Fuel poverty: UK’s growing challenge – affordable fuel for all?

GCHU Intern and BPhil Philosophy student Michael O’Connor analyses the various indicators of fuel poverty in the UK and the importance of addressing energy vulnerability.

Michael O’Connor

BPhil Philosophy student, University of Oxford

Email: gchu@kellogg.ox.ac.uk

Fuel prices have increased rapidly over the past year, and shivering in a cold room has become normality for many people in the UK during the winter months. In October 2021, former British Prime Minister, Gordon Brown, issued a dire warning, saying that 3.5 million households faced fuel poverty. The prospect of worsening fuel property for many households in the UK during 2022 is now a major social, economic, and political challenge for society. A recent report by the Resolution Foundation warns that the average household energy bill will increase from £1,277 to around £2,000, and that 27% of households in the UK (6.3 million) will spend more than 10% of their income on fuel. In this climate, ‘fuel poverty’ is being used regularly to describe the situation faced by households across the country.

The concept of fuel poverty was first coined in the UK in 1979. The preceding winter had been bitterly cold. An oil shock compounded by strikes meant that fuel was scarce: Many were left shivering in their homes. Two economists, Baron Isherwood and Ruth Hancock, introduced fuel poverty as a term for those ‘for whom the payment of fuel bills raises difficulties’. They operationalised this definition by defining a household as fuel poor if it spent more than twice the median national expenditure on fuel. Distinguished researcher, and campaigner against fuel poverty, Brenda Boardman then argued that a household should be considered fuel poor if it spent more than 10% of its income on fuel.

Several studies used the 10% indicator to demonstrate a strong link between fuel poverty and elements of public health, such as Excess Winter Mortality among the elderly, and with poor mental health. Research has shown that many low-income households spent at least to 30% of their income on fuel, contributing even further to winter mortality in the UK. When the cause of fuel poverty was taken up by the UK government in the late 1990s, the focus was on providing Winter Fuel Payments to pensioners in order to reduce Excess Winter Mortality. In the Warm Homes and Energy Conservation Act (2000) government committed to eliminating fuel poverty by 2016. The issue, however, remains as challenging as ever, and has been described as a current ‘health and social crisis’.

The use of the 10% household income expenditure measure continues to be prevalent as a means to grasp the impact of recent rises in fuel prices in the UK. There are, though, problems with this indicator, which have led to the adoption of other measures by the government, agencies, and research bodies. The first difficulty is that it allows wealthy households to be classified as fuel-poor, since a household living in a large, old house might have high energy bills without suffering from financial deprivation. The second issue is that the 10% indicator fails to account for energy rationing, which is when households are forced to spend less on energy than is required for healthy living, as way of reducing energy bills. The third is that the measure is calculated before housing costs, which means that the calculations are skewed more towards homeowners than renters. The fourth is that the 10% figure does not account for regional variation in fuel costs and energy needs within the UK. It has also been applied to other countries without adjusting for the fact that the figure is based on median fuel expenditure in the UK, with misleading results.

As a result of these challenges, a new definition of fuel poverty was adopted in England and Wales in 2011 following the Hills review, which defined a household as fuel poor if: (i) it has an income less than 60% of the median income for a household of its type (i.e. if it is poor according to the OECD definition), and (ii) has energy needs higher than the median for its household type. This definition seeks to capture the idea that the fuel poor are those who are both poor, and have outsized energy expenditure. This measurement is known as the Low Income High Costs (LIHC) definition of fuel poverty, and helps to identify fuel poor households as those that are pushed into poverty as a result of high fuel costs and low incomes.

The LIHC indicator is better in several respects insofar as it is more closely targeted, and does not rely on a semi-arbitrary threshold that is not based on one used elsewhere (although the 60% figure is itself somewhat arbitrary, it is the recognised definition for poverty). However, it suffers from its own deficiencies. First, in adopting a relative measure of poverty coupled to a relative measure of fuel costs, it makes fuel poverty ineradicable: there will always be fuel poor people according to this measure. With this shift, fuel poverty ceases to be something that can be eradicated. Second, it too fails to account for the phenomenon of fuel rationing. Not just that, it excludes many of those who contribute to Excess Winter Mortality, many of whom are above the 60% poverty line, and so is less useful from a public health perspective in identifying vulnerable populations.

Both the LIHC and 10% indicators identify very different populations as fuel poor. Studies in the UK have found that the geographical distribution of fuel poverty, and the characteristics of those households in fuel poverty differ radically depending on which measure one adopts. Using the 10% indicator, the distribution of fuel poverty is skewed towards homeowners in rural areas, whereas using the LIHC indicator produces a more heterogeneous distribution that includes more urban renters. Other studies have found similar effects in France. Although there are correlations between those who are fuel poor according to these two indicators, the differences are sufficiently large that we ought to be careful in deciding which indicator to use.

The LIHC is not, though, the only alternative to the 10% indicator. Indeed, the UK government adopted a new fuel poverty indicator in 2020, the so-called Low Income Low Energy Efficiency (LILEE) indicator, according to which a household counts as fuel poor if it occupies a property with a fuel poverty energy efficiency rating of band D or below, and spending the amount of money required to heat their home would leave them with an income below the poverty line. This definition is explicitly targeted at identifying those who engage in fuel rationing, or are likely to be doing so, and who are liable to poverty as a result; even if, in doing so, it ignores those who live in relatively efficient homes, but do not keep them at the requisite temperature (and who may also live below the poverty line, or would slip below the poverty line if they were to heat their homes properly). It focuses very narrowly on heating to the exclusion of other non-heating energy uses, such as refrigeration, lighting, hot water, and transport costs. This is a running problem with political rhetoric and policy interventions in the UK, which emphasise heating to the exclusion of other uses of fuel, but this definition at least explicitly embraces the narrow understanding of fuel poverty in a way that the previous two indicators do not.

There are also more subjective indicators of fuel poverty that rely on self-reporting. The European Commission has advocated for a definition based on three self-reported indicators including inability to keep a home adequately warm, arrears in utility bills, and the presence of leaks, damp, or rot. Such subjective indicators are better able to include households which may be rationing fuel use, and thus would not show up on objective indicators. Also more likely to be included are those who are at risk from poor health, which can be closely correlated with fuel poverty, but are affected from all the challenges associated with self-reporting. Several authors thus argue that we should combine subjective indicators with objective ones, rather than focusing only on one aspect, and have proposed a diverse dashboard of indicators for fuel poverty. This is sometimes called the ‘basket of measures’ approach. The advantage of such an approach is that it can allow us to identify different populations at risk in different ways from lack of fuel.

How do we conceptualise fuel poverty, if we adopt a ‘basket of measures’ approach? One way to accommodate the diversity of available indicators is to conceptualise fuel poverty as a matter of multidimensional vulnerability arising from the inability to meet energy needs. This is a useful conceptual umbrella, but it produces a hugely heterogeneous population of ‘fuel poor’ people, ranging from students whose homes are not adequately heated; renters who spend a huge amount on heating their homes, to well-off elderly homeowners who spend a large amount of their money on heating their home, and are more susceptible to winter illnesses such as the flu. A better approach might be to call this umbrella conceptenergy vulnerability’ rather than fuel poverty. Using the basket of indicators, we can disaggregate energy vulnerability into several different categories and identify different populations vulnerable along a particular axis, or along multiple axes. Categories might include: ‘those vulnerable to poverty due to fuel costs’, ‘those with excessively large fuel costs’, and ‘those with poor insulation’.

Which indicator we use will depend on which of these populations we are concerned with. This will depend on what lines of inquiry we are interested in. If we are interested in isolating those who, for whatever reason, find it hard to heat their homes then the 10% measure may be a useful one, perhaps combined with a subjective thermal discomfort measure. A useful tool might also be the ‘Index of Vulnerable Homes’, developed by researchers in Spain to identify homes that are inadequate in terms of the cost of heating and thermal comfort, independent of household income. If we are interested in those who are in poverty due to their fuel costs, we may choose a measure thatdefinesthe fuel poor as those who would not be in poverty if their fuel costs were subtracted. The task now is to identify the indicators that should go into the basket of measures, and to assess energy vulnerable populations, as well as to develop the policy measures needed to tackle specific issues. The project of developing a more expansive range of indicators has begun in Spain, a Spanish context, where fuel poverty is as much about affordable coolness, as affordable warmth.

This approach fragments fuel poverty, but reflects more accurately the range of issues in play; it also takes the concept back to its roots. In Boardman’s original work, the focus was on affordable fuel, where the interest in using income-related indicators, such as the 10% of household expenditure on fuel, is to identify those who cannot afford basic heating, hot water, cooking, or lighting. These minimum factors are crucial for living a decent life in the 21st century; lack of access to these resources can affect health, wellbeing, and day-to-day existence. In this sense, the lack of affordable fuel can be seen as an injustice. Focusing on energy vulnerable households, some of whom are in poverty and some of whom are not, allows us to identify those who are not able to access affordable fuel, no matter the cause. The ultimate aim is to ensure that everyone has access to affordable fuel.

Once we have developed a range of indicators, the question is what we do about energy vulnerability. Boardman identified three sets of levers: household income, fuel prices, and household insulation. Thus far, the focus has largely been on interventions targeted at improving household insulation, although the government also continues to support Winter Fuel Payments. This agenda more recently dovetails with climate concerns, partly due to an economic outlook shaped by fiscal conservatism and austerity. But Boardman herself emphasised this is not enough: fuel regulation and income-based strategies are also crucial. Fuel-side, or income-side interventions could profitably be re-visited, and explored. Energy prices affect all of us; they are an issue that governments have direct leverage over, should they wish to use it. At a time when fuel costs are soaring, and the climate crisis necessitates a reduction in our carbon emissions, energy vulnerability is higher on the agenda than it has been for a long time, and now may the moment to look for solutions that pay attention to the full range of energy vulnerability, and the underlying need to provide affordable fuel for all.