Keeping the heating on

Reflecting on the latest data on fuel poverty the Bevan Foundation’s Steffan Evans argues that Welsh Government action should be focused on the poorest households.

With a few weeks having now passed since the domestic energy price cap was increased most households across Wales are getting to terms with much higher energy costs. For many, this increase will be an inconvenience, leading to households having to cut back on some discretionary spending but not having a significant impact on their overall living standards. For others, the impact will be devastating, with some forced to cut back on essentials just to cover their energy bills.

The Welsh Government have recently published new modelled estimates of fuel poverty in Wales. The aim of these estimates is to capture how many households will be unable to keep their homes warm at a reasonable cost. The results are highly concerning. The proportion of households living in fuel poverty in Wales could increase from 14% (196,000) to 45% (614,000) as a result of the recent price hike.

With so many households set to be pushed into fuel poverty the task of developing policy solutions feels overwhelming. Understanding how fuel poverty is measured and who lives in fuel poverty gives a clear steer however, as to where any Welsh Government intervention should be targeted.

How is fuel poverty measured and why does it matter?

A household is said to live in fuel poverty in Wales if they are required to spend more than 10% of their income on maintaining a satisfactory heating regime.  A household that spends more than 20% of their income on their heating is said to live in severe fuel poverty.

The Bevan Foundation have long argued that this measure of fuel poverty is a poor one. Under this measure a middle to high income household living in a big, energy inefficient home that is expensive to heat can be deemed to live in fuel poverty even if they have enough money left over to enjoy a comfortable lifestyle once their bills are paid. The recent surge in energy prices is likely to have increased the number of such households deemed to be living in fuel poverty.

A better way to measure fuel poverty would be to look at how much money a household has left to spend on other essentials once they have paid for their energy bills. If paying fuel bills mean that a household will not have enough money to cover the rent, food and other essentials then they are in poverty. It is these households that must be the priority for any policy developed by the Welsh Government to mitigate the effects of the current crisis.

The position for low-income households

The Welsh Government have so far resisted calls to shift its measure of fuel poverty. Even allowing for the shortcomings of the current approach, however, there are insights in its latest fuel poverty estimates that point to which households are in greatest need of assistance to manage rising costs.

The latest fuel estimates show that 98% (217,700) of low-income households are living in fuel poverty. Perhaps of even more concern is that a staggering 41% of low-income households (91,700) are said to live in severe fuel poverty, up from 16% (34,000) prior to the recent price hike.

Low-income households spend a significantly higher percentage of their expenditure on essential items. Spending such a large proportion of their income on energy costs means that most will struggle to cover the costs of other essentials, once they’ve paid their fuel bills. It is these households that face the highest risk of having to chose between “heating and eating”.

Working towards solutions

Rising energy costs will present a challenge to households across the income spectrum in Wales. It is clear, however, that it is low-income households that will feel the impact of rising costs hardest. It is crucial that this is at the forefront of the Welsh Government’s mind when developing solutions to the current crisis both in the short term and the longer term.

To this end the Welsh Government’s decision to target its Winter Fuel Support Scheme at low-income households is a welcome start, with the expansion of the scheme to pensioners in receipt of Pension Credit being a positive development. Two payments of £200 covers a significant proportion of the additional fuel costs faced by low income households. It is imperative however, that much more is done over the summer to ensure that take up is significantly improved when the scheme reopens.

It is crucial that the Welsh Government continues to focus on low-income households when looking at longer term solutions. The Welsh Government has recently closed consultation on its fuel poverty programme, the Warm Homes Programme. Increasing the energy efficiency of homes has a crucial role to play in reducing fuel poverty in the long term. Among the many issues with the previous iteration of the programme was that it was not targeted enough at households on the lowest incomes, with fuel poverty rates falling significantly quicker among high rather than low-income households. It is crucial that such mistakes are not repeated in future. The Welsh Government should therefore not only accelerate its plans to improve the energy efficiency of homes but also ensure that the poorest households benefit first.

Steffan Evans is Head of Policy (Poverty) at the Bevan Foundation