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Fuel Poverty (England) Regulations 2014

Volume 757: debated on Thursday 27 November 2014

Motion to Consider

Moved by

That the Grand Committee do consider the Fuel Poverty (England) Regulations 2014.

Relevant document: 10th Report from the Joint Committee on Statutory Instruments

My Lords, I am pleased to open this short debate on the Fuel Poverty (England) Regulations 2014. Before I go into the detail of the regulations, I will set out their context. They are the result of three years’ detailed work, which has sought to overhaul the framework for tackling fuel poverty in England. Since taking office, this Government have been clear in their aims to understand the problem of fuel poverty, measure it effectively, and put in place a suitable, ambitious and meaningful target for change, supported by a strategy to meet that target. Since 2010, we have seen a consistent fall in the number of homes in fuel poverty, but the cost of energy remains a real problem for many people. We must address the issues over the long term.

This journey began from first principles with the independent review of fuel poverty, led by Professor Sir John Hills and published in 2012. Professor Hills concluded that fuel poverty is a distinct and serious structural problem, requiring an ongoing targeted effort to properly address it. Indeed, fuel poverty is driven not only by low income but by the characteristics of the homes we live in. His review also highlighted that, while the previous 10% indicator used to measure fuel poverty was well meaning, it was fundamentally flawed. Its sensitivity to energy prices meant that the official figures often suggested significant progress in alleviating fuel poverty, while masking the real problems faced by those on low incomes living in the coldest, least energy-efficient homes.

The Government have been determined to learn these lessons and we have acted. In 2013, we confirmed that we would adopt the low income, high costs indicator of fuel poverty in England, which finds a household to be fuel poor if it has an income below the poverty line—including if meeting its required energy bill would push it below the poverty line—and if it has higher than typical energy costs. In essence, it means that fuel poverty is an additional problem faced by some low-income households that have the highest energy costs. This measure also takes into account how a home is used. For example, it now captures specific heating patterns for people who need to spend more time at home, which often includes households with young children, the elderly or the disabled.

Measuring fuel poverty properly really matters. The major advantage of the low income, high cost indicator is that not only will it allow us to judge the scale of the number of homes affected, but it will enable us to understand it through the fuel poverty gap, telling us how badly affected each household is. This means that we can prioritise households in the most severe fuel poverty—those which we will want to help first. The indicator will allow us to home in on the factors that mean that low-income households face higher costs, the most notable of which is the energy efficiency of the property they live in.

Last year, the Government published the Framework for Future Action. We laid out a set of principles to guide progress: prioritisation of the most severely fuel poor; supporting the fuel poor through cost-effective measures; and ensuring that vulnerability is reflected in policy decisions. These strategic principles are useful tools for assessing the effectiveness of current policies and shaping their future development so that the Government can use their resources in the most effective way.

Our current policies are already making a difference. For example, since 2011, the Warm Home Discount has meant that more than 2 million households receive a discount on their energy bill each year. More than 480,000 low-income and vulnerable households will be warmer after having received measures under the energy company obligation.

The new definition of fuel poverty has now enabled us further to shape existing policies to take into account a new understanding of the problem. For example, we are amending ECO to incentivise the delivery of affordable warmth measures to non-gas fuelled households, as we discussed in our previous debate.

Significantly, through the Energy Act 2013, we amended the Warm Homes and Energy Conservation Act 2000 to remove the previous fuel poverty target, create the necessary legislative framework for our new approach and place a duty on the Secretary of State to set out a clear objective and way forward for tackling fuel poverty.

Today’s debate marks the most important step in this process. These regulations set out the form of the fuel poverty objective, the level of ambition to be achieved and the date by which this must be done. The new statutory target aims to ensure that as many fuel-poor homes in England as is reasonably practicable achieve a minimum energy efficiency rating of band C by 2030. This is because improving the energy efficiency of properties is the best way to lower energy bills in the long term. Reducing energy waste will help to protect fuel-poor households from future bill rises. It will also help to improve the energy efficiency of the wider housing stock in line with the UK’s carbon budgets.

Importantly, the target will be based on a minimum threshold rather than an average and will focus on those fuel-poor households where improvements can be made at least cost. This approach is very much in keeping with our first principle—to help the worst-off first—and has overwhelming support from fuel poverty stakeholders, including National Energy Action and the independent advisory body, the Fuel Poverty Advisory Group.

The target metric—the energy efficiency standard for measuring progress—is based on the standard assessment procedure but with an adjustment so that current policies that have a direct impact on energy costs, such as the rebate delivered by the Warm Home Discount, are accounted for. This recognises that important tool in helping people to keep warm.

It is important that this is a long-term goal because fuel poverty is a long-term structural problem. Action will require the support of successive Governments if we are to deliver the necessary energy efficiency improvements to fuel-poor homes in England. The 2030 timeline is also in line with the UK’s existing carbon budgets.

We are setting a statutory goal that aims to see as many fuel-poor homes as is reasonably practicable reach an energy efficiency standard that currently fewer than 5% of fuel-poor homes enjoy. It is a standard that will help people keep warm and cut bills, making a real difference to the lives of fuel-poor households.

The average energy efficiency rating of all homes today is band D. For fuel-poor homes, the situation is worse: they have an average of band E. To put this in context, if you are fuel poor and live in a band F or G home, this means that you could typically face energy bills of £2,100 to stay warm. But if you lived in a band C home, this could be only £1,000, or £1,200 if you lived in band D.

To get as many fuel-poor homes as is reasonably practicable to a minimum of band C will require a range of actions, such as the installation of energy-efficiency measures and bill rebates to help households with energy costs. It will mean trying to ensure that fuel-poor homes have sufficiently insulated walls and lofts. Some homes could see the installation of central heating systems for the first time, while others could receive an upgrade to the most efficient boilers available or potentially have a heat pump installed.

The Warm Homes and Energy Conservation Act also requires the Secretary of State to publish a strategy for achieving the new target. In this strategy, the Secretary of State is required to specify interim objectives and target dates for achieving them. These interim milestones will be important, given the long-term nature of the target, so that we can monitor progress.

In consulting to prepare for the strategy, we have proposed that the first milestone seeks to ensure that as many fuel-poor homes as is reasonably practicable achieve an energy efficiency rating of band E by 2020. A second milestone seeks to ensure that as many fuel-poor homes as is reasonably practicable achieve an energy efficiency rating of band D by 2025. This stepped approach to meeting the 2030 target reflects our principle of ensuring that we support those facing the worst problems. F and G-rated homes are more likely to be cold, expensive to heat and a health hazard. Striking at the heart of this in the short to medium term should be our priority.

Recognising that this picture may change over time, we have taken steps to ensure that there are regular points of review and that progress towards the target is scrutinised. We are reforming the Fuel Poverty Advisory Group to enhance the fundamental role it plays in holding the Government to account. This is already under way: we are seeking a chair for the reformed body. I take this opportunity to recognise in this Committee the work that Derek Lickorish has done in leading the FPAG in the last six years.

We will regularly review the strategy for meeting the target; current thinking is that three years would be an appropriate interval. These reviews will look at the overall strategy in light of any developments and decide whether changes in the overall policy mix are required. Successive spending reviews will consider the resources available for meeting the target and how they should be directed.

In conclusion, we now know more about the problem of fuel poverty than ever before. However, this means that we know fuel poverty is a serious national problem. We know that households living on low incomes all too often are left to live in the coldest and least efficient homes. Our ambition and the strategy underpinning it make it clear that the Government do not accept this situation and are committed to providing support to the households that need it most. I commend the order to the Committee.

My Lords, I thank the Minister for that explanation and congratulate her on getting through it. I hope that indicates that her health is improving even as we have this discussion. We touched on some of the same subjects in our earlier discussion, but on this one I probably should formally declare an interest as the chair of a charity dealing with fuel poverty.

There is a bit of a problem in dealing with what is, in effect, putting into motion the totality of the strategy on fuel poverty by discussion of secondary legislation. The Minister referred to previous bits of legislation, which were primary legislation. It seems a bit odd that we are defining the interim targets, the means of delivery, the overall strategy and, of course, the definition in secondary legislation. In future, Parliament really will require a rather more substantial discussion than one in a sparsely attended Grand Committee—although it is very welcome to see my noble friend Lord Hunt of Kings Heath, and indeed the noble Earl, Lord Howe, here. It is a rather limited form of scrutiny and this is a rather important subject.

The Minister will have heard me giving my doubts previously about the new definition. The old definition had problems—I accept that—but I think the new definition has almost the converse problems. None the less, one part of it is a very positive advance: in addition to measuring overall fuel poverty, there are measures of the depth of fuel poverty in Sir John Hills’s redefinition. That seems to me an advance, but it is one that does not seem to have flowed through to policy in terms of the way in which fuel poverty interventions are being prioritised. The Minister spoke about prioritisation, but maybe I missed how we are using those new definitions. Would she care to write to me on that matter?

Overall, this is another reduction in ambition. There was a 30% reduction in expenditure on consumer-funded interventions on fuel poverty from 2010-11 to this financial year. If you add the taxpayer-funded interventions, which were being run down by 2010, it would be a 40% reduction. We are running down the actual resources being devoted to tackling fuel poverty, despite the fact that the problem remains considerable. All Governments have recognised that, but we are working in a context where the total resources are constrained.

Notionally, it is a very good idea, instead of defining the target in terms of outcomes, number of households or number of individuals, to focus on and define it in terms of the energy-efficiency performance of buildings. Regrettably, it is a little difficult to measure buildings’ energy efficiency as we do not have a comprehensive index of energy efficiency. A building’s real energy efficiency may well differ significantly from the notional energy efficiency, as that depends to some extent on household behaviour, landlord-tenant relationships and all sorts of other things.

The phrase “as many as reasonably practicable” is a useful get-out for Governments of all sorts. I am sure that my noble friend Lord Hunt and I can remember using similar phrases. However, we cannot by any means be certain that the progress of interim targets, which are very clearly defined right up to 2030, can easily be measured by something as subjective as “reasonably practicable”. Indeed, 2030 seems a very long way off for those targets. We are attempting to ensure that the private rented sector reaches band E by 2018, whereas the general target appears to be behind that. We should surely do better than that. Most people think we could go faster than that in the private rented sector. The end date of 2030 should be brought forward at least to 2025.

On prioritisation again, if there is a more sophisticated way to use the new fuel poverty gap information, we need to see how we focus on those who are in the worst fuel poverty as distinct from—as has often been the case under all Governments—focusing on the easiest cases and the cheapest individual interventions. We are, of course, not only dealing with those in deepest fuel poverty but attempting to reduce the average level of fuel poverty at the same time. It will be quite difficult to ascertain how well we are doing on that under the new definition, for the reasons I have tried to explain.

Frankly, the central problem is the same one that we had on the previous group of regulations, which is that ECO, as the main deliverer of this policy, is flawed. ECO, particularly as defined now, is not sufficiently geared to prioritise attention to the fuel poor. In some ways, broadening the measures takes attention away from the fuel poor even though it may help in otherwise neglected areas such as off-gas dwellings. The ECO does not deliver the required targeting because delivery is down to the supply companies, which have to fulfil their quotas and are not necessarily going to follow any identification of priorities set out by the Government or the regulator. It is not clear how targeting and prioritisation can exist under the ECO.

Because we are dealing with this house by house via the suppliers rather than area by area, because we are focusing on the fabric of the notional energy efficiency of the house rather than the people within it and because we are focusing on defining the measures rather than the need, there is a serious problem. This is epitomised, again, primarily by the neglect of how we are going to intervene within the rented sector. We still have not fully resolved how to deal with the issue of the landlord-tenant relationships there. As I said earlier, this sets up changing and difficult-to-interpret signals to the industry. I am informed that there is a real danger that we will have fewer players in the insulation and installation industries and probably, therefore, higher unit costs and possibly lower standards.

If the deficiencies in the ECO were made up by other interventions, this would not matter; or it would matter significantly less. However, the other government interventions in this area are not going to deliver for the fuel poor. The Green Deal is primarily and explicitly for those who are able to pay and has its own problems, which we need not go into now.

The Warm Home Discount undoubtedly helps the fuel poor in the immediate term by giving them money off a bill, but it does not resolve the problem of keeping those bills down through greater energy efficiency in the medium term. The rationalisation of the number of tariffs that Ofgem now requires of companies, in order to fulfil a rash commitment by the Prime Minister a couple of years ago that the number of tariffs should be reduced to four, has led to some companies reducing the number of tariffs that they are able to offer to various elements of the fuel poor, particularly pensioners. The Green Deal, the Warm Homes Discount and Ofgem’s approach to tariffs do not help the numbers of fuel poor being treated or the speed with which we can deal with them.

The ECO as it is currently designed and due to be delivered will not achieve the full results which both the Government and I would like to see. We need some new thinking. My party has produced a Green Paper on energy efficiency and is prepared to discuss it with everyone involved. Although campaigners in this area support aspects of what the Government are attempting to do, and are certainly prepared to work within the new framework and the new definition, they need to see more resources and interventions at a faster rate than has been the case. The ECO is geared only for the two years to 2017, and the long-term view as to how people can have confidence in the aims and the targets that the Government are setting down here today is subverted by not extending the measures beyond 2017.

We need new long-term thinking and better means of delivery if we are to reinstil confidence among the fuel poor, among the consumers and taxpayers who have to pay for it, and among the industry which has to deliver it. We are not yet in that position. Many things are included within this document which I can support, but the overall level of delivery will be woefully short of what is required.

Again, I thank the noble Lord, Lord Whitty, for his response and, again, I start by saying that we will disagree on most of the points he has raised because I think that these measures do address what he and the Government both recognise as being embedded structural issues that we have needed to address for a long time.

The noble Lord said that 2030 is a long way away, but these interim measures will ensure that at each juncture we will be able to see whether or not progress has been made, so that we are able to revise the way in which we are addressing a long and deeply embedded issue. Looking at households within a particular banding will enable us to measure far better those people who we are beginning to reach. There will always be areas that need improvement, and that is why it is absolutely right for the Government to take stock from time to time and look at who is benefiting and who is not, along with monitoring how well the programmes are working.

The noble Lord said that we need more scrutiny. We have committed to an annual fuel poverty debate. Regular reviews of the framework will be carried out, and we are reforming the Fuel Poverty Advisory Group. All that will hold us to account. It is really important that, whatever we do, we work towards the end mission: a firm principle which ensures that those who need help the most get help first. By implementing these measures, that is exactly what we will try to deliver.

I will write to the noble Lord about the fuel poverty gap and set out in a little more detail how through these measures we will increasingly be able to target homes by extending the ECO to 2017, which we considered in the previous debate. The fuel poverty gap underpins the principle that we need to help those who are worst off first. I had hoped that I had set that out quite clearly in my opening remarks, but I suspect that there are areas on which the noble Lord requires further clarity. I will read Hansard carefully to see whether there are any points which he feels I have not responded to fully.

The noble Lord also said that the ECO has deficiencies. A larger share of the ECO will be available to low-income households than ever before. Through the ECO we are seeking to evolve and improve on how we reach out and ensure that households are given help. We have made changes so that between now and 2017 there will be a greater drive to ensure that measures are in place for the most vulnerable households. However, it is right to say that there is always more to be done. We need to keep on looking at this issue and make sure that we are doing everything we can.

I think that if the noble Lord reads Hansard tomorrow, he will see that I have addressed some of his questions in my opening remarks. Ultimately, the Government have taken action in order to reach out and ensure that the long-term goal for all homes to be energy efficient is met. We should be able to drive energy costs down. We discussed in the previous debate the programme to bring forward smart meters, which will add another tool. Standing still and not implementing these measures would actually have increased bills, so the Government have gone a long way towards trying to reduce costs to the consumer. We have listened very hard to what consumers have said. While we believe firmly that we must reduce our carbon footprint and our carbon emissions, that must not be done at any cost. It cannot be done so that those who can least afford it feel the greatest pain.

Of course, I will write to the noble Lord with further detail on any points that I have not responded to here, and I commend the regulations.

Motion agreed.