A new definition of fuel poverty in Scotland: review of recent evidence

Chapter 1 The Review: The Panel's scope and remit

The Review: The Panel's scope and remit ^[1]

1.1. Introduction

On 24 October 2016, the Scottish Fuel Poverty Strategic Working Group ( FPSWG) published its report A Scotland Without Fuel Poverty is a Fairer Scotland . This included the recommendation that a review of the current definition of fuel poverty in Scotland should be commissioned in light of concerns that the current definition is too broad and impedes targeting assistance towards those in most need.

The Scottish Government accepted this recommendation and established a Panel of independent experts to conduct a review of the current definition of fuel poverty in use in Scotland, and to make evidence-based recommendations for whether the definition should be retained and, if not, any changes that should be made.

The FPSWG report identified a range of issues which it felt should be considered within the independent review; these were summarised in a Background Brief given to the Panel by the Scottish Government (see Annex A).

1.2. Background

Following the Housing (Scotland) Act 2001 (section 88), the Scottish Fuel Poverty Statement (2002) set out how fuel poverty should be defined: 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 on all household fuel use. While section 95 of the Act indicated that ' a person lives in fuel poverty if that person is a member of a household with a low income living in a home which cannot be kept warm at a reasonable cost', the subsequent Statement made no reference to income levels in setting the definition.

The required energy spend is determined on the basis of a theoretical model ( BREDEM) which estimates energy requirements from the physical characteristics of the dwelling, the heating system, fuel used and certain assumptions about household behaviour. No information on actual energy consumption is used in the definition of fuel poverty. Household income is measured before housing cost and net of tax, Council tax, and national insurance contributions.

To estimate household needs for space heating, two types of heating regimes are used, standard and enhanced. Households where someone is aged 60 or older or suffers from long term illness or disability are considered vulnerable and are assumed to require an enhanced heating regime; maintaining 23°C in their living rooms and 18°C in their bedrooms for 16 hours every day of the week, during the heating season. The energy needs of all other households are assessed under a standard heating regime; where living rooms are heated to 21°C, and bedrooms to 18° for 9 hours during week days and 16 hours during weekends.

Heating regime assumptions and the type of households considered vulnerable differ in some aspects from those adopted in other parts of the UK. There are additional differences, for example in the way the number of residents relative to the size of the dwelling are taken into account, or not, in determining the amount of energy required.

Fuel poverty in Scotland is monitored using data from the Scottish House Condition Survey which does not always contain the full set of information required to implement the definition of fuel poverty. This leads to some simplification in the way fuel poverty is measured in practice. For example, information on income is collected for the highest income earner and their partner only and no additional income recipients in the households are covered. This means that where other household members have earnings or other forms of income, household income is underestimated and the likelihood of fuel poverty is correspondingly overstated ^[2] .

The current definition of fuel poverty has been in use in Scotland for over a decade, during which fuel prices have risen considerably, the thermal efficiency of the housing stock has improved, and lifestyles have undergone change. The high sensitivity of the current definition to changes in price levels has meant that trends in measured fuel poverty have primarily tracked the price of fuel. It has been more difficult to understand the contribution that many types of help can make in reducing the adverse effects of living in cold and damp homes, such as advice and support around energy use or accessing benefits to maximise income. This limits the usefulness of the definition in designing effective policies to tackle the problem of fuel poverty, and in monitoring their impact.

1.3. Defining Fuel Poverty: Current Issues

There are a range of aspects of the current definition of fuel poverty that have been contested and the definition of fuel poverty has been subject to considerable examination and interrogation across the UK. For example, in 2012 an independent review commissioned by the UK Government concluded that the traditional approach to measuring fuel poverty was not fit for purpose and proposed an alternative framework for measuring the extent of the problem ^[3] . In Scotland, the Fuel Poverty Forum commissioned a review of the assumptions underpinning the definition of fuel poverty, but concluded that there was insufficient evidence to make any changes.

The Scottish Government established two short-life expert groups in 2015 to develop a vision and inform action for the eradication of fuel poverty in Scotland, the Scottish Fuel Poverty Strategic Working Group and the Scottish Rural Fuel Poverty Task Force. Both groups published their final reports on 24 October 2016 and highlighted a number of issues with the current definition of fuel poverty. The groups highlighted concerns that the definition is too broad and impedes efforts to target resources on those that need them most. The groups therefore recommended that the definition should be reviewed.

The Strategic Working Group felt that the definition should offer a more transparent link to the desired social outcome(s) and the actual experience of energy use in Scottish homes and reflect current social norms in terms of minimum requirements for an acceptable living standard. In their view, fuel poverty should be seen as a 'manifestation of wider poverty and inequalities in society' and defined within that context. The Group was also very conscious of the policy implications of the definition, highlighting the importance of quantifying the extent of the problem and measuring progress, as well as the ability to target resources towards those in most need.

At the same time the Group also pointed to a number of benefits of the current definition and the risks associated with changing it.

The Group highlighted the importance of understanding fuel poverty in the context of its causes and consequences, and argued for a definition which helps achieve this. Its report concluded that energy use should be seen as a driver of fuel poverty, in addition to those currently recognised, and recommended that this should be reflected in the way fuel poverty is defined.

It also recommended that the review considers international examples of how fuel poverty is defined (including the Hills definition), and argued that potential unintended consequences of any changes to the definition are also considered.

A summary of the SWG's findings and recommendations around the definition of fuel poverty is attached at Annex A.

In that context the Scottish Government has identified the following aims and objectives for the review.

1.4. Aims and Objectives of the Review, as specified by Scottish Government

The overarching aim of the review is to assess whether the current definition of fuel poverty is fit for purpose and adequately reflects the social problem which needs to be tackled. This was expressed in the Housing Act 2001 (Scotland) as that of a 'household with a low income living in a home that cannot be kept warm at reasonable cost' and identified by the Scottish Fuel Poverty Strategic Working Group as inability to achieve 'affordable and attainable warmth and energy use that supports health and wellbeing'.

The review will examine the extent to which the existing definition represents an effective way to: a) measure fuel poverty; and b) guide policy action. The review will recommend changes to the way fuel poverty is defined or measured where the current definition is found to fall short of these requirements.

The SWG report made a number of recommendations for issues the review should address. Based on these, members of the review panel will want to consider the following areas in making recommendations:

• Affordability and reasonable cost of energy use: how can these concepts be best defined and expressed as measurable indicators?
• Outcomes: the SWG report was particularly concerned with the negative impacts of fuel poverty on individual health and wellbeing, there may be a broader range of outcomes that deserve consideration as part of the review.
• Vulnerability: does the current approach continue to be useful and identify the right kind of negative outcomes and the social groups that are most at risk?
• Behaviour: as well as the energy efficiency of the home, the price of domestic fuels and household income, the SWG recommended that the definition should also reflect how people actually use energy at home because, in their view, this should also be seen as a determinant of fuel poverty.
• Income and deprivation: how should the economic resources of households be taken into account when determining the affordability of warmth and energy use?
• Standard of warmth and energy use: under the current 'required spend' approach, fuel poverty is defined and measured against a strictly specified pattern of energy use, should this pattern be revised?
• Monitoring of progress: a key requirement for an effective definition in the policy context is to enable the effective monitoring of progress in tackling fuel poverty as well as to provide a guide to effective and efficient use of resources.
• Relationship between definition and programme delivery: how can the definition of fuel poverty be better aligned with identifying those in most need and provide a better guide for action on the ground?

The review would also consider the consequences of any changes to the definition. It will be for the review panel to determine the contents of any reports it produces and the list of issues should not be viewed as an outline structure for a final report or set of recommendations.

1.5. The Panel's interpretation of the Review's scope and remit

The FPSWG report recommended that 'a new definition [of fuel poverty] should focus on the desired outcome - affordable and attainable warmth and energy use that supports health and wellbeing', and should also 'acknowledge fuel poverty as a manifestation of wider poverty and inequalities in society', while still being 'easy to understand and measure' ^[4] . A further recommendation, if accepted, would commit the Scottish Government to accepting 'a new definition and target with a statutory basis', albeit subject to transitional arrangement ^[5] . The Panel has drawn from the above that the most important criterion in developing a revised definition of fuel poverty should be the identification and avoidance of relevant adverse outcomes. Consequently, we interpreted our primary task as being to:

• select the most important potential adverse outcomes;
• seek robust measures of these outcomes; and
• examine how fuel poverty, defined in different ways, relates to, and impacts upon, them.

Insofar as we have examined new evidence, or have brought existing evidence together in different ways, it is in this spirit of seeking the best way forward in terms of targeting situations where the most important adverse outcomes may be avoided altogether or minimised as much as possible.

These adverse outcomes may be in different arenas, and the multifaceted nature of fuel poverty is partly why it has become a distinct focus for policy attention. We believe it is also why arguments from contrasting perspectives and interest groups can be legitimately considered, even though these would frequently pull any revised definition in different directions.

Clearly fuel poverty relates to energy policy, supply and pricing, as well as to the drive for improved energy efficiency, lower emissions and less pollution. Equally clearly, it relates to poverty, because energy costs currently constitute a significant burden for those on lower income. Fuel costs are difficult to avoid yet, in sharp contrast to housing rents or Council Tax, they are not subject to specific subsidy as is the case with Housing Benefit and the Council Tax Reduction Scheme. This may lead to indirect knock-on effects in areas of financial indebtedness and financial exclusion.

At the same time fuel poverty has an important health and wellbeing dimension, which may particularly affect specific vulnerable groups, but can also affect any individual or household, depending on the level of severity. There are consequences, then, for NHS costs and other areas of public expenditure, as well as for the people and communities directly affected.

The energy efficiency of the housing stock has also been a significant element in housing policies and strategies for minimum standards across different tenures, albeit the mechanisms, opportunities and incentives for improvement vary greatly across these sectors. Among other recognised benefits of alleviating fuel poverty are the significant opportunities alleviation programmes offer for economic development and job creation; the Panel was mindful of the multiple co-benefits of alleviating fuel poverty which are now internationally acknowledged ( IEA, 2014).

The Panel took the view that the fuel poverty definition and associated targets should continue to reflect this diverse set of considerations, while being balanced by a desire for simplicity and comprehensibility. In the FPSWG report (2016) it was argued that ' the [existing] definition is more a measure of fuel efficient homes rather than a measure of fuel poverty as it affects health, [leading to] a predominant focus on energy efficiency measures'. It was also highlighted that [only] '42% of the fuel poor are income poor, while 58% of the fuel poor are not income poor'.

This in turn was linked to the call by the First Minister's Independent Advisor on Poverty and Inequality, Naomi Eisenstadt, in her Shifting the Curve report, for 'future programmes [to] focus more specifically on helping those in fuel poverty who are also in income poverty' (Eisenstadt, 2016).

In discussing the 'vision' for future fuel poverty strategy, the FPSWG report (2016) points out that:

'Fuel poverty, while not exactly a subset of income poverty, is strongly associated with low incomes and will ultimately only be eradicated if Scotland is able to make sustained progress at reducing poverty and inequality in our society'.

This is supported by the FPSWG's very first recommendation that:

'The Scottish Government should place the new fuel poverty strategy firmly within the government's plans to tackle poverty and inequality.'

The Panel took cognisance of the encouragement given in these key passages, which supported our move to rebalance the focus of how fuel poverty is defined. We have tried to give greater emphasis to its interrelationship with poverty and deprivation more generally, while still recognising the multifaceted nature of the issue and the range of relevant policy concerns.