusion, for the first time, of an income threshold in the definition. In recognition and response to these concerns, the Scottish Government raised an amendment to the Fuel Poverty Bill at Stage 2, which was passed by the Local Government and Communities Committee. This provides for an assessment to be made of an additional uplift to be added to the UK MIS thresholds for households living in remote rural, remote small town and island areas. The legislation also make provisions for the uplift for island areas to be assessed and determined separately.

Based on options presented to the Committee, it is intended that the uplift will be determined via primary research to produce a remote rural, remote small town and island area minimum income standard.^[4] It should be noted that the remote rural, remote small town and island minimum income standard areas are defined by categories 4 and 6 of the Scottish Government Urban Rural Classification.

The key underlying themes of the methodology reflect the expert advice from Professor Donald Hirsch, Director of the Centre for Research in Social Policy at Loughborough University and the leader of the academic group responsible for the production of the UK Minimum Income Standard (UK MIS).

These themes are:

i. That the extensive research that goes into the production of the UK MIS can be utilised, as there are many common goods and services that will be required across various different household types throughout the whole of the UK.

ii. That the focus of additional work in Scotland for developing this methodology should be on identifying any differences in required goods and services and ensuring the pricing reflects additional costs faced by households living in remote rural, remote small towns and island areas.

iii. That extensive primary research need only be carried out periodically, with Professor Hirsch suggesting that every 8 years would be sufficient.

iv. That desk based analysis could be undertaken in intervening years to update the prices for the basket of goods and services to take account of inflation.

v. That collection of local price data every 2 years could be undertaken along with an analysis of impact of any changes to the UK MIS and the remote rural, remote small town and island MIS.

vi. That there is much greater variation in MIS by main household types which ought to be reflected in separate uplifts by household type.

vii. There is less variation in MIS by geographic area within the remote rural, remote small town and island MIS, whereby an average compiled by sampling various locations within these areas would suffice for fuel poverty purposes.

These represent a proportionate and evidence-based approach to taking account of the additional costs of living in a remote, rural and island community.

The MIS uplift for a remote rural, remote small town or island area will include a full assessment of prices in such areas and will combine this with primary research to identify differences in the basket of goods and services required by these households. It will also produce separate MIS uplifts for 3 main household types; i) working age households with no children; ii) pensioner households; iii) families with children. Where households are, for example, a mixture of pensioners and working age, an average uplift would be applied. It is envisaged that initially these percentage uplifts will be calculated using the previous research from the Highland and Islands performed by Professor Hirsch's team, but broken down by household type. It will then be re-based following extensive research which will be commissioned through the Scottish Government's Public Procurement Process which enshrines the overarching principles of equal treatment, non-discrimination, proportionality and transparency.

The use of this uplift for island communities allows for some of the unique challenges of island community life to be incorporated into the fuel poverty definition, namely the higher prices experienced by households in these areas. Table 2 below provides indicative data on the likely impact the uplift will have on rates of fuel poor households in island community areas. A complete table for all local authority areas can be found in Annex F. The statistics in this table give an indication of the likely impact. Precise statistics will not be available until the research has been completed as set out above.

In Table 2 below, the Minimum Income Standard uplifts are applied when calculating the figures in the last column. For working age single or couple households the uplift is 15%, for pensioner single or couple households it is 19% and for family households it is 27.5%. As can be seen in the table below, this makes a small difference to the overall rate of fuel poverty in Scotland, which is 2 percentage points higher than the new definition rate before the uplift had been applied (over the 2015-2017 period).

Table 2: Fuel poverty data in island local authorities under the current and proposed definitions, 2015-2017.

	Current	Proposed new definition prior to any remote rural, remote small town and island area uplift**	Proposed new definition*** with a minimum income standard uplift for remote rural*, remote small town, and island areas** and benefits received for a care need or disability deducted at part B.
Argyll and Bute	44%	27%	34%
Highland	49%	26%	33%
Na h-Eileanan Sar	56%	27%	36%
North Ayrshire	26%	22%	26%
Orkney	57%	25%	31%
Shetland	44%	18%	24%
Scotland	27%	24%	26%

* The estimates are based on applying an uplift to areas covered by categories 4 and 6 of the Scottish Government's urban rural classification. This is in line with the Local Government and Communities Committee's Stage 1 report and is expected to be what will be set out in regulation.

** The data presented for the proposed new definition, is our best available estimate based on the Scottish House Condition Survey (SHCS). Further work is in progress to collect information through the 2018 SHCS on the income of other adults (beyond the highest income householder and their spouse) in the household as well as childcare costs. These are not currently accounted for in the data presented. For more information, please see Annex A: A note on the data used in this report.

***The figures presented in the last column are based on Bill as amended at Stage 2; as well as the uplift to households in category 4 and 6 of the Scottish Government's urban rural classifications, any income received through Disability Living Allowance, Personal Independence Payments or Attendance Allowance are deducted from Part B of the definition.

The fuel poverty rates presented in Table 2 for the proposed new definition as at stage 2 of the bill (i.e. in the far right column) take account of 2 adjustments which are: i) an uplift to the minimum income standard for households which, according to the Scottish Government's urban/rural classification, live in remote rural or remote small town and island areas, and ii) benefits received for a care need or disability are deducted at part B of the definition (when incomes are compared to 90% of the minimum income standard). The first of these adjustments applies to only certain households, namely those that live in dwellings in remote-rural, remote small town and island areas; however the second adjustment will affect all households across Scotland that are in receipt of one of the benefits.

All island community local authorities see a reduction in fuel poverty under the proposed new definition compared to the current definition, and these reductions are larger than the overall Scotland reduction from 27% under the current definition to 24% under the new definition before the remote rural, remote small town and island areas uplift is applied. This is the effect of an income threshold based on the UK Minimum Income Standard (MIS), which removes higher income households from the definition, even if they would need to spend 10% or more of their net household income after housing costs on required fuel costs. However, the income threshold is considerably higher, for most household types, than the standard 60% of median income used to define relative income poverty.

The extent of the reduction is expected to be offset, somewhat, by the proposal to uplift the UK MIS to reflect the higher costs of living in remote rural, remote small town and island areas. Table 2 shows that when this uplift is applied, and amounts received in disability or care benefits are deducted at part B (as agreed at the end of stage 2), the fuel poverty rate across Scotland is 26%. All island community local authorities with the exception of North Ayrshire (the majority of which is mainland), show greater levels of fuel poverty through the use of an uplift for remote rural, remote small towns and island areas, than under the current definition

In addition to amending the Fuel Poverty Bill at Stage 2 to take into account the higher costs of living in remote rural, remote small town and island communities, work is also underway to improve the way in which local weather conditions are taken into account. The use of more localised weather data in the technical calculation will ensure that the more exposed conditions that island communities are typically subjected to are properly reflected in the measurement of fuel poverty. The proposed new fuel poverty definition and remote rural, remote small town and island area uplift, with a specific uplift for island areas, supports the Scottish Government's ambition of helping those who need it the most to maintain an acceptable standard of living, aligning the fuel poverty definition more closely with relative income poverty in the process.

The financial implications of the proposed new remote rural, remote small town and island MIS have been estimated, with an indicative cost for an 8 year cycle (defined by how often extensive primary research must take place) of between £200,000 - £240,000. It is estimated that the initial set up costs for the remote rural, remote small town and island communities MIS is likely to be around £125,000 with a further £125,000 over the remainder of the 8 year cycle. The final costs will depend on a procurement process. These initial set up costs will be absorbed by the Scottish Government 2020 - 2021 budget in order to ensure that the fuel poverty definition will continue to reflect actual costs experienced on the islands of Scotland and so allow a realistic measurement of fuel poverty and extreme fuel poverty across Scotland throughout the years leading up to our 2040 and no more than 5% of Scottish households being in fuel poverty target and no more than 1% being in extreme fuel poverty.

Mitigation Actions

Action 5: The Scottish Government will create a remote rural, remote small town and island Minimum Income Standard uplift, with the uplift for island areas to be determined separately. This, taken alongside modelled estimates of energy consumption and fuel bills that already take account of geographical variances in fuel costs and weather conditions (soon to be down to postcode district level to reflect more localised weather patterns), will ensure that the new definition is tailored to island communities' lived experience and will provide an accurate view of fuel poverty in these communities.

Definition: Enhanced Heating Regime.

The Fuel Poverty Bill defines the requisite temperatures for rooms in a home as well as the requisite number of hours that these temperatures should be maintained for a healthy indoor living environment that reduces the risk of condensation, mould growth and damp. There are two separate regimes specified - one for all households and one for households in Scotland where enhanced heating is appropriate.

The requisite temperatures for those where enhanced heating is not appropriate are 21 degrees Celsius for the living room and 18 degrees Celsius for any other room. Where enhanced heating is appropriate, the living room temperature is 23 degrees Celsius and 20 degrees Celsius for any other room. The requisite number of hours for those households where the enhanced regime is not appropriate is 9 hours on a weekday and 16 hours a day during the weekend. The other room temperature for the enhanced heating regime has been increased from 18 degrees Celsius to 20 degrees Celsius compared to the current definition while the living room temperature has been maintained at 23 degrees Celsius, thus removing the potentially harmful impact of a 5 degree Celsius temperature difference between different rooms in the home. For households where enhanced heating is appropriate, the requisite number of hours is 16 hours a day, every day.

This criteria is then used to calculate the costs of maintaining these heating levels, bearing in mind monthly average external temperatures for the geographical region of the dwelling and this is used to identify those in fuel poverty and/or extreme fuel poverty.

The Scottish Government has proposed categories of households where enhanced heating will be used in the calculation of fuel poverty through secondary legislation. The draft Fuel Poverty Strategy sets out our initial proposals but recognises that there is further work to be done.

The initial proposal to identify such households was to use a two-fold approach;

• Firstly to include households where a member of the household has self-reported as having a physical or mental health condition or illness lasting, or expected to last 12 months or more, no matter what their age. This self-reported information is already gathered through the Scottish Housing Condition Survey.
• Secondly, if there is one or more individuals living there who are over the age of 75.

The independent panel that reviewed the fuel poverty definition suggested that the threshold should be between 75 and 80 years old. We consider that the lower age of this range is most appropriate so that for older households, where a person has no long-term ill health or disability, we will not deem them as needing enhanced heating until the age of 75. There is further work ongoing on the 'self-reported health' criteria to see if it can be refined in order to better capture those who are likely to be most affected by the adverse outcomes of living in a colder home. This is being undertaken with the Fuel Poverty Advisory Panel and other relevant stakeholders, including island communities.

In some of the ICIA stakeholder meetings, it was mentioned that the way that homes are used in remote rural and island communities can differ from the mainland. Under occupancy is a significant factor on the islands. Published local authority data shows that under occupation rates (i.e. the minimum bedroom standard is exceeded by 2 or more bedrooms) are significantly higher for island authorities than Scotland as a whole. Stakeholders stated that the enhanced heating regime must take into account those homes that are only partially lived in, having had some sections either closed down as they have fallen into disrepair, or not heated as they are not needed. It was also mentioned that Energy Care measures on 'affordable warmth' (area of home used) could be set at local island levels.

However, the modelling undertaken for either heating regime assumes the whole house is used i.e. the calculation is based on the costs required to heat the full property to the required level. If a householder is only partially heating a home, or only living in a section of it, then this may be a symptom of fuel poverty, and so should not be taken into account in the measurement of it.

Stakeholders, including island stakeholders, have shared concerns over the proposed raising of the enhanced heating threshold age from 60 to 75. Island community feedback from previous consultations suggest some think that the age increase is too high, others believe having an age is arbitrary and may well have an adverse impact on rural and island areas where the percentage of the elderly is higher. The Fuel Poverty Definition Independent Review Panel in their 2017 report state:-

"…in the context of an increasingly healthy and active older population, it could be argued that age per se is not a particularly useful criterion for classifying people as vulnerable to cold-related health impacts. In the absence of any long-term ill health or disability, the Panel took the view that age should not become a proxy for vulnerability, until a much older age than is presently used as a threshold in Scotland (which is 60 years). A threshold nearer 75 - 80 years might be more appropriate…."

In practice, analysis of 2015 data indicates that 60% of households in Scotland with any adults aged between 60 and 75 inclusive will still be classed as needing the enhanced heating regime because of health issues or because they also contain another adult aged 75 or over. The impact, therefore, will be very much along the lines of that proposed by the expert panel, which is to avoid classifying those people who are aged 60 and over and fit and well from the definition. Overall, based upon the definition above, current modelling indicates that around 80% of households classified as needing an enhanced heating regime under the existing definition will remain so under the new definition.

The requisite temperatures for rooms in a home as well as the number of hours at which these temperatures should be maintained for a healthy indoor living environment for all households in Scotland apply equally across all households nationally. We have not seen any evidence to suggest that this will have a differential impact on island communities therefore no additional actions are required at this time. However, at the ICIA Stakeholders meetings, concerns were raised over some homes' ability to reach requisite temperatures on the islands and the lack of recognition of wind chill impacts when calculating cold weather payments. Our modelling of energy consumption does take into account local weather conditions, including wind chill factors and we are improving this further by moving from regional weather to postcode district weather.

It has been pointed out by some island stakeholders that there may be an unintended and disproportionate impact on island and rural community pensioners who own their own homes outright, of the introduction of the higher age threshold for enhanced heating combined with the use of the after housing costs calculation in the MIS as part of the new fuel poverty definition.

HIHAAW, the Scottish Islands Federation and North Ayrshire Council all report this concern. The Scottish Islands Federation in their submission for the Fuel Poverty Strategy consultation state:-

"…we are concerned that the reduced emphasis on older households (resulting from the combination of using AHC, MIS and an increased threshold of 75 years of age) may have unintended and disproportionate impacts on island and rural communities…..It is not so unusual for elderly islanders on low incomes to own hard to heat homes in locations exposed to very inclement weather."

The Scottish Housing Condition Survey (SHCS) 2015 - 2017 confirms that the percentage of islanders who own their own homes outright is higher across the island local authority catchment areas compared to Scotland as a whole. There is no data available to us to indicate levels of home ownership (mortgage free) for those islanders whose homes fall under local authority areas which include islands as well as the mainland (North Ayrshire, Argyll and Bute and the Highlands), however table 3 below shows that percentage for island local authority areas.

Table 3: Percentage of islanders who own their homes outright compared to the Scottish average, 2015-2017

Local Authority	% of population who own their homes outright
Na h-Eileanan Siar	57%
Orkney	53%
Shetland	40%
Scotland	33%

The above data combined with the slightly higher median age of the island householder indicates that there may be more islanders of a pensionable age who own their own homes outright in comparison with the Scottish average. It follows that these islanders who have no mortgage or rent to pay may have more net income after housing costs have been deducted and therefore, under the new fuel poverty definition, may not qualify as fuel poor due to having funds above the defined level of an acceptable standard of living. However, the remote rural, remote small town and island MIS will mitigate this, to some extent, as the uplift will vary according to working age households without children, pensioner households and families. This being the case, the threshold will take account of specific costs of living for island pensioners.

Owner occupiers and private landlords in Argyll and Bute or the Western Isles can take advantage of the Scottish Government's Home Energy Efficiency Programmes for Scotland (HEEPS) Equity Loan pilot programme. This is designed to help with the costs of energy improvement and repairs to properties. The HEEPS Equity loan allows the home owner or landlord to borrow money against the value of the property, which is paid back when the property is sold or when the last applicant passes away.^[5] This pilot project has been particularly well received on Na h-Eileanan Siar.

This outcome supports the Scottish Government's ambition of helping those who need it the most to maintain an acceptable standard of living, thereby aligning the fuel poverty definition more closely with income poverty.

Mitigation Actions

Action 6: We will seek views from all island local authorities before the end of this summer as we prepare the regulations for the enhanced heating regime.

Action 7: We will work with the 6 island local authorities to develop the learning from the HEEPS Equity Loan pilot on Comhairle Nan Eilean Siar and consider how that can be expanded to ensure that help is available to those who need it.