1. Background and Approach
On 22 May 2008, Nicola Sturgeon, the Cabinet Secretary for Health and Wellbeing, made a Statement to the Scottish Parliament and published a Review of Fuel Poverty in Scotland 1. In her Statement, she announced the reconvening of the Scottish Fuel Poverty Forum with an independent Chairperson. She asked the Forum to advise the Scottish Government on how it could improve progress towards the target to eradicate fuel poverty as far as is reasonably practicable by 2016, within the available public resources, and report to Ministers with recommendations by the early autumn on the future shape of fuel poverty programmes.
The full remit and membership is provided at Annex A.
In presenting the Review, the Cabinet Secretary wrote: "The Scottish Government is committed to creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth. There is no place for fuel poverty in such a society."
The Forum met a number of times over the summer period, and this report summarises its conclusions on the best way forward for tackling fuel poverty. Evidence from a range of sources was provided to the Forum in the course of its deliberations, and this is available in a separate report.
We were very conscious as we met that the context for our discussions was changing. Further substantial energy price increases of 30% and more were announced during the four months we have been meeting. The obvious potential for these to erode the advances achieved in recent years through the Central Heating programme, Warm Deal and other energy efficiency improvements adds urgency to the challenge of finding the most effective ways of tackling fuel poverty.
The key factors affecting fuel poverty are energy efficiency and energy use, energy prices and tariffs, and incomes. Any one of these factors can, if moving in the wrong direction, put more people in fuel poverty. The Forum therefore identified that the approach to fuel poverty needed to be integrated and holistic, not least because this would assist in getting maximum leverage from funding.
It is not within the current powers of the Scottish Government to solve this problem on its own, as the factors influencing fuel poverty are a complex mix of reserved and devolved issues. Energy efficiency is largely the responsibility of the devolved administrations, although the activity of the energy companies in this area is regulated on a GB basis along with energy markets more generally. Responsibility for benefits and tax credits and the resultant impact on incomes is reserved to Westminster, however the Scottish Government has a role to play in encouraging the uptake of benefits and tax credits. Current funding streams mirror this complexity, with funds from the Scottish Government, the UK Government and the energy companies. Recommendations have been made on each of these areas.
Current Scottish Government spend on fuel poverty programmes is £45.9m per annum, of which, to date, £40m was allocated to the Central Heating Programme, £2.5m to the Warm Deal within private homes managed by Scottish Gas, and £2.5m to the Warm Deal within the social sector managed by Registered Social Landlords, and the remainder used for research and policy development.
Energy companies face legal obligations under the Carbon Emissions Reduction Target ( CERT) to deliver energy saving targets by improving domestic energy efficiency. This energy saving target is met through provision to householders of measures such as cavity wall and loft insulation, energy efficient boilers, appliances and light bulbs. While CERT is not a Fuel Poverty Programme, a significant proportion of these savings (at least 40%) is aimed at vulnerable customers and can help alleviate fuel poverty. CERT is funded from all domestic energy bills and thus represents a redistribution among energy company customers, rather than direct investment by the UK Government.
Compared to its predecessor scheme, the Priority Group has been reduced from 50% to 40% of the total, and enlarged to include all those aged over 70. The Fuel Poverty Advisory Group in England has suggested that this has led to rather less focus on low income households and somewhat poorer targeting on fuel poverty under CERT than its predecessor, with less well off customers subsidising the better off customers to a greater extent. It would be a concern to us if this were happening in Scotland.
If CERT investment in Scotland were proportionate by population it would be equivalent to provision of investment in energy saving measures of around £100m per annum in Scotland. We do not currently have a breakdown of CERT activity levels in Scotland, but energy companies have, in principle, agreed to provide these in future.
Fuel poverty is defined in Section 95 of the Housing (Scotland) Act 2001 as 'the inability to keep the home warm at affordable cost', but what is currently measured is all energy use. Energy use in the home is changing and this will have an impact on future energy bills and fuel poverty levels. A report 2 by the Energy Saving Trust - the Ampere Strikes Back - suggests that by 2010 the consumer electronics sector will be the biggest single user of domestic electricity, overtaking the traditionally high-consuming sectors of refrigeration and lighting. By 2020, entertainment, computers and electronic devices will account for 45% of electricity used in the home. More energy is also increasingly being used by those living with health care needs at home.
Following a consultation earlier this year, a new framework will be developed to ensure that all in Scotland can share in the opportunities provided by sustainable economic growth. The framework is expected to confirm how ambitious targets to create a wealthier and fairer Scotland will be achieved. These targets are to increase the overall income and the proportion of income earned by the three lowest income deciles as a group by 2017, and to narrow the gap in participation between Scotland's best and worst performing regions by 2017. The Review of Fuel Poverty in Scotland highlighted that the poor targeting of the current fuel poverty programmes does not fit well with the Scottish Government's commitment to tackle poverty and disadvantage. While fuel poverty has distinctive dimensions, we believe it must be part of this framework.
On average, pensioner couple households spent £1,474 on domestic energy in the year to April 2007 and £1,551 in the year to April 2008; single pensioner households spent £1,113 on domestic energy in the year to April 2007 and £1,192 in the year to April 2008, and low income households (defined as those households whose income lies in the lowest 20 percentile, i.e. in the bottom 2 deciles) spend an average of £974 per year on domestic energy in May 2006, £1,073 per year in April 2007 and £1,129 per year in April 2008.
However, as already noted, since 22 May there have been substantial further increases in energy prices, and these are impacting on many households across Scotland. The rise in energy prices across the six big energy companies for both electricity and gas has averaged 34% over the last year. The long term trend in domestic prices has been upward and this is driven by wholesale global prices. This brings with it a risk of very high levels of fuel poverty in Scotland. The last published Government statistics on the numbers of fuel poor are from the Scottish Housing Condition Survey ( SHCS) of 2005/06 3. These showed around a quarter of households were estimated to be fuel poor. However, it was also calculated that, all other things being equal, every 1% increase in energy prices since then will have increased the number of fuel poor households by 8,000. Energy Action Scotland's estimate is that 850,000 (29%) of households are likely to be fuel poor in Scotland.
The long term outlook for energy costs is that they are likely to rise further. A scenario for cheap energy in the future is not likely especially if the economy continues to be fossil fuel dependent. A low carbon economy with both large and small scale renewables combined with significant energy improvements would deliver stability in the longer term.
While current fuel poverty programmes have undoubtedly contributed to improving the energy efficiency of Scotland's homes, the substantial price increases seen since 2006 have limited their impact upon fuel poverty levels. Chapter 5 of this report outlines the options we considered for the future of the programmes to ensure that available resources are targeted effectively at the fuel poor. However, while it is our remit to work within existing resource levels, it should be recognised that in light of rising energy costs, it is difficult to see how sufficient progress can be made within these constraints. Investment needs to come from Scottish Government, UK Government, energy suppliers and other sources, with greater integration of existing funding streams. Current investment levels, both from Government and other sources, are wholly inadequate, given the growing scale of the problem. Substantial further investment will be needed to meet the statutory 2016 target.