Lived experience of fuel poverty: research

5. Paying for fuel

5.1 Introduction

Of the four main drivers of fuel poverty recognised by the Scottish Government, two are explicitly finance-related: energy prices and income. This chapter therefore focusses on the financial aspects of the lived experience of fuel poverty. It starts by describing the extent to which participants were coping or struggling with the cost of heating their homes, before exploring the different methods used to pay for energy and the extent to which these methods had an impact on the affordability of home heating.

5.2 Affordability of home heating

As noted in the introduction, fuel poverty is not equivalent to income poverty. A sizeable proportion of households classed as fuel poor are not income poor (31% in 2018^[22]). However, findings from the 2018 SHCS shows that fuel poverty does have an association with income and households in the lower income bands have the highest rates of fuel poverty: 95% for the bottom income band (less than £200 per week) and 55% for the 2^nd bottom band (between £200 and £300 per week)^[23] Participants in this research were also largely in the lower income bands: half were in the lowest income band (less than £200 per week) and almost all of the remaining half were in the 2^nd bottom band (between £200 and £300 per week).

Nonetheless, most reported living comfortably on their income, both at the time they took part in the SHCS and when participating in this research. This was true of those who were classed as being in fuel poverty as well as extreme fuel poverty and true of those in the lowest income bands. This sections seeks to explore the potential reasons underlying this apparent disparity between income and fuel poverty, by examining participants’ views on affordability of their home heating.

Most participants said their fuel bills were expensive but “manageable”, meaning they could cover their costs using their own income. A few said they rarely or never worried about covering their fuel or other household bills. Even those who said they were managing financially nonetheless noted the importance of budgeting carefully in order to make sure they could cover the cost of fuel and other household bills, particularly against a backdrop of perceived increases in energy prices and cost of living:

“We are] probably just the same as everybody, [budgeting] is just one of the things you have to do. We know how much money is available…and we work with what we have.”

Jim, 35+ no children, Private renter, Other urban/non-remote rural, FP

However, those who reported difficult financial circumstances often struggled to pay their household bills including fuel costs. This included participants in households categorised as being in fuel poverty and those categorised as being in extreme fuel poverty. Across both these groups, participants struggling the most tended to be in lower income households, often not in employment, and dependent on benefits or pensions. As well as low incomes and a general rise in cost of living, most of these participants also attributed their financial difficulties to the price of fuel bills, which were considered high but unavoidable.

“It’s always difficult when you're on benefits, because you're on £72 a week and you're probably spending £30 of that during the winter on gas and electric”

Darren, 35+ no children, Social renter, Other urban/non-remote rural, FP and EHR

The cost of energy was considered high in general, but there was specific and repeated reference to the cost of electricity and oil among those relying on these types of fuel as their primary source of home heating. Electricity costs were also a concern for those using gas as their main heating source, with those in underheated homes citing the cost of electricity as a reason for not using portable electrical heaters as a secondary heating source. Further, as noted in section 4.2 Heating systems, users of oil in remote rural locations were limited in terms of their choice of suppliers; a factor which they felt contributed to higher fuel prices.

Fuel prices were seen as being dictated by energy companies and therefore beyond the control of consumers. As discussed in section 3.3 Use of heating, some participants limited their use of heating in order to keep energy bills down, particularly those on lower incomes and who said they were struggling financially. However, this was not always an option for those with chronic health conditions and young children, who stressed the need to maintain a comfortable level of heating for health reasons.

While fuel prices were considered high, heating was viewed as an essential aspect of health and wellbeing, meaning that two main strategies were used in order to make sure that homes remained adequately heated.

Firstly, energy bills (related to both heating and electricity) were often prioritised over other expenses along with rent or mortgage and council tax. Those who were struggling financially gave examples of having to make sacrifices such as restricting other expenditure, including cutting back on food and other household essentials, in order to cover their energy bills. These sacrifices were often viewed as difficult, but unavoidable.

“[Most] important is our heating, gas and electricity, phone and food… but the cost of living has gone up so much, so I have had to cut down on certain things.”

Isabel, 35+ no children, Social renter, Other urban/non-remote rural,

FP and EHR

“Rent, council tax, gas and electric [are my] priorities. There is only so much you can cut back on…and you have to eat to live. So then you just have that worry and stress at the end of the month, because it's all direct debits still to come off.”

Kimberley, Family with children 5 and under, Social renter, Large urban,

FP and EHR

“Probably the biggest cost we have got is keeping the house warm really in the winter anyway. In the summer it doesn’t bother us because all through the summer months we don't have any heating at all in the house, nothing at all. [In winter] the cost does worry us but, you know, you have to prioritise heating the house before you do anything else really.”

Louise, 35+ no children, Owner occupier, Remote rural, EFP

Prioritisation of expenses was further illustrated when participants were presented with the hypothetical scenario of a £10 per week reduction on their fuel bill. While participants were mostly sceptical this would ever happen, in some cases they felt it would allow them to spend more on the things they had cut back on including food, clothing, or socialising with family and friends.

Secondly, when faced with household bills they could not afford, those struggling financially had occasionally got into debt by borrowing money from friends and family or by using their overdrafts to cover their outgoings.

“You are literally living month to month and it's hard, and the last week [of the month] you're having to borrow money...so by the time you get paid you owe it back, it's a constant cycle.”

Jane, Family with children 5 and under, Social renter,

Other urban/non-remote rural, EFP and EHR

“I've got £5 in the electricity meter and I don't have money to top up, that's how bad it is. So, by tonight that will be at nothing and I will need to go and beg money off somebody to top it up.”

Andrew, 35+ no children, Social renter, Large urban, FP and EHR

The strategies outlined above demonstrate a lack of financial resilience, particularly among those on the lowest incomes, which has been noted in previous research identified in the Evidence Review. This was further illustrated when participants were presented with the hypothetical scenario of an unexpected fuel bill of £50. Those struggling to cover their bills said they would be unable to pay this amount and, again, would either have to cut back on essential items like food or borrow money in order to do so.

“Once I got my benefit I could probably manage maybe £40, that would leave a tenner shortfall…so I would just need to cut back on a few other things, like food shopping”.

Stuart, 35+ no children, Private renter, Other urban/non-remote rural,

EFP and EHR

“[I would get] a loan off my family or something like that. I budget literally to a tee. What I get is what goes out. I don't have any spare money at all.”

Jane, Family with children 5 and under, Social renter, Other urban/non-remote rural, EFP and EHR

Often those in the most vulnerable financial situations were already in receipt of support from the government towards the cost of heating their homes. Recipients of benefits such as the Warm Home Discount Scheme, Winter Fuel Payment and Cold Weather Payment placed a great deal of value on these forms of support. These benefits were seen as particularly important among those in lower income households in receipt of pensions or benefits, who commonly said they would otherwise be unable to afford their heating bills. Further reflections on the process of receiving these types of financial support is provided in section 7.3 Sources of information and support.

Among those who were managing financially, it was common for participants to view their situations as comparatively better than others, considering themselves fortunate to have homes and access to support networks when needed. However, for those struggling financially there were indications that the cost of heating had negative emotional impacts, including feelings of stress, worry and anxiety. For those already worried about being able to afford to pay for heating, the presumption that energy prices would increase each year led to even stronger feelings of uncertainty and concern.

“The price of heating and the price of everything [worries me], it's not easy living on a pension… because you've got to eat, you've got to eat and have heat and live.”

Anna, 35+ no children, Owner, Other urban/non-remote rural, FP and EHR

"It shouldn't be a luxury in this day and age to be warm…August and April come and everybody seems to increase the prices so you dread it, you dread the next increase."

Kimberley, Family with children 5 and under, Social renter, Large urban,

FP and EHR

5.3 Methods used to pay for heating

As well as the cost of fuel, affordability of heating was also linked to the methods of payment. This section outlines the different methods of payment used, and the perceived advantages and disadvantages of the most commonly used approaches.

5.3.1 Types of payment used

Participants were generally satisfied with the way they paid for heating and were typically using methods they felt best suited their individual circumstances. A range of different methods were used, with the two most common being monthly direct debit for a fixed amount and prepayment meters using a top-up key or card. Other, less commonly used, approaches were payment on receipt of bills, prepayment online or via an app, or through a prepayment card topped up at Paypoints or Post Offices.

Users of solid fuel generally purchased this directly from local suppliers and often stockpiled over the summer in order to ensure they had enough to last through colder winter months. Those with oil central heating either paid by direct debit or paid at specific times of the year (e.g. twice per year) when they were getting their oil tank refilled.

Non-direct debit methods of payment were more prevalent among those in extreme fuel poverty – those in extreme fuel poverty tended to pay by prepayment, on receipt of bills, or by purchasing solid fuel or oil, whereas those who were in (not extreme) fuel poverty were typically using monthly direct debit.

5.3.2 Attitudes towards direct debit

For those paying by monthly direct debit, the regular nature of payments provided a sense of predictability, allowing bill payers to plan ahead as they knew in advance what the cost was going to be each month. The ability to budget monthly was particularly suitable for those who received monthly income, allowing fuel bills to be budgeted as part of regularly monthly outgoings. The automatic nature of direct debits was also considered less hassle than paying bills manually and therefore easier to manage:

“I resisted direct debit for a long time, I [used to] pay them when they sent me bills. The trouble was I'm not prompt at attending to my mail, and it can pile up … so I started paying by direct debit to make life easier…it's less postage, it's less envelopes to open, it's easy.”

Patrick, 35+ no children, Owner, Other urban/non-remote rural, FP

Another perceived advantage of direct debits was the ability to build up credit during summer months, which could be used to make winter fuel bills more manageable. Indeed, one participant who was struggling financially had become reliant on the credit on her account to cover the cost of fuel bills over the winter.

Those on direct debit tended to feel it was the most affordable approach, noting discounts for paying by direct debit monthly. It was viewed particularly favourably in comparison with prepayment, with those who had switched to direct debit feeling they had saved money doing so. Direct debit arrangements were also considered a more flexible approach than prepayment, as they allowed customers to negotiate a payment plan with suppliers if bills became unmanageable, whereas there was a perception that this would not be available on prepayment.

“We always make sure we have enough. That's why we pay it [by direct debit] we haven't got one of these silly ones that you put money in, and then people run out of money and have never got any electricity.”

Isabel, 35+ no children, Social renter, Other urban/non-remote rural,

FP and EHR

“I was on the [prepayment] meter…but they were charging more for having that. I’d be in an absolute panic, on emergency [credit] and not have the money to put in. So I went back onto direct debit, because then they're not allowed to leave you without [power].”

Catherine, 35+ no children, Social renter, Large urban, FP and EHR

5.3.3 Attitudes towards prepayment

Prepayment was more prevalent among certain groups, including those in extreme fuel poverty and those in households which fall within a group with higher rates of fuel poverty under the new definition including social private renters, low income households, and households with at least one member aged 65 or over.

As with direct debit users, prepayment users were also satisfied with their method of paying for heating. The main perceived advantage of prepayment was that it provided a sense of control, allowing users to decide how much money to put into their account and to manage their use of energy accordingly. Much of the positive sentiment towards prepayment was linked to negative perceptions of direct debit, which was by contrast seen as a loss of control over their finances:

“You pay what you use and you don't get stung by a big bill at the end of the month or the end of the quarter. Apparently, it's a bit higher, but…people can monitor better what they are actually spending. You've got more control of your bills that way.”

Darren, 35+ no children, Social renter, Other urban/non-remote rural, FP and EHR

“I prefer to know what I'm paying, I know it's going to be about the same amount. I don't feel comfortable with direct debit, I'm just scared in case an unexpected amount or something comes out.”

Jane, Family with children 5 and under, Social renter,

Other urban/non-remote rural, EFP and EHR

A few participants made reference to the inconvenience of having to physically make trips to top-up prepayment keys or cards, with one participant living in a remote rural location occasionally relying on friends and family members to do this for them due to mobility issues. However, this was not viewed as particularly problematic or concerning.

While users of prepayment meters preferred it over other approaches, issues associated with affordability still arose. At times they ran out of money on their meter and had to use emergency credit or had to limit their gas or electricity use until they could afford to top up. For example, one participant noted that she would occasionally stop her son from playing his X-Box to save on electricity when she had limited credit remaining. However, even when it was noted that prepayment can be more expensive than direct debit, participants still preferred to remain on prepayment due to negative perceptions of direct debit.

5.3.4 Views on switching payment method

There was little appetite for switching to direct debit from other payment methods. When discussing the relative advantages and disadvantages of the methods available, a number of barriers to encouraging people to moving to direct debit became apparent.

The perceived lack of control over direct debit was a particularly strong barrier to switching. As noted above, those not using direct debits were concerned that energy companies could take more money than they were owed, and do so without notice, thereby leaving participants potentially out of pocket or overdrawn. Prepayment users felt that paying as you go, by contrast, allowed individuals to decide how much they spent rather than the energy suppliers:

“No, I wouldn't entertain [switching to direct debit]…if I get direct debit I'm not going to see what’s going on. It's just me in here, I can see what’s going on and I'm the controller…I know what I'm doing.”

Gayle, 35+ no children, Social renter, Large urban, EFP and EHR

The perceived “fixed” nature of monthly direct debits was also off-putting. One self-employed participant had a variable and unpredictable income, and therefore felt she couldn’t commit to a monthly direct debit as she could not guarantee that she would have enough money every month to cover it. She preferred instead to be billed quarterly for what she used and have more time between bills to plan ahead.

There was also a general sense of mistrust around direct debit offers, with concern that the initial lower payments would end up increasing to much higher amounts over time. This was perceived to be a common issue, with those not on direct debit having heard of this type of experience from friends or family and therefore citing it as one of the reasons for not switching.

While the dominant view among those on prepayment was a reluctance to move to direct debit, there was some interest in switching as a more convenient and potentially cheaper means of paying for heat. In these cases, participants had not switched because they were not clear on how to or had simply not gotten around it.

5.4 Summary of differences between groups

5.4.1 Fuel poverty vs extreme fuel poverty

In terms of managing financially, there was no clear distinction between those categorised as in fuel poverty and those categorised as in extreme fuel poverty. Within each of these two groups, there was a mix of participants saying they were comfortably covering their heating costs, those saying they were expensive but manageable, and those who were struggling. Though it should be acknowledged that this is reported behaviour and some may be underplaying the extent to which they are struggling financially. Some of the most extreme cases (e.g. those who had made sacrifices to cover heating bills and were stressed and worried about heating costs) were classed as fuel poor rather than extremely fuel poor.

However, those categorised as in extreme fuel poverty tended to pay for heating using prepayment (mirroring findings from the 2018 SHCS), on receipt of bills, or by purchasing solid fuel or oil. Those who were in (not extreme) fuel poverty, on the other hand, were typically using monthly direct debit. This would suggest that groups categorised as being in extreme fuel poverty were not benefitting from discounts on fuel prices typically offered to those on direct debit.

5.4.2 Households to which an Enhanced Heating Regime applied

Difficulty covering household bills and concerns about the cost of heating were more apparent among participants in households to which an EHR applied, specifically those with chronic health conditions and those aged 75 and over. This may, in part, be a result of higher levels of heating need among these groups, due to health conditions or longer periods of time being spent at home. Financial concerns may also be linked to lower levels of household income for these groups, particularly those dependent on pensions and benefits.

5.4.3 Those with high levels of fuel poverty under the new definition

Difficult financial circumstances were particularly notable in lower income households, including those in receipt of benefits and those in receipt of pensions. Benefits such as the Warm Home Discount Scheme, Winter Fuel Payment and Cold Weather Payment were seen as particularly important among those in lower income households in receipt of pensions or benefits, who commonly said they would otherwise be unable to afford their heating bills

People’s ability to cope very much depended on income levels (as mentioned in the Evidence Review) with a few relying on help from friends and family for either food or other household expenses.

In terms of methods of payment, prepayment was prevalent among those living in households that were in one of the groups with higher levels of fuel poverty, including social renters, low income households, and those aged 65 and over.