A Scotland without fuel poverty is a fairer Scotland: report

1. Introduction

1.1 The Scottish Fuel Poverty Strategic Working Group

1.1.1 Aims

The Scottish Fuel Poverty Strategic Working Group ( SWG) is an independent, short-life group set up by the Scottish Government in November 2015 to develop a vision for the eradication of fuel poverty in Scotland. The Scottish Government tasked the SWG with producing a report outlining a new fuel poverty strategy including recommendations on targets, scrutiny and delivery, addressing all causes of fuel poverty. The remit notes that particular focus should be given to the new opportunities afforded by the Scottish Government's commitment to the National Infrastructure Priority on energy efficiency in terms of fuel poverty interests; the potential use of new devolved powers under the Scotland Act 2016 to alleviate fuel poverty; and consideration of the assumptions underpinning the current definition of fuel poverty (see appendix 1). The SWG approached its work from a social justice perspective, and its recommendations aim to support efforts to create a fairer, more equal Scotland.

The Scottish Government also established a one year Rural Fuel Poverty Task Force with a remit to develop actions to address fuel poverty in rural and remote parts of Scotland. While we have highlighted particular concerns relating to rural fuel poverty in our report, we have left the detailed discussion and recommendations on this issue to the Rural Fuel Poverty Task Force report.

1.1.2 Main findings

This report represents the conclusion of the SWG's work, based on research, stakeholder engagement (see appendix 2), presentations and interviews. The report starts with a brief introduction to fuel poverty in Scotland, and then presents recommendations for a fresh approach based on the following four high-level recommendations:

• The fuel poverty strategy should be firmly based on the principle of social justice and creating a fairer and more equal society.
• The fuel poverty strategy must address all four drivers of fuel poverty: income, energy costs, energy performance, and how energy is used in the home.
• Strong leadership and a joined up approach across several portfolios within national and local government are required to develop and implement the strategy.
• The Scottish Government should review the current definition of fuel poverty and establish a policy objective and monitoring programme that addresses all four causes of fuel poverty.

1.2 Brief overview of fuel poverty in Scotland

1.2.1 Policy context and fuel poverty target

Scottish fuel poverty policy has a legislative basis in the Housing (Scotland) Act 2001 which sets out the definition and requirement for a Fuel Poverty Statement every four years, which describes measures taken and progress made in tackling fuel poverty. The 2002 statement set the following target: "The Scottish Government aims to ensure that by November 2016, so far as is reasonably practicable, people are not living in fuel poverty in Scotland." It is clear to the SWG that this target will be missed, and the Minister for Local Government and Housing has written to the Scottish Parliament confirming this is the case. ^[1]

1.2.2 Fuel poverty drivers and trends

As of 2014, there are 35% or around 845,000 households living in fuel poverty in Scotland, and 9.5% (229,000 households) living in extreme fuel poverty under the current definition ^[2] . This high rate of fuel poverty is largely unchanged since 2009, and has doubled since the Scottish Government's fuel poverty target was set in 2002. It is evident that policy will struggle to eradicate fuel poverty under current circumstances.

There are three officially recognised drivers to fuel poverty: energy prices, household income, and home energy performance. In addition, we believe there is a fourth driver, which is how household energy is used.

The recent dramatic rise in energy prices (average prices were 185% higher in 2013 than in 2003) has had a profound influence on fuel poverty, with improvements in energy efficiency playing an important mitigating role. The rise in energy prices has not been matched by an increase in disposable incomes. As a result, expenditure on household energy in the UK in 2012 was equivalent to 5.1% of household disposable income for the average household, up from 3.3% in 2002 ^[3] .

In 2013, actual expenditure on fuel as a percentage of income in the UK was 10% for the lowest 30% income group, and 2% for the highest 30% income group. ^[4] People on low incomes also often pay a 'poverty premium' for energy services because they lack access to the cheapest tariffs, these being available to those with access to the internet and/or those who can pay by direct debit. ^[5]

The energy efficiency of the housing stock continues to improve, with an average Energy Performance Certificate ^[6] rating of band D (on a scale of A-G with A the most energy efficient) and 41% at band C or above in 2014 (see figure 1). The majority of homes have loft and cavity wall insulation, and there are increasing numbers of more efficient boilers, though rural, off-gas grid properties tend to lag behind. Standards are particularly high in the social housing sector, which has been subject to minimum energy efficiency standards, with 56% at band C or higher in 2014. ^[7]

Figure 1: Trends in Fuel Price, Energy Efficiency and Median Income, 2003/4 - 2014 ( SHCS) ^[8]

Scottish Government analysis has attempted to show the contribution of the three official drivers on changing fuel poverty rates between 2012 and 2013 (see table 1). This shows that fuel price changes alone would have led to a 5.8 percentage point increase in fuel poverty rates had the other two factors remained constant over the year, while household income changes would have reduced fuel poverty by 1.5% and energy efficiency improvements would have led to a 0.4% decrease in the fuel poverty rate (had the other factors remained constant). ^[9]

Table 1: Contribution of three official drivers to fuel poverty rates ( SHCS)

	Fuel Poverty Rate	Step Difference
Fuel Poverty 2012	35.2%
Step 1: Fuel price change	41.0%	5.8%
Step 2: Income change	39.5%	-1.5%
Step 3: Attributed to stock change		-0.4%
Fuel Poverty 2013	39.1%

The interaction of these three drivers results in certain key characteristics of fuel poor households ( SHCS 2014):

Income:

• Single pensioner households have an above average fuel poverty rate of 58%.
• Households in the lower income bands have the highest rates of fuel poverty.
• The fuel poverty rate in the 15% most deprived areas is 38% compared to 34% in the rest of Scotland.

Energy costs:

• Fuel poverty rates in rural areas are 50% compared with 32% in urban areas. This is due to limited access to mains gas; larger, detached dwellings; and more exposure to wind and weather.
• Fuel poverty rates are highest in electric-heated properties at up to 60%.

Energy performance:

• Better energy efficiency ratings are associated with lower fuel poverty rates: 19% of households living in dwellings rated Energy Performance Certificate EPC) bands B or C are fuel poor, compared with 73% of those in dwellings rated F or G.

No data has been collected on the fourth cause of fuel poverty, how energy is used within the home.

1.2.3 Scottish Government fuel poverty programmes

Scottish Government programmes to eradicate fuel poverty have focused on improving the energy efficiency of houses through providing advice and funding for the installation of improvement measures. These programmes ^[10] have worked with partner organisations to carry out benefits checks with residents and support people in switching to less expensive tariffs.

Scottish Government has made available £113m in 2016/17 for energy efficiency and fuel poverty programmes. This funding is supplemented by the GB energy supplier obligation (Energy Company Obligation - ECO) which has been halved since its start in 2013 from an estimated investment of £1.3bn to a proposed £640m per year for the period 2017-2022 ^[11] . Scotland's share going forward is expected to be approximately £60m per annum - a huge drop from the estimated ECO investment of £170m in 2013/14 ^[12] . In addition, the social housing sector will invest close to £1bn from 2015 to 2020 to meet the Energy Efficiency Standard for Social Housing ^[13] .

1.3 Format and structure of this report

This report is structured around the high-level recommendations set out in section 1.1. For each high level recommendation there is a brief overview of the issues, our detailed recommendations, the rationale for the proposals and a description of how they might work in practice. We have included some cases studies which have particularly inspired us and which illustrate aspects of the proposed approach. The report also includes several appendices with additional information and a list of references which have supported our work.