1. Getting the measure of fuel poverty Final Report of the Fuel Poverty Review Professor John Hills Birmingham 2 July 2012

2. SLIDE 2 - Unequal ability to convert cash to warmth - Pushed into poverty by high costs - Poor pay more Poverty -High rate of EWDs and morbidity issues in general - Mental health and social well-being - Social isolation Health -Capital investments out of reach for some - Potential obstacle to carbon mitigation policy delivery, especially where costs go on bills Carbon / Energy Perspectives on fuel poverty

3. SLIDE 3PERSPECTIVES ON FUEL POVERTY Warm Homes and Energy Conservation Act 2000 “A person is to be regarded as living “in fuel poverty” if he is a member of a household living on a lower income in a home which cannot be kept warm at reasonable cost.” Is this what we currently measure?

4. Current definition A fuel poor household is one that would need to spend more than 10% of its income on adequate warmth. SLIDE 4 The current indicator

5. SLIDE 5THE CURRENT INDICATOR The current definition captures some people who you wouldn’t expect to be fuel poor ….

6. SLIDE 6THE CURRENT INDICATOR Strengths Needs-basedSensitive to three key drivers - Modelled assessment- Income - Doesn’t count being cold as success- Energy efficiency - Prices Weaknesses Fixed thresholdOver-sensitive - No clear rationale- Is unduly dominated by prices - No longer current- Technical issues also have big - Shows tail of distribution impact (e.g. reporting of low incomes and temperature Ratio standards) -Numerator / denominator problem Unreliable - Misreports trends - Distorts policy choices

7. G Low income and high costs indicator SLIDE 7 Low income high costs, including a fuel poverty gap Our analysis suggests we want something that is focused on needs, that measures income after housing costs, that reflects the relative nature of costs, that focuses on the overlap set out in WHECA and that measures the depth of the problem. Our indicator in Plain English Under this indicator, a fuel poor household is one that : - faces higher than typical costs; and - were it to spend that amount, would fall below the poverty line

8. SLIDE 8LOW INCOME AND HIGH COSTS INDICATOR The broad concept

9. SLIDE 9LOW INCOME AND HIGH COSTS INDICATOR The more detailed concept Fuel poverty gap We are consulting on how to set the thresholds.

10. Using the fuel poverty gap The fuel poverty gap can provide a bridge between targeting and the measurement of fuel poverty. Importantly, the fuel poverty gap also helps identify those who are deepest in fuel poverty who are priorities for assistance - the current definition encourages concentration on those who are closest to the line. SLIDE 10APPLICATIONS: IDENTIFYING PRIORITIES

11. SLIDE 11 Fuel poverty under twin indicators, 1996-2009 Under the LIHC indicator, the number of fuel poor households has remained broadly stable over this period. The fuel poverty gap increased by three- quarters between 2003 and 2009. The latest figures for 2010 show an unchanged fuel poverty gap of £1.1 billion (the current measure fell that year). SLIDE 11THE STATE OF PLAY

12. SLIDE 12 Applications: Understanding policy Principles The impact of a given policy on fuel poverty will depend on three factors: 1.The type of policy (i.e. whether it addresses energy efficiency, income or prices) 2.Who pays for the policy (i.e. customers or taxpayers) 3.Who benefits (i.e. fuel poor households or all households) ≈ Warm Front ≈ CERT ≈ Winter Fuel Payments

13. Taxpayer-fundedConsumer-funded SLIDE 13HOW RESOURCES ARE CURRENTLY DIRECTED Existing climate and energy package Current policy spans the three key drivers of fuel poverty. The picture is changing between 2009 and 2016 as shown. Deputy Prime Minister has recently announced that part of the ECO ‘carbon saving’ will go to ‘community energy saving’. 20092016 (2009 prices)

14. SLIDE 14 Applications: Projecting fuel poverty LIHC indicator and fuel poverty gap Our projections show an increase under both indicators by 2016 – but one that is lower than it would be in the absence of policies. On our central projection, the fuel poverty gap is more than 50% higher in 2016 than in 2009 and nearly three times what it was in 2003. This is 10% lower (but only 10% lower) than it would be in the absence of policies.

15. Comparing indicators Compared to the official indicator, the LIHC indicator is much more stable in the number of households affected and less unduly sensitive to fuel price assumptions. SLIDE 15PROJECTIONS OF FUEL POVERTY The fuel poverty gap (as shown previously) is sensitive to price changes as the current indicator. This seems appropriate. The main impact of sharp price rises is to deepen fuel poverty rather than make the core problem much more widespread.

16. SLIDE 16 Applications: Making further progress Modelling We spend £500 million on each stylised policy in 2016. These were scenarios with standardised inputs to allow comparison of effects against key indicators. Kinds of policy we examined - Bill rebate* - Narrowly-targeted energy efficiency policy* - Broadly-targeted energy efficiency policy* - Increase in means-tested benefits - Increase in Winter Fuel Payment * For these policies we modelled both Exchequer- and supplier-funded variants. The variants differ widely, not just in terms of funding source.

17. Results - eligibility by household status SLIDE 17MAKING FURTHER PROGRESS Narrowly targeted supplier-funded energy efficiency archetype Broadly targeted supplier-funded energy efficiency archetype Energy bill rebate Winter Fuel Payments This is analogous in some ways to ECO carbon. This is analogous in some ways to ECO affordable warmth.

18. Results – carbon emissions and cost benefit analysis SLIDE 18MAKING FURTHER PROGRESS Our analysis shows that that narrowly targeted energy efficiency policies have the biggest life-time effect on fuel poverty gaps. In the short term, rebates can make a difference. But these only have one-off value. The results also show that energy efficiency policies have the best impact on carbon emissions. Bill support leads to increased emissions. The highest net social returns come from narrowly targeted energy efficiency policies when allowing for the lower incomes of those who benefit (‘equity weighting’). Even without such weighting, all energy efficiency policies provide a very significant return on investment.

19. Conclusion SLIDE 19 move away from 10 per cent indicator adopt a new Low Income High Costs indicator and fuel poverty gap for measuring fuel poverty use these indicators for operational target setting with a focus on the fuel poverty gap set out a renewed and ambitious strategy for tackling fuel poverty We also make a number of technical recommendations. Recommendations Alongside certain technical changes, Government should: 1. Is fuel poverty distinct from general poverty? 2. What does this imply for measurement? 3. How can measurement help effective policy-making? Yes – it is a serious problem and appears set to rise The current indicator is flawed. It would be better to focus directly on the overlap of having both low income and high costs and to separate the measurement of extent and depth. The LIHC indicator provides a framework for analysis. It flags priorities for action, opens up tools for targeting and highlights risks and trade-offs. Fulfilling our ToR