Skip to main content

Historically, the UK has focused on fuel poverty as a measure determining vulnerable energy consumers. Whilst this is important, by fixating on it in isolation we ignore how consumers are often vulnerable in ways outside of fuel poverty.

In England, fuel poverty is measured by the Low Income High Costs (LIHC) indicator, that considers someone as fuel poor if they meet two conditions: they have fuel costs that are above average, and if they were to spend this amount their remaining residual income would be below the ‘poverty line’. This is conveyed in Figure 1. Notably, the official poverty line that is commonly used of households 60% below median income levels is no longer backed by the Government.

Figure 1: Fuel Poverty under the LIHC

Source: DBEIS, “Annual Fuel Poverty Statstics Report, 2018 (2016 Data)”, (2018), 7.

The current Government has a range of policies focused on tackling fuel poverty. Broadly, policies fit into two categories: measure to promote energy efficiency, and to multiple consumer energy prices.The LIHC indicator does have strengths. It is a ‘dual’ indicator as it allows for the measurement of both the ‘extent’ of fuel poverty (the number of fuel poor households) as well as the ‘depth’ (how extreme the fuel poverty of each household is).

First, on energy efficiency measures, the logic is to make people’s usage of energy more efficient so that their required energy costs are lower and thus less of a strain on their overall household finances. The Government’s recent Clean Growth Strategy has a target to get as many houses as ‘practically possible’ upgraded to an Energy Performance Certificate (EPC) rating of band C by 2030. The Energy Company Obligation (ECO) is a scheme to facilitate this by necessitating large gas and electricity suppliers to seek carbon savings in their customer’s homes – and in its latest iteration, 100% of the investment to upgrade houses is now focused on consumers in fuel poverty.

Yet, policy measures to boost energy efficiency measures by the Government fall short. At the current rate of upgrades of houses, the target of having as many upgraded as possible at an EPC rating of Band C will not be completed until 2060 – as estimated in a recent report by the Institute for Public Policy Research. Moreover, a recent parliamentary debate on fuel poverty highlighted how the ECO, despite now being 100% focused on 6.6 million ‘low income and vulnerable households’ of which 2.5 million are considered fuel poor, has had its funding cut by 50% to £640 million since it’s introduction in 2013.

Second, in terms of consumer energy prices, the Government aims to keep prices low, especially for the more vulnerable. The retail energy price cap introduced at the start of this year has two different strands. One applies to consumers on prepayment meters, and this lasts until 2021, whilst the other applies to Standard Variable Tariffs (SVTs), and this changes with energy production costs. Three other policies exist that involve cash payments to consumers seeking to lift them out of fuel poverty by subsidising their energy costs: the Winter Fuel Payment provides pensioners with up to £300; the Warm Home Discount provides low-income households with a £140 rebate off of energy bills (which has now been extended to 2021), and, finally, the Cold Weather Payment is a discretionary sum paid to people on certain benefits and/or receiving Support for Mortgage Interest, which totaled £98 million last year.

Fuel poverty statistics have been collected since 2003, and the last year reported on was 2016. The latest statistics show that the proportion of households in fuel poverty peaked in 2009 at 11.7% of all households in England – or 2.43 million households. The most recent data collected shows this number fell, as a proportion of households in England, to 11.1% in 2016 which translates to roughly 2.5 million households. The total supply of houses increased during this time, so while fuel poverty fell as a proportion of households it increased in absolute terms.

There is obvious intent to tackle fuel poverty by the Government – but the absolute number of households who are considered fuel poor has risen in recent years. Moreover, consumer prices under the energy price cap are set to rise this month this year due to rising wholesale costs, which is likely to cause more households to be pushed into fuel poverty.

Nevertheless, consumer vulnerability in the energy market cannot just be captured using this fuel poverty measure.

Ofgem, through its Consumer Vulnerability Strategy, defines consumer vulnerability as: a situation wherein a consumer is less able to protect or represent their interests in the energy market, and when they are more likely than the typical consumer to suffer detriment. This is an approach that takes into account individual circumstances and market conditions, providing a more expansive idea of the number of at-risk consumers than fuel poverty alone. It includes a number of measures, in which consumers can be included in one or more.

Notably, low income and consumer energy costs are factored into Ofgem’s definition of vulnerability – meaning it does include fuel poverty.

But it goes further through incorporating and measuring more risk factors, including levels of debt, how many consumers have repayment plans, and the number of disconnections and self-disconnections. It also includes all people on the Priority Services Register (PSR), which is a free service provided by suppliers and network operators where people in certain situations, such as being of pensionable age or having certain medical conditions, can register and then become eligible for certain free services.

Between 2013 and 2017, the number of consumers in the UK in debt to energy companies fell for both electricity and gas – from 1.53 to 1.25 million and 1.38 million to 0.99 million respectively. Of these, the number of consumers on repayment plans fell from 1.02 to 0.65 million for electricity and 0.94 to 0.53 million for gas in the same period. The number of disconnections due to debt, that is, energy companies ceasing to supply a customer energy, has also seen large declines – from 2013 to 2017, the number of disconnections fell from 556 to 14 for electricity and 84 to 3 for gas.

Meanwhile, the number of people on the PSR has been growing since it started being recorded in 2006 – most recently up to six million electricity customers and 4.8 million gas customers in 2017, which equates to a rise of 36% and 30% respectively from 2016. This does not necessarily mean more customers are being made vulnerable, but that more are being recorded as vulnerable.

It is worth noting that the numbers of people on the PSR is much higher than the number estimated to be fuel poor; 3.78 million households in England were on the PSR in 2017, compared to an estimated 2.55 million English households being in fuel poverty in the same year.

Though commonly used, fuel poverty is not the only, and certainly not the most extensive, measure of at-risk consumers in the energy market.

William Nicolle is a Researcher at Bright Blue.