Fuel Poverty and Energy Price Caps

Martyn Day Excerpts

Thursday 19th November 2020 Westminster Hall

[Martyn Day (Linlithgow and East Falkirk) (SNP)]

I beg to move,

That this House has considered fuel poverty and energy price caps.

It is a pleasure to serve under your chairmanship today, Ms Rees. I thank the Backbench Business Committee for granting my application, for two reasons. First, the issues to be discussed are important ones that affect millions of households across the United Kingdom. Secondly, despite the statutory requirement to debate fuel poverty annually, it was not met last year. I am also grateful to my hon. Friend the Member for Ayr, Carrick and Cumnock (Allan Dorans) for agreeing to co-sponsor today’s debate so that it could go ahead if I had not been able to attend in person. I certainly echo the Minister’s closing remarks in the previous debate in December 2018 in so far as I also hope that a cross-party consensus can be reached to eradicate fuel poverty, which, unfortunately, continues to be a scourge across the whole of the UK.

Fuel poverty and energy efficiency are of course devolved matters, yet it is recognised that fuel poverty is impacted not only by a home’s energy efficiency, but by household income and the cost of energy. That therefore leaves the devolved nations exposed to Westminster policies when trying to tackle fuel poverty. We are fighting it with one hand tied behind our backs. As a devolved policy area, fuel poverty is defined and measured differently in different parts of the UK. For that reason, it cannot be directly compared because of the differences in methodology.

In Scotland last year, with unanimous cross-party support, the Scottish Parliament passed the Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act 2019, which sets statutory targets for reducing fuel poverty, introduces a new definition that aligns fuel poverty more closely with relative income poverty, and requires Scottish Ministers to produce a comprehensive strategy to show how they intend to meet the targets. The final fuel poverty strategy was due to be published in September, but, like many other important issues, the covid-19 outbreak has delayed it and it is now expected next year.

The targets set for the 2019 Act are that by 2040 no more than 5% of households should be in fuel poverty, no more than 1% of households should be in extreme fuel poverty, and the median fuel poverty gap of households in fuel poverty is to be no more than £250 in 2015 prices before adding inflation. Each of those 2040 targets must be achieved not only in Scotland as a whole, but within each of the 32 local authority areas to ensure that no part of the country is left behind in tackling the root causes of fuel poverty. In my opinion, and I am sure others here will agree, not even one home ought to be caught in the misery of fuel poverty. One home is one too many, but if we can achieve those targets it will at least be a step in the right direction.

The 2019 Act also established a new two-part definition whereby it is determined that a household is fuel poor if, after housing costs have been deducted, more than 10% of net income is required to pay for reasonable fuel needs, and, after further adjustments are made to deduct childcare costs and any benefits received for disability or care need, the remaining income is insufficient to maintain an acceptable standard of living, defined as 90% of the UK minimum income standard, which is the minimum amount required to meet material needs and participate in society. A household is considered to be in extreme fuel poverty if, after housing costs have been deducted, more than 20% of net income is required to pay for reasonable fuel needs.

No doubt there are nuances in how other devolved nations refine their own definitions, but we all use the 10% criteria. A household in Wales is described as fuel poor if it needs to spend more than 10% of its net income on energy costs while in Northern Ireland a household is considered fuel poor if it needs to spend in excess of 10% of its household income on all fuel use. The UK Government, however, moved away from using the 10% benchmark in 2013 when they adopted the low-income, high-cost approach. This categorises a household as fuel poor if the cost of keeping the home at a reasonable temperature is above the national median level and if it were to spend that amount, its residual income would be below the official poverty line.

On the other devolved issue of energy efficiency, it is worth mentioning that energy efficiency does not only go a long way to keeping household bills down; it also helps devolved nations play their part in tackling the global climate crisis, but that is a debate for another day. Indeed, the Scottish Government have classified energy efficiency as a national infrastructure priority and they have been praised by the Business, Energy and Industrial Strategy Committee for doing so. In its report “Energy efficiency: building towards net zero” it recognised:

“Scotland has made much faster progress in improving the energy efficiency of its fuel poor homes than England”.

The same report also recommended that the UK Government

“follows the example of the devolved nations by supplementing ECO with central Government funding for fuel poverty.”

For the sake of clarity, I should make it clear that ECO is the energy company obligation.

I expected Members from the other devolved nations to share their experiences, but given covid-19 lockdowns and other business in the House, Members from other parts of the UK are not present. Therefore, I will highlight some of the achievements of the Scottish Government in this regard. They have spent four times as much as the UK Government on household energy efficiency—the highest average annual per capita investment in the UK. In the periods from 2013-14 up to 2018-19, their total investment in domestic energy efficiency was £636 million. The schemes helped more than 150,000 households throughout Scotland to benefit from energy efficiency measures and, by the end of 2021, they will have allocated more than £1 billion since 2009 through energy efficiency programmes to make homes warmer and cheaper to heat. Over the lifetime of the measures installed, Scottish households will cumulatively have saved more than £854 million on fuel bills.

Furthermore, for the next Parliament, the Scottish Government will invest nearly £1.6 billion in transforming our buildings to ensure that emissions from heating are eliminated by 2040 and to remove poor energy efficiency as a driver of fuel poverty. This uplifts heat and energy efficiency spend from £112 million in 2019-20 to £398 million per annum in 2025-26 and will include an additional £55 million to support the scale-up of energy efficiency programmes.

Our progress in this area is encouraging. However, continuing to improve the energy efficiency of Scotland’s buildings—both domestic and non-domestic—and over time decarbonising the heat supply to those buildings, providing warmer homes and better outcomes for our consumers, remains a major challenge. It is a challenge that we are determined to meet. That is why on 16 December, despite the challenges posed by covid-19, the Scottish Government provided a further £16 million investment to improve energy efficiency in fuel-poor households. The money will be used to improve insulation and install energy-efficient heating systems, including those using renewable technology, thereby contributing to Scotland’s net zero targets and helping to meet a key programme for Government commitment. This new investment will help to improve the lives of fuel-poor people in Scotland by enabling them to live in warm, comfortable homes and pay less on their fuel bills by living in a greener and more sustainable way. Importantly, in the current, climate, it is expected to help to secure up to 200 jobs.

Yet we have not lost sight of the fact that energy remains unaffordable for far too many in Scotland, creating hardship for individuals and families. Energy prices and market failures play an obvious part in that, but the building stock in parts of Scotland is old and, all too often, profoundly wasteful in energy. However, as I have said, fuel poverty is driven by more than energy efficiency and, collectively, we need to do more, because thousands of people die from it every year. As winter approaches, we have a responsibility to be mindful that temperature-related excess winter mortality remains strongly evident. We must also take heed of the growing body of evidence that shows links between indoor temperatures and excess winter mortality.

The reason that I applied for a debate on energy price caps is because it is a UK Government fuel poverty policy that relates to energy costs—one of the reserved key drivers of fuel poverty that the devolved nations have no control over. Moreover, like the energy company obligation, this UK Government policy is not the panacea for fuel poverty that was anticipated. Indeed, even Citizens Advice, an organisation that welcomed it as some semblance of protection for households on default tariffs, simultaneously warned that customers could still get a better deal by switching supplier or investing in energy efficiency.

It was evident—in fact, it was pointed out in the last fuel poverty debate, which took place nearly two years ago, before the Domestic Gas and Electricity (Tariff Cap) Act 2018 came into force on 1 January 2019—that the energy price caps would be set at a sustainably higher level than the cheapest available tariffs. Therefore, the intention behind the price caps—to protect consumers in England, Wales and Scotland who were on default tariffs—was questionable from the get-go. Additionally, research carried out in 2018 by the consumer group Which? found that the energy price cap would not help customers who were on some of the priciest deals on the market. For example, 30% of customers who were on fixed tariffs, rather than default tariffs, were not able to benefit.

There is also the issue of some energy customers having access only to certain tariffs due to having a prepayment meter. The Competition and Markets Authority’s report recommended the first price cap for customers on prepayment meters because they had fewer options, which resulted in less competition and a higher likelihood of being overcharged. Ofgem introduced that recommendation as a temporary cap in April 2017.

Furthermore, there are customers across the country who are subjected to unaffordable tie-in tariffs because of the type of heating system and meter that are installed in their home. Indeed, I presented a public petition earlier this year on behalf of Falkirk’s Forgotten Villages, a group made up of some of my constituents, whose experience of the THERMAflow wet electric heating system and its related ScottishPower’s Economy 2000 tie-in tariff is not only fuel poverty, but food poverty and physical and mental health issues.

I pay tribute to the work done by the Falkirk’s Forgotten Villages group, and I recognise the significant investment that Falkirk Council has made in agreeing to install a new mains gas system in 86% of the affected properties. That is a great example of partnership working, and it shows what can be achieved. I am looking forward to seeing continued progress with the project and to learning what renewable technologies will be engaged for properties where gas installation is not available. Falkirk Councillor Laura Murtagh, who has also been working on the replacement of wet electric heating systems in her area, says:

“These residents are particularly vulnerable to fuel poverty due to the double whammy of high heating tariffs and inefficient systems, which cause eye-wateringly high bills for residents, who are often in a position to least afford this.”

Councillor Murtagh has been assisting residents in her ward with energy-efficiency measures for some time. However, the rise in the tariff, which was introduced last year by ScottishPower, highlighted the breadth and depth of the issue and galvanised council officials to work at pace over the past year to find solutions for the affected areas. Hopefully, I will hear about progress being made in these areas over the coming months.

Having no access to mains gas affects another group of households, who I understand are generally unable to benefit from the Domestic Gas and Electricity (Tariff Cap) Act 2018, as they have little choice in their heating source, pay more for their fuel and are thereby more at risk of fuel poverty. We must not underestimate the economic and social implications of living in a fuel-poor household, and we must do everything in our power to end the dilemma of whether people heat their home or feed their family, because being in that situation causes distress and ill health, both physical and mental.

Earlier this year, the SNP called for a package of measures to help households get through the crisis, and I urge the UK Government to heed the calls and to look urgently at introducing an emergency coronavirus energy grant to support households struggling to pay their energy bills, and to prevent them from accruing unmanageable debts. For example, I saw evidence from one of my constituents, who lives in accommodation within the boundaries of Falkirk’s forgotten villages and uses the THERMAflow heating system, that they pay an average of £170 per month for their home energy. Members will not be surprised to hear that after their housing costs were paid, they were not left with £1,700 of net income to make that energy affordable. That was not the worst that this area of my constituency experienced, nor are high energy costs unique to those using the THERMAflow system. I have heard about bills far in excess of that being received in those remote villages.

Other constituents, who live in a three-bedroom semi with the THERMAflow wet electric heating system and the domestic Economy 2000 meter tariff, had an average monthly energy bill of £270. When they raised an inquiry, they were advised by a ScottishPower representative that THERMAflow wet heating systems can be notoriously expensive to run. That had not been brought to their attention before installation, nor were they given any guidance about how to effectively use the system after it was installed.

ScottishPower is not linked to THERMAflow systems in any way and my reference to it is as the local provider. There are currently 60 or so alternative energy suppliers in the UK who could offer a cheaper tariff but do not. There is no cost-benefit for constituents to switch, which is why we need Government action on energy policy.

It is unacceptable that constituents could not access the cheapest payment method, just because they do not pay by direct debit, in common with many others across the country. Such draconian measures target the least advantaged and most vulnerable in our society. Energy companies must end that discrimination voluntarily or legislation should be introduced to ensure that they do.

Another constituent, who paid ScottishPower for their electricity by direct debit, contacted me in distress in June this year after receiving an outstanding statement for over £1,500, despite making the regular requested payments. That constituent is a vulnerable pensioner who lives alone in accommodation that does not have the THERMAflow system. In fact, their home has no central heating at all. All the distress was down to billing errors because a new meter had to be installed when my constituent did not want to be a victim of an expensive pay-as-you-go tariff.

That is a prime example of someone trying to be prudent, yet still being caught out by a system that lets people down. Fortunately, that constituent was lucky to have the support of their family, who stepped in and found the best available option was to change supplier. That is a bad enough situation, but it begs the question of how a pensioner living alone on a fixed income copes with such a dilemma if they do not have support from their family or others. It exemplifies what I mentioned earlier, about energy price caps being set at a level substantially higher than the cheapest available tariff and proves customers can get a better deal by switching.

It is relevant to point out that ScottishPower is the energy provider in the cases I have talked about and that these are just a few of my constituents who have approached me since the start of the year. These cases do not cover all the constituents who have experienced problems with unaffordable energy costs, because there simply is not time to cover them all. Even with as few speakers we have today, I would be here until next week going through the cases. I am fairly certain that not everyone has come forward for help since I was first elected five years ago.

To summarise, it is deeply regrettable that the UK Government have not met their statutory requirement to debate fuel poverty annually. Additionally, the situations I have highlighted indicate that the energy price cap is not having the desired effect. Indeed, in his statement to Parliament on 20 October, the Business Secretary said that when the price cap on standard variable and default energy tariffs ends there will be

“more to do to ensure consumers will not face unfair prices”.—[Official Report, 20 October 2020; Vol. 682, c. 38WS.]

Although extending the price cap to next year may provide some protection for some customers, that does not go far enough. It is just more of the same. Instead, I urge the Government to prioritise the faster switching initiatives and consumer engagement schemes that the Secretary of State referred to in his statement, and to replace the price cap with a scheme that will ensure all customers are protected from the energy inefficiency and high tariffs imposed by energy providers, which target the least wealthy in our society.