REVIEW OF FUEL POVERTY IN SCOTLAND
Scottish Government
May 2008
1

Foreword
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.
Fuel poverty is a real issue for thousands of Scottish households who are struggling to pay their fuel bills and keep their homes warm. In the face of continuing high fuel prices, more and more are falling into fuel poverty. The effects on people’s quality of life can be profound.
This review sets out what has been achieved so far in the pursuit of the target to end fuel poverty in Scotland by 2016 as far as is reasonably practicable. It concludes that there is much to do to get back on track and that the existing fuel poverty programmes - the Warm Deal and the Central Heating Programmes - whilst well intentioned, have lost their way and urgently need reform. The review highlights how, under our current devolution settlement, we have direct control over measures to improve the energy efficiency of the home. However, this is only one of the three principal factors affecting the level of fuel poverty. Through the National
Conversation, we are exploring what options there are for further devolved powers to also be able to influence incomes and fuel prices in Scotland.
We can’t do this alone. We want to work in partnership with others to reform the programmes and set a clear direction for the future. That is why we are reestablishing the Scottish Fuel Poverty Forum with an independent Chairperson. The
Forum will meet over the summer to reflect upon the review and consider options for change, and will report to Ministers in the autumn. We will work with energy companies, charities, local authorities and housing associations in Scotland, and we will continue to urge Westminster to take more action.
It is clear that there are challenges ahead, but we are committed to doing what we can to meet the target. In an energy-rich country like Scotland there is no room for fuel poverty.
Nicola Sturgeon, MSP
Deputy First Minister and Cabinet Secretary for Health and Wellbeing
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Foreword
EXECUTIVE SUMMARY
1. Introduction

The need for a review
2. Fuel poverty – definitions, causes and extent

Definitions of fuel poverty across the UK

Definitions in other countries

Causes of fuel poverty

Effects of fuel poverty

Changes in the extent of fuel poverty

Factors affecting fuel poverty in rural areas

Improvements in housing energy efficiency

Eliminating fuel poverty – the scale of the challenge

Conclusion
3. Measures to tackle fuel poverty – influence and delivery

Scottish Government powers

Influencing household incomes

Influencing fuel prices and other action by fuel companies

Delivering household central heating and insulation programmes

Central Heating Programme

Targeting of the CHP
 Impact on fuel poverty
 The shift from first-time installations to replacements
 Delivery of the programme

Waiting times
 Value for money and controlling costs

Warm Deal

Interaction with EEC/CERT

Conclusion
24
2
5
8
10
3

4. Fit with Scottish Government strategic objectives

Relationship to policy on a fairer Scotland

Relationship to policy on housing repairs and improvements

Relationship to policies on climate change and domestic energy efficiency

Conclusion
5. Conclusions of the review

Despite the successes of our programmes, fuel poverty continues to grow

Fuel poverty is more prevalent in Scotland

The definition makes the target challenging

Fuel poverty is likely to increase further with fuel price rises

Causes and action on tackling fuel poverty

Energy efficiency measures are not enough

The Central Heating Programme now largely provides replacement systems

Existing fuel poverty programmes are not focussed on the fuel poor

Need for better fit with our strategic objectives

A national programme may be less flexible

The programmes may be displacing CERT spending in Scotland

Need for collaborative working
40
45
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EXECUTIVE SUMMARY
Purpose of the review
Fuel poverty, a situation in which a household cannot afford to heat the home to a satisfactory standard, can reduce people’s quality of life. In Scotland, the levels of fuel poverty have been increasing since 2002. The most recent data available, for
2005-06, estimated that, in Scotland almost 1 in 4 households are fuel poor; more than 3 times the proportion of English households. We expect these numbers to have risen further with recent energy price increases.
The Scottish Government is committed to ensuring, so far as reasonably practicable, that people are not living in fuel poverty in Scotland by November 2016. This reflects the requirements of Section 88 of the Housing (Scotland) Act 2001, as elaborated by the Scottish Fuel Poverty Statement published in August 2002.
The review recognises what has been achieved in pursuit of the target, assesses why we are not making the progress that was intended and examines the potential to improve and build upon current policies and programmes to ensure that we can get back on track to end fuel poverty in Scotland.
Prognosis for eradicating fuel poverty by 2016
The number of households in fuel poverty in Scotland has been rising consistently since 2002. In 2005/06, an estimated 543,000 households (23.5% of all households) were classified as fuel poor. Fuel poverty is particularly high in rural areas due to a combination of demographic factors (more older households), infrastructure
(properties off the gas grid) and matters relating to the housing stock (more detached and hard to insulate homes).
There are three principal factors that determine the number of households that are fuel poor: fuel prices, household incomes and the energy efficiency of housing. The devolution settlement means that, whilst the Scottish Government can and does seek to influence incomes and fuel prices, the powers to control these factors lie with
Westminster. Its response to fuel poverty has therefore focussed on schemes to deal with the third factor – improving the energy efficiency of housing - through provision of central heating and insulation.
Significant improvements continue to be achieved year on year in the energy efficiency of the Scottish housing stock, partly as a result of these programmes. This has made Scottish householders warmer and more comfortable, lowered fuel bills and reduced carbon emissions, but has not been enough to stop the growth in fuel poor households, largely because of the significant upward trend in fuel prices.
Though fuel poverty has been rising across the UK, it is proportionately higher in
Scotland than in England, despite the fact that Scotland’s housing stock is more energy efficient. This is partly because o f structural factors such as Scotland’s climate, its rurality, income levels and the fact that it has a higher proportion of older people. It is also partly because Scotland has chosen to use a higher temperature in its definition of the satisfactory heating level for pensioner households.
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With this definition and in the face of high and rising fuel prices, the prognosis for achieving the commitment to end fuel poverty, as far as is reasonably practicable, by
2016, is not good. Analysis undertaken for the review indicates that, for those who are most fuel poor, this could only be achieved by massive increases in income and changes in its distribution (amounting to billions of pounds per annum), huge reductions in fuel prices (almost a 100% reduction) or unrealistic improvements in energy efficiency (even if all Scotland’s home reached very high standards there would still be a quarter of a million fuel poor households).
Further improvements to housing energy efficiency will continue to keep fuel bills lower than they otherwise would be, make homes warmer and reduce carbon dioxide emissions. However, unless fuel prices and/or incomes change favourably as well, fuel poverty is unlikely to reduce significantly in the foreseeable future.
In a context of rising fuel prices, the extent of the increase in household incomes required to abolish fuel poverty is daunting. The “multiplier effect” that is locked into the current ‘10% of income’ definition of fuel poverty means that the real incomes of those on the margins of fuel poverty would need to rise by an amount ten times greater than any increase in fuel prices assuming constant energy efficiency of the housing stock. The indications are that fuel prices will continue to increase, in which case, despite our best efforts, fuel poverty in Scotland is likely to rise still further in future years.
Current fuel poverty programmes and their fit with the Government’s Purpose
Our fuel poverty programmes are broadly popular with the public and have provided significant benefits to many Scottish householders
– warmer homes, lower fuel bills and reduced carbon emissions. In the face of rising fuel costs, they have not been enough to stop fuel poverty levels increasing. However, without them, fuel poverty would be even higher than it is now.
The bulk of Scottish Government investment in tackling fuel poverty is directed through the Central Heating Programme (CHP). Pensioner households were originally targeted as they have tended to be more prone to fuel poverty, but not exclusively. Around half of pensioner households in private homes were estimated to be fuel poor in 2005-06, and just over a tenth of non-pensioner households.
Amongst pensioner households, a larger proportion of households aged over 80 were fuel poor than those aged between 60 and 80. There appears to be a much closer correlation between low incomes and fuel poverty than between age and fuel poverty, with three-quarters of those in the bottom two deciles of income being fuel poor.
The Central Heating Programme has been instrumental in bringing Scotland to the position where a house lacking central heating is a rarity. However, while investment in this programme is badged under “fuel poverty” it is now, in effect, a programme to provide free central heating systems to pensioners, regardless of their fuel poverty status. Only around half of the expenditure on the programme was directed to fuel poor households in 2005-06.
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The CHP has drifted from its original purpose of providing central heating to pensioners without it, to being almost entirely a programme for central heating replacement. Replacements offer less gain, in either fuel poverty or environmental terms, than first time installations. Given demographic trends, and the fact that systems have a finite life, the emphasis on replacements offers the prospect of a self-perpetuating programme with growing waiting lists. Low income households without central heating are, in effect, queuing behind fuel-rich households requesting replacement systems that, in many cases, they could easily afford to install themselves.
The Warm Deal (insulation) programme is better value-for-money in energy efficiency/carbon terms than the CHP. There are also fewer delivery problems in this partially locally managed scheme. However, the Warm Deal is not well integrated with UK programmes, such as the Energy Efficiency Commitment, and its successor
(CERT), which may mean Scottish Government resources are displacing those that could be taken up from the fuel companies. Similar concerns relate to the insulation aspects of the CHP.
The Scottish Government’s Purpose is to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth. This review considers how tackling fuel poverty can contribute to this overall Purpose, through creating a
Scotland where growth reduces inequalities between individuals (solidarity) and regions (cohesion), and contributes to reducing carbon emissions (sustainability).
The review examines the fit of the programmes with the new strategic objectives set out by the Scottish Government. It finds that there is not a good fit between definitions of “fuel poverty” and those of “income poverty” being used as part of our strategy to tackle poverty and disadvantage under the Government Economic
Strategy. While current programmes contribute to greener objectives, the CHP is not particularly cost-effective in this respect, and its poorly targeted grant-led approach does not sit well alongside policies on housing repairs and improvements which emphasise the responsibilities of the home owner.
Next Steps
This review may provide a useful starting point for a debate on the way forward for tackling fuel poverty. The complex range of factors affecting fuel poverty means that stakeholders at UK, national and local level all have a role to play
– including energy companies, charities and the insulation sector – as well as all parts of Government.
The Scottish Fuel Poverty Forum provides a platform for this and stakeholders have requested that it be re-established with an independent chairperson, to provide the opportunity to contribute to the debate and help shape the future direction of policy.
There is an opportunity to improve and build on current programmes to ensure that they operate fairly across Scotland, and that available resources make the most impact to end fuel poverty. There is an opportunity to strengthen links with related policies such as tackling poverty and disadvantage, promoting energy efficiency and addressing climate change, as part of progress towards a wealthier, fairer and greener Scotland.
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1. INTRODUCTION
1.1 This report sets out the findings of an internal review of the Scottish
Government’s approach to tackling fuel poverty. The review considers the extent of fuel poverty in Scotland; and examines how effective current programmes have been in making progress towards our target to end fuel poverty, as far as is reasonably practicable, by 2016.
The need for a review
1.2 The Scottish Government is committed to ensuring, so far as reasonably practicable, that people are not living in fuel poverty in Scotland by November 2016.
This reflects the requirements of Section 88 of the Housing (Scotland) Act 2001, as elaborated by the Scottish Fuel Poverty Statement published in August 2002. The next formal report on progress towards this objective is not required until 2010, however, for a number of reasons this is an opportune time to take stock and consider the way forward for this policy.
1.3
The Scottish Government’s Economic Strategy sets out how we will support businesses and individuals and how, together, we can deliver the following Purpose: to focus the Government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth. By sustainable economic growth we mean building a dynamic and growing economy that will provide prosperity and opportunities for all, while ensuring that future generations can enjoy a better quality of life too. Decisions on all
Government priorities and policies, including the fuel poverty programmes we have inherited from previous administrations, need to be taken in the light of this Purpose.
1.4 The Scottish Budget Spending Review has identified significant resources -
£46m per annum for 2008-2011 – for programmes directly targeting fuel poverty. We need to ensure that these resources, alongside other housing and energy efficiency schemes, are marshalled effectively to ensure real progress is made over the
Spending Review period and beyond to 2016. The Scottish Government’s main fuel poverty programmes - the Central Heating and Warm Deal programmes - have been in operation for 7 and 9 years respectively and we are now almost halfway, in terms of time elapsed, to our ultimate 2016 target. Most significantly, data is now beginning to show a consistent pattern which demonstrates that despite the successes of these programmes in terms of making many Scottish homes warmer and more comfortable, fuel poverty itself has, in fact, been increasing, rather than decreasing.
This means that the outcome milestones originally set by the previous administration will not be achieved when the 2006-7 figures are published in late 2008. Given this context, there is a clear need to examine and challenge current policies and programmes.
1.5 The review recognises what has been achieved, assesses why we are not making the progress previous administrations had planned for and examines the potential to improve and build upon current policies and programmes to ensure that we can get back on track to end fuel poverty in Scotland. It recognises the important role of fuel prices and household incomes, which are primarily the responsibility of Westminster, in determining levels of fuel poverty. Action by the
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Scottish Government has focussed on the third primary determinant of fuel poverty
– household energy efficiency – with programmes to fit efficient central heating and effective insulation. The review examines the current programmes to ensure that they are operating fairly across Scotland and that available resources are going where they can make the most impact on fuel poverty.
1.6 The review takes place in the context of the
Government’s Purpose and the new set of strategic objectives that flow from this, including a new relationship with local government, as outlined in our Concordat. As well as improving our approach to tackling fuel poverty, the review therefore also considers how we can strengthen links with related policies such as the need to address poverty and disadvantage, and tackle climate change as part of our progress towards a wealthier, fairer and greener Scotland within the over-arching aim of sustainable economic growth.
1.7 In taking forward our fuel poverty programmes we need to engage effectively with stakeholders in Scotland. The Scottish Fuel Poverty Forum was set up in early
2003 with a remit "to work collectively towards .. eradicating fuel poverty so that from
2016 no person should have to live in Fuel Poverty in Scotland." The Forum was chaired by a Scottish Government official and membership included a range of public and voluntary bodies, as well as the three main energy supply companies. The
Forum contributed towards delivering the objectives in the Fuel Poverty Statement.
However, it had always been the intention to review its role after about three years to ensure that it continued to meet current need and to contribute effectively towards achieving the 2016 fuel poverty target. The Forum last met in July 2006, and stakeholders have requested that it be re-established with an independent chairperson, to provide the opportunity to contribute to the debate and help shape the future direction of policy.
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2. FUEL POVERTY – DEFINITIONS, CAUSES AND EXTENT
2.1 This part of the review describes what fuel poverty is and how it has been defined; examines why it is important to tackle it; and presents information on the extent of fuel poverty across Scotland and how this has changed since the commitment to tackle fuel poverty was introduced. It presents evidence that fuel poverty has been growing at the same time that the energy efficiency of Scotl and’s housing stock has been improving. Data modelling is used to illustrate the scale of the challenge required to fully eliminate fuel poverty.
Definitions of fuel poverty across the UK
2.2
“Fuel poverty” can loosely be defined as a situation in which a household is not able to heat a home to an acceptable standard at an acceptable cost, in relation to its income. It can thus be defined more specifically in a variety of ways depending on the judgements and assumptions made about what constitutes “poverty” (for example, which elements of income are included or excluded; the proportion of income considered acceptable to spend on heating) and the level of heating it is reasonable for a household to enjoy (for example, what is an acceptable temperature standard?). The nature of the definition chosen has a significant impact on the extent of fuel poverty; its distribution, both geographically, and between population groups; and the nature, extent and cost of the interventions required to address it.
2.3 The 2002 Scottish Fuel Poverty Statement used the following definition of fuel poverty :
“A household is in fuel poverty if, in order to maintain a satisfactory heating regime, it would be required to spend more than 10% of its income (including Housing Benefit or Income Support for Mortgage Interest) on all household fuel use.”
The Statement also established that households needing to spend more than 20% of their income on fuel use would be regarded as being in extreme fuel poverty.
2.4 In Scotland, a
“satisfactory heating regime” for the main living area in the home for all pensioners aged 60 upwards (and also those who are long-term sick and disabled) is regarded as being that the room must reach a temperature of 23 degrees Celsius for 16 hours a day, 7 days a week. This is a more demanding requirement than for non-pensioner households, where the requirement is 21 degrees Celsius for 9 hours per day weekdays and 16 hours per day weekends.
2.5 In 2001, Scotland chose to use a more demanding satisfactory heating regime for pensioners, the long term sick and disabled people than in the rest of the UK. In
England, irrespective of whether or not they are headed by pensioners, all households are judged to require a 21 degree Celsius temperature in their main living area, and an adjustment is made for under-occupancy. Thus pensioners, the sick and disabled people in Scotland are deemed to require warmer homes than their counterparts in England. This is significant given that these groups together make up more than one third of Scottish households.
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2.6 These standards relate to internal temperatures and therefore cannot be justified on the basis of a longer heating season in Scotland which is already factored into the calculations. The Scottish definition means that, for a given level of fuel prices, the improvement in energy efficiency and/or increase in income required to take a pensioner household out of fuel poverty in Scotland is significantly greater than in the rest of the UK.
2.7 In 2005/06, 24% of the population in Scotland were classed as fuel poor compared with only 7% of households in England. This is despite the fact that the energy efficiency of Scottish homes is generally better than those in England 1 .
However, this definitional difference is only one of the reasons why the rate of fuel poverty is 3.4 times greater in Scotland than in England. Other reasons for the higher rate in Scotland include demographic factors (a higher proportion of pensioners and the long term sick living on essentially fixed incomes)
; Scotland’s greater rurality
(which correlates to factors which increase fuel costs, such as lack of access to the gas grid), and a colder climate and generally higher wind speeds (especially in
Northern-most regions) leading to a longer heating season.
Definitions of fuel poverty in other countries
2.8 Over the course of this review, we have been unable to find evidence which indicates that countries outside the UK, have defined fuel poverty in anything like similar terms to those applied in Scotland. Programmes do exist to assist low income families with the costs of high fuel bills – in the USA, this is sometimes referred to as
“weatherisation payments”. For example, New England Farm Workers’ Council
(NEFWC) has managed the Low Income Home Energy Assistance Program
(LIHEAP) for the City of Springfield since 1982. LIHEAP assists low-income households, including owners and renters, in meeting the high cost of home heating.
LIHEAP pays benefits of fixed amounts based on household income. An additional benefit is available to households having a high energy burden. The agency makes utility payments to the primary heating vendor - oil, gas, electric or other. However, while these programmes address similar issues to our fuel poverty programmes, the trigger for action is low income rather than fuel poverty and the focus is on subsidising consumption, rather than seeking to reduce it, through energy efficiency measures.
Causes of fuel poverty
2.9 The three main factors that influence the level of fuel poverty, and which are amenable to a greater or lesser extent, to Government influence 2 are :

fuel prices
1 A direct comparison is not straightforward, but using the Standard Assessment Procedure (SAP
2005) scale, the mean rating for Scotland’s housing stock in 2004-05 was between 55 and 59, compared to a score of 48 for England’s housing stock, in 2005.
2
Under-occupation can also contribute to fuel poverty, which helps to explain the prevalence of fuel poverty in single person households.
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
household incomes; and

energy efficiency of the housing stock.
The relative importance of each factor varies depending on the period examined. For example, analysis of the reduction in fuel poverty between 1996 and 2002 is shown to be attributable mainly to increases in household income (50%); and decreasing fuel prices (35%), with energy efficiency improvements playing a lesser role (15%).
2.10 The definition of fuel poverty and its inter-dependence with these factors means that a household can move into, or out of fuel poverty at different times and for a variety of different reasons. For example, a person who stops work temporarily to undertake a course of study may move into fuel poverty and then move back out of fuel poverty on their return to employment. A household may be brought into fuel poverty when fuel prices rise, but leave fuel poverty when these fall.
Effects of fuel poverty
2.11 Fuel poverty can impact negatively on quality of life and health. For example, households on low incomes that have to spend a high proportion of that income on fuel have to compensate in other parts of their family budgets. This can lead to poor diet, or reduced participation in social, leisure and educational activities.
Overcrowding, caused by families having to remain in limited heated areas of the homes, can also adversely affect the education of young people.
2.12 However, it is important to note that the relationship between indoor temperatures, fuel poverty and ill-health is a complex one. There is a widely held opinion that installing central heating and ensuring warm homes will reduce excess winter deaths 3 (EWD). There is, however, no hard evidence for this. Indeed the term "excess" winter deaths is in some ways misleading in suggesting extra or avoidable deaths. There is no single common cause behind these deaths and very few indeed are caused by hypothermia. Scotland has similar levels of excess winter deaths to other UK countries, but lower levels than Southern European countries such as Portugal. Low levels in the Scandinavian countries may well reflect not only high standards of home heating and insulation but effective protection against outdoor cold.
2.13 Various research projects over recent years have set out to consider the possibility of a correlation between fuel poverty and excess winter deaths (EWDs).
However, while this research has served to highlight the complexities of the issue, it did not conclusively establish such a link. Research by Howieson and Hogan
(2005) 4 identified a link between deprivation and excess winter deaths highlighting that the Scottish Index of Multiple Deprivation (SIMD) is positively correlated with
EWD by region. This relationship suggests that a range of issues are likely to be a factor in EWDs - including health inequalities, income and lifestyle rather than
3 Excess winter mortality is calculated as winter deaths (deaths occurring in December to March) minus the average of non-winter deaths (April to July of the current year and August to November of the previous year).
4
Multiple deprivation and excess winter deaths in Scotland, Journal of the Royal Society for the
Promotion of Health, February 2005 pp18-22 ISN 1466 4240.
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simply climatic variations, or having an energy efficient house. GROS 5 statistics show that numbers of EWDs in Scotland are greatest in the area of Greater Glasgow
Health Board, however when compared against population statistics, there is very little geographic variation across the country. If colder temperatures and energy inefficient housing play a significant part in these deaths we would expect to see greater levels in areas which are colder or have housing stock which is difficult to make thermally efficient.
2.14 Research by Edinburgh University commissioned by the former Scottish
Executive in 2002 found that two years after installation the Central Heating
Programme had had no clear impact on recipients’ current health or their use of health services or medication. Recipients were actually more likely than the comparison group to report receiving a first diagnosis of a nasal allergy (such as hay fever) during the evaluation period. Receipt of central heating under the programme was associated with a reduced probability of receiving a first diagnosis of heart disease and of high blood pressure. This finding must be treated with much caution, however, as it was based on self-reported data, rather than clinical records and was not accompanied by any reduction in the use of medical services or medication which might be expected as a consequence. The Programme did significantly reduce condensation, dampness and cold in recipients’ homes, long-term exposure to which is associated with poor health. A further fourteen outcome measures representing specific symptoms and health conditions exhibited no significant associations with the receipt of heating under the Programme.
Changes in the extent of fuel poverty
2.15 The main source of information on fuel poverty in Scotland is the Scottish
House Condition Survey (SHCS). Prior to 2003, surveys were conducted in 1991,
1996 and 2002. Since then they were moved to a continuous format to allow more flexibility in content and the ability to more closely monitor Ministerial targets.
Figure
1 shows that from 1996 to 2002 the number of fuel poor households in Scotland fell substantially from around 36% to 13% 6 . However, since 2002 fuel poverty levels have increased every year with a particularly large increase to 2005/06. In 2002,
13% of households (286,000) were assessed as fuel poor, rising to 15.4% of households (350,000) in 2003/4. This rose again to 18.2% of households (419,000) in 2004/05 and then to 23.5% of households (543,000) in 2005/06. 7.5% of households (173,000) in 2005/06 were estimated to be in “extreme fuel poverty” (i.e. having to spend in excess of 20% of their income on fuel). This means that almost a third of those in fuel poverty are in extreme fuel poverty.
5 General Register Office for Scotland
6 This comparison uses two different definitions of fuel poverty. A comparison using the same definition results in a fall from 36% to 9%. See the 2002 fuel poverty report for further details: http://www.scotland.gov.uk/Topics/Statistics/SHCS/FuelPoverty
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Figure 1: Households in Fuel Poverty 1996-2005/6 (%)
40
35
30
25
20
15
10
5
0
1996 2002 2003/4 2004/5 2005/6
Survey year
2.16 Changes in fuel prices were an important factor in both the reduction in numbers in fuel poverty between 1996 and 2002 and in the subsequent increase.
Because of the small sample sizes in the 2004/5 and 2005/6 surveys, the precision of any estimates of the effect of improved energy efficiency measures will be poor as will estimates of the offset of those improvements against the impact of fuel price increases. However, in general terms, re-running the fuel poverty calculations on the
2005/6 sample using 2004/5 fuel prices up-rated for general inflation showed that there would have been no statistically significant change in fuel poverty between
2004/5 and 2005/6 had fuel prices not increased in real terms over the period.
2.17 Figure 2 and Table 2 show that households living in dwellings with low levels of energy efficiency (i.e. t hose with ‘poor’ scores under the National Home Energy
Rating (NHER) system) are more likely than those with higher NHER scores to be fuel poor. Not surprisingly, fuel poverty is also closely correlated with low incomes.
Almost all of those with a household income of less than £100 per week are fuel poor. Fuel poverty is, however, lowest in social housing, particularly the housing association sector (17% of households). This is likely to be due to the preponderance of flats, younger stock age profile and Government refurbishment targets affecting the socially rented sector. Fuel poverty is highest in owner-occupied dwellings (25 % of households).
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Figure 2: Households in fuel poverty by tenure, NHER band, household type, household income and urban/rural (%) owner-occupier
LA/other public
HA/co-op private-rented
Poor
Moderate
Good single adult small adult single parent small family large family large adult older smaller single pensioner
< £100 p.w.
£100 -199.99 p.w.
£200 -299.99 p.w.
£300 -399.99 p.w.
£400 -499.99 p.w.
£500 -699.99 p.w.
£700+ urban rural
0 10 20 30 40 50 60 70 80 90 100
2.18 From Figure 2 and Table 2 , it can be seen that just under half of single pensioner households (181,000) and around two fifths of older smaller households 7
(143,000) were fuel poor, making them more likely than other household types to experience fuel poverty. 24% of single adult households (81,000) were also in fuel poverty. Family and non-pensioner couple households were least likely to be fuel poor.
2.19 Table 2 shows that households with partial central heating or no central heating (of which there are relatively few in Scotland) are around twice as likely to suffer fuel poverty as those with full central heating.
In terms of their main fuel source, twenty per cent of gas users are fuel poor compared to 32% of electricity users and 37% of oil users. Furthermore those who use oil or ‘other fuel types’ (not gas or electricity) are around three times more likely to experience extreme fuel poverty than gas users.
7 Mostly pensioner couples
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Table 2: Fuel poverty by dwellings and household characteristics (%)
Tenure
Owner-occupier
LA/other public
HA/co-op
Private-rented
Private
Social
Central heating extent
Full
Partial
No central heating
Primary heating fuel
Gas
Electricity
Oil
Other fuel type
NHER band
Poor
Moderate
Good
Household type
Single adult
Small adult
Single parent
Small family
Large family
Large adult
Older smaller
Single pensioner
Weekly income band
< £100 p.w.
£100 -199.99 p.w.
£200 -299.99 p.w.
£300 -399.99 p.w.
£400 -499.99 p.w.
£500 -699.99 p.w.
£700+ p.w.
Urban/rural
Urban
Rural
All Scotland
Unweighted sample size
Not Fuel Poor Fuel Poor
% %
75
78
83
77
75
80
78
62
59
80
68
63
59
42
69
88
1
42
78
89
95
98
99
76
89
86
92
88
86
59
53
79
66
77
2,318
25
22
17
23
25
20
22
38
41
20
32
37
41
58
31
12
99
58
22
11
5
2
1
24
11
14
8
12
14
41
47
21
34
23
785
Extreme Fuel
Poor 8
%
7
12
16
6
8
16
18
25
11
2
78
16
3
1
1
3
5
18
14
5
4
2
1
6
14
7
263
9
3
2
9
9
2
Unweighted sample size
2,092
505
296
210
2,302
801
2,866
155
82
2,261
471
247
124
167
1,576
1,360
130
654
638
479
383
449
370
407
531
165
445
216
310
503
526
2,411
692
3,103
8 Extreme fuel poverty is a subset of fuel poverty i.e. those who are extreme fuel poor are included in the figures for fuel poverty.
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Factors affecting fuel poverty in rural areas
2.20 Table 2 shows that rural households are more susceptible to fuel poverty
(34% are fuel poor) than urban households (21%). 14% of rural households are in extreme fuel poverty, making extreme fuel poverty more than twice as likely for a rural household as for an urban household. The patterns revealed in the survey data, taken together with the particular definition of fuel poverty adopted in Scotland, with its differential heating regime for pensioner households, provide a clear indication of the types of locations across Scotland that are more likely to be vulnerable to fuel poverty. Most of these factors, as outlined below, are generally more prevalent in rural areas.
2.21 In terms of social and demographic factors , fuel poverty will tend to be higher in areas where there is a higher proportion of :

pensioner households;

long-term sick and disabled households;

single person households.
In terms of the housing stock , there will be tendency for greater levels of fuel poverty in areas where there is a higher proportion of :

houses, especially detached houses;

stock built using solid wall construction, for example, stone built or built using non-traditional construction methods;

older housing.
In terms of the energy infrastructure , there will be tendency for greater levels of fuel poverty in areas where there is limited access to the gas grid – again, this is more likely in rural rather than urban areas. The chances of a household that is ‘off the gas grid’ being fuel poor are approximately double that of a household ‘on the gas grid.
’ Many houses off the gas grid are in also the North of Scotland, where the heating regime used for modelling is stricter to account for the longer heating season and higher wind speed. Similarly, many of these houses are detached and/or have stone walls making them harder to insulate using conventional means.
Improvements in housing energy efficiency
2.22 The SHCS also shows that energy efficiency has been consistently increasing in recent years at the same time that fuel poverty has also been on the rise. Table 3 and Figure 3 show how the energy efficiency of the housing stock has improved. In
2002, an estimated 31% of dwellings achieved a “good” NHER rating of 7 or above.
By 2005/6 this proportion had risen to an estimated 47%. Correspondingly fewer dwellings were given a poor rating in 2005/6 than in 2002.
17

Table 3: Change in banded NHER by tenure 2002-2005/6 ( %)
NHER Band
All
Unweighted sample size
All tenures
2002
2003/4
2004/5
2005/6
Private sector
Poor Moderate Good
Row Percentages
8
6
5
4
60
54
51
48
31
40
44
47
2002
2003/4
2004/5
2005/6
Social sector
2002
9
8
6
5
65
58
57
55
27
35
38
40
2003/4
2004/5
2005/6
6
2
2
1
51
43
35
32
43
56
63
67
100
100
100
100
100
100
100
100
100
100
100
100
14,965
3,088
3,085
3,146
10,107
2,220
2,305
2,340
4,858
868
780
806
2.23 Table 3 shows that improvements in energy efficiency of social rented dwellings have been greater than those for the stock as a whole. This is likely to reflect the impact of fuel poverty programmes on this sector, as well as housing improvement programmes linked to the achievement of the Scottish Housing Quality
Standard. In 2005/6, about two thirds of social rented dwellings had a “good” NHER rating, compared to 43% in 2002. Over the same period, the proportion of private sector dwellings rated “good” increased from 27% to 40%. Only about 3% of the housing stock has no central heating. A further 4% have only partial central heating.
Table 4 shows that, of those 3% without central heating, 60% have “poor” NHER ratings, compared to just 2% of those with full central heating - with almost half of those with full central heating having ‘good’ ratings.
18

Figure 3: Mean NHER by tenure, type of dwelling, household income and urban/rural indicator owner-occupier
LA/other public
HA/co-op private-rented
Detached
Semi-detached
Terraced
Tenement
Other Flats
< £100 p.w.
£100 -199.99 p.w.
£200 -299.99 p.w.
£300 -399.99 p.w.
£400 -499.99 p.w.
£500 -699.99 p.w.
£700+ urban rural
0 1 2 3 4 5 6 7 8
Mean NHER score
2.24 Despite these improvements, problems remain. Table 4 shows that 14% of dwellings in the private rented sector are rated “poor”, compared to an average of
4% across all sectors. Those who use ‘other fuel types’ 9 such as solid fuels are over
30 times more likely than those who use gas to have a ‘poor’ NHER score. Urban dwellings are around twice as likely to have a good NHER rating and around six times less likely to be rated ‘poor’ than those in rural areas. This may be partly explained by factors such as rural dwellings being more likely than those in urban areas to be off the gas grid, and so must use oil or solid fuels which are more costly.
Many of these homes are also stone built or of non-traditional construction and so cannot benefit from energy efficiency measures such as cavity wall insulation.
Consequently, these types of houses and in particular detached houses have poorer energy efficiency than flats.
9 Other fuel types includes solid fuels such as coal, smokeless fuels, wood and peat, and community heating. Community heating systems have been included in this category as their sample size in the
SHCS is too small to allow them to be a separate category but they would generally be expected to have better energy efficiency ratings than solid fuel systems.
19

Table 4: NHER band by dwelling and household characteristics (%)
NHER band
Poor
%
Tenure
Owner-occupier
LA/other public
HA/co-op
Private-rented
Private
Social
Dwelling type
Detached
Semi-detached
Terraced
Tenement
Other flats
Age of dwelling
Pre-1919
1919-1944
1945-1964
1965-1982
Post-1982
Central heating extent
Full
Partial
No heating central
Primary heating fuel
Gas
2
10
60
4
1
2
14
5
1
10
3
2
3
3
14
4
3
2
0
1
12
15
33
Electricity
Oil
Other fuel type
Household type
Single adult
Small adult
Single parent
Small family
Large family
Large adult
Older smaller
Single pensioner
Urban/rural Indicator
Urban
Rural
All Scotland
2
13
4
5
5
1
4
3
2
7
3
Moderate
%
48
56
38
44
63
79
43
45
52
29
49
46
55
56
44
63
58
52
50
25
61
65
44
32
35
56
34
28
44
55
32
46
61
48
Good
%
50
43
70
47
51
43
37
52
23
38
45
48
75
29
32
53
65
62
40
65
70
41
40
67
49
34
2
56
25
6
24
52
25
47
Total
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Unweighted sample size
2,120
506
300
220
2,340
806
794
713
734
530
375
525
411
784
820
606
2,900
159
87
2,277
482
257
130
419
539
168
450
218
315
508
529
2,430
716
3,146
20

Eliminating fuel poverty
– the scale of the challenge
2.25 The improvements in energy efficiency that have been achieved across all housing tenures in recent years are significant and welcome. Further progress will be more challenging as the focus shifts to properties that are harder, or to put this another way, more expensive, to treat 10 . Nevertheless, improving household energy efficiency must be an important component of any successful fuel poverty strategy.
However, in terms of our aim of eliminating fuel poverty, as far as practicable, this positive progress needs to be set against the countervailing influence of significant rises in fuel prices.
2.26 Figure 4 shows how fuel prices have risen markedly in 2005-6 with a 30% real rise in gas prices and 20% real rise in electricity prices between May 2005 and
May 2006. Analysis undertaken for this review has revealed that fuel prices would need to fall by almost to zero to eliminate fuel poverty entirely. Indeed, fuel prices would have to fall by something like 80% even to eradicate only 80% of fuel poverty.
11 . This is extremely unlikely in the medium or even the long term, and, indeed, further significant fuel price increases have been announced in recent weeks.
Figure 4: Fuel Price Indices adjusted for inflation , (1990 =100)
150
100
50
0
2002 2003 2004 2005 2006 2007
Gas
Electricity
Source: BERR Quarterly Energy Price Tables. May each year.
10
Hard to treat houses are generally regarded as those that are either expensive or technically difficult to insulate (such as those with solid walls that cannot receive cavity wall insulation; or with roofs that are flat or have restricted loft space); or are remote from the supply of mains gas meaning that it is difficult or expensive to install heating that uses cost effective fuel. Houses that are difficult to insulate include pre-1930s stone built properties and system built post-war buildings using concrete or metal construction for solid walls or with flat roofs. Multi storey blocks could also be regarded as hard to treat.
11 This is based on statistical modelling using SHCS data which can be used to fix the energy efficiency of the stock and incomes at today’s levels and then calculate the fuel price reduction required to eliminate fuel poverty. The reason why the fuel price reduction is so large is because there are groups of people in Scotland whose incomes are so low and/or their homes are so energy efficient that the current level of fuel prices essentially places them at the far end of the fuel poverty curve. These people require extremely large reductions in fuel prices to lift them out of fuel poverty – as defined - i.e. to bring them below the 10% line.
21

2.27 There are also limits to how far energy efficiency improvements can take us towards meeting the ultimate goal of eliminating fuel poverty, in the context of high and rising fuel prices. Statistical modelling has shown that, even if all houses were rated as ‘good’ under the NHER system (i.e. every house achieved a score of 7), or, in fact, even if all households achieved the highest NHER rating (i.e. a score of 10 out of 10), then, given today’s levels of fuel prices and incomes, fuel poverty in
Scotland would still be present in a large number of households (see Table 5 ). It should be stressed th at improving all Scotland’s homes to an NHER level of 7 would be extremely expensive. Improving the stock to an NHER level of 10, would probably be impossible without significant amounts of demolition and new build to higher environmental standards. Even if it were possible to achieve such high energy efficiency standards, it is estimated that almost a quarter of a million fuel poor households would remain in Scotland.
12
Table 5: Number and rate of fuel poverty given theoretical energy efficiency improvements
Current efficiency levels energy
Number
543,000
Rate
23.5%
All stock attains NHER 7
All stock attains NHER
10
422,000
231,000
18.2%
10.0%
Source: SHCS statistical modelling exercise based on 2005-6 data
2.28 Analysis has also shown that tackling fuel poverty - as defined - through household incomes alone is not realistically achievable. The Scottish Government has modelled the increases in income required to establish how far they would have to rise to eliminate fuel poverty in Scotland. This i nvolves ‘freezing’ the energy efficiency of the stock and also fuel prices at 2005-6 levels. The results suggest that total personal incomes in Scotland would have to rise overall by somewhere between £3-3.5 billion per annum 13 . Those around the margins of fuel poverty and in lower income groups in particular would require substantial income increases 14 . To eliminate fuel poverty at 2005-06 levels would have required this additional income to be distributed across household groups in a particular way so as to compensate the fuel poor as appropriate. If the additional income required to remove fuel poverty was to come from the Scottish Government Budget, this would account for over 10% of devolved expenditure every year. In simple percentage terms, the incomes of the fuel poor would have to rise by an average of 60%, including increases of between
12 Statistical modelling is used to fix fuel prices and incomes at current levels and estimate what fuel poverty would be under two scenarios for energy efficiency in the stock, NHER 7 (all houses rated
‘good’) and NHER 10 (all houses reach the current highest standard for energy efficiency, for example, equivalent to new build flats built to the latest building standards).
13 Total household income in Scotland was in the region of £67 billion in 2005-06.
14 This time the statistical model fixes the energy efficiency of the stock and fixes fuel prices and calculates for each household group the increase in income required to take them out of fuel poverty.
This could be the required increase in wages for those who are employed, or the increase required in benefits and pensions for those who are not in work or who are pensioners. The reason why the increase is so large is because, again, fuel prices are so high relative to some very low incomes that huge increases are required to bring some households below the 10% threshold.
22

75% and 80% for pensioner groups. Again, such sums are prohibitively high and suggest that to fix the problem with higher incomes (or effectively a redistribution of income) alone is unlikely to be sustainable, and is not realistic under the current devolution settlement.
2.29 Such a large extra income requirement highlights how the definition of fuel poverty and its use of the
‘10% rule’ (in which fuel poverty is deemed to affect those paying more than 10% of their income on energy) dictates the scale of the problem.
Using the current definition of fuel poverty , a £100 increase in the annual fuel bills of a particular household would require a compensating rise in income of at least
£1,000 if the household was to maintain its position, in fuel poverty terms, compared to before the price increase. The nature of the fuel poverty definition means that the level of income compensation required to keep the fuel cost/income ratio of a household steady is 10 times greater than the fuel cost increase itself. This implies that, to hold the numbers in fuel poverty static, Scottish or UK governments would have to find resources that are 10 times greater than the value of the fuel price rise every time fuel prices rise assuming that energy efficiency levels do not change.
Conclusion
2.30 This part of the report has made clear the importance of household income and fuel prices, as well as energy efficiency, in determining levels of fuel poverty. It has shown that a range of demographic, housing and infrastructural factors make fuel poverty much more prevalent and harder to tackle in rural, as opposed to urban areas. It notes that the there are particular aspects of the definition of fuel poverty that has been adopted in the UK (in particular, the “10% rule”) that make it extremely difficult to completely eliminate fuel poverty in an environment of high and rising fuel prices. This has been compounded by the specific definition of pensioner fuel poverty adopted in Scotland in 2001 which has added further to the challenge.
2.31 In the context of high or rising fuel prices, fuel poverty continues to increase, despite significant ongoing improvements to household energy efficiency. This means that current programmes – which focus on improving energy efficiency through central heating and insulation measures
– are not enough on their own to turn around fuel poverty. Continuing to improve energy efficiency will be more challenging in the future as we begin to address problems in hard-to-treat properties.
However, even if the energy efficiency of all the Scottish stock reached very high standards across the board, fuel poverty would still be a significant factor in
Scotland. Fuel prices and/or incomes would need to change substantially, alongside further major improvements to energy efficiency, in order to eliminate fuel poverty.
23

3. MEASURES TO TACKLE FUEL POVERTY – INFLUENCE AND DELIVERY
3.1 This part of the review sets out the powers available to Scottish Ministers to deliver schemes to tackle fuel poverty and those reserved to Westminster. Given this context, it describes how we are seeking to work within the devolution settlement to influence household incomes and fuel prices, which have such an important role to play in determining the number of people in fuel poverty. It then considers in more detail the delivery of the main fuel poverty schemes directly under Scottish
Government control – the Central Heating Programme and Warm Deal.
Scottish Government powers
3.2
The Scottish Government’s powers to introduce measures to tackle fuel poverty are limited by the devolution settlement. Our principal powers in relation to fuel poverty are in regard to measures to improve the energy efficiency of the home, which, as outlined in the previous chapter, is the least important of the three principal factors influencing fuel poverty. The Social Security Act 1990 enables Scottish
Ministers to make arrangements for the payment of grants for the purposes of improving thermal insulation or preventing wastage of energy. However, the
Scotland Act reserves to Westminster all matters relating to social security benefits
(which determine the incomes of many low income households) and to the regulation of energy companies (including pricing). The Scottish Government cannot therefore develop schemes of direct financial assistance for the fuel poor. Nor can it legislate in such matters as social tariffs or smart meters, even if it wished to. However, while the Scottish Government has no direct control over these matters, it is seeking to influence them as far as it can.
Influencing household incomes
3.3 The Scottish Government Economic Strategy (GES) recognises that sustainable economic growth must go hand in hand with a fairer sharing of the wealth of the country and with an absolute commitment to tackling poverty and disadvantage by improving the life chances of those who are most in need. Tackling fuel poverty must sit within these broader objectives. This must, however, take into account the complex relationship between “poverty” (essentially about incomes) and
“fuel poverty” (which depends on a complex of factors including incomes, fuel prices and energy efficiency). The relationship is examined in more detail in chapter 4.
3.4
Changes to household income are a major factor contributing to fuel poverty.
The Scottish Government has an important role in enabling the growth pf the
Scottish economy and promoting employment which may offer a route out of fuel poverty for some people. However, factors such as the level of pensions and welfare benefits are reserved to Westminster. The significant reduction in fuel poverty between 1996 and 2002 is associated with factors such as the introduction of the
Minimum Wage and tax credits, alongside reductions in fuel prices, with energy efficiency gains taking only a minor role. In the absence of further redistributive policies of this scale (with the notable exception of Pension Credit) the importance of income related policies in determining the level of fuel poverty has waned in the last few years.
24

3.5 The Scottish Government can and does, however, work with Westminster to increase household income by promoting benefit take-up and this is an important aspect of our fuel poverty programmes. The DWP estimates that up to 40% of eligible pensioners may not be claiming Pension Credit 15 - a third of which are expected to be aged over 80. It estimates that as much as between £5,800 million and £9,380 million in income related benefits including Income Support and Pension
Credit were left unclaimed in 2005-06; between 15 and 22% of the overall welfare benefits budget.
16 In an arrangement unique to Scotland, the Managing Agent for the programmes has a cross-referral agreement in place with the Pension Service and a face to face benefits entitlement check is offered to anyone of pensionable age who applies to the Warm Deal or Central Heating Programme.
3.6 There is currently no similar scheme in place for Warm Deal applicants who are not pensioners. These groups who are not eligible for central heating could also benefit from income maximisation support. Statistics show that in particular, single people need encouragement to claim all the benefits to which they are entitled. The
DWP estimates that in 2005/06 more than half of those entitled to, but not claiming,
Jobseeker’s Allowance (Income-Based) were single people under the age of 25 and the take-up of Income Support appeared to be lower amongst non-pensioners without children 17 . Take-up for Housing Benefit is lowest amongst families with children. A benefits health check provided to these householders, could complement the package of insulation measures provided under Warm Deal.
3.7 In addition, the Scottish Government has done much to indirectly enhance the disposable income available to potentially vulnerable households, as part of broader anti-poverty initiatives. For example, the Scottish Parliament has introduced free national bus travel for pensioners, as well as free dental checks and eye examinations and the universal provision of free school meals is now being piloted.
While these initiatives will increase the disposable income of many households vulnerable to fuel poverty, because of the specifics of how fuel poverty has been defined, the impact of these measures will not be reflected in the fuel poverty figures.
However, the current definition does mean that the Scottish Government’s proposals to abolish the council tax in favour of a tax based on the ability to pay would be a factor influencing fuel poverty levels.
Influencing fuel prices and other action by fuel companies
3.8 Government policies developed at Westminster to liberalise the energy markets and promote competition may have initially contributed to significant reductions in energy prices and this did play an important part in the fall in fuel poverty from 1996 to 2002. However, in more recent years, fuel prices have continued to rise and this is a major factor in the growth of fuel poverty.
15 http://www.dwp.gov.uk/mediacentre/pressreleases/2007/mar/pce-29-03-07-1.pdf
16 http://www.dwp.gov.uk/asd/income_analysis/sept_2007/0506_NSPR.pdf
17 http://www.dwp.gov.uk/asd/income_analysis/sept_2007/0506_NSPR.pdf
25

3.9 Whilst fuel prices are a matter reserved to Westminster, Scottish officials maintain good working relationships with the Department for Business, Enterprise and Regulatory Reform (BERR) and the Department for Environment, Food and
Rural Affairs (DEFRA). This includes: regular informal meetings; participation in the
UK-wide Energy Efficiency Partnership for Homes and contributions to consultations
(a recent example being the future of the Energy Efficiency Commitment - EEC).
Officials also maintain regular contact with Ofgem and Energywatch. In addition to the overall level of fuel prices, a number of other issues relating to the operations of fuel companies and the obligations upon them have an affect on fuel poverty. These include the use of pre-payment meters (PPM), social tariffs and the obligations of fuel companies under EEC/CERT.
3.10 Many of the poorest households may be paying more for their energy because they are unable to take advantage of competition in the energy market. This may be because their circumstances prevent them from switching energy supplier or because it would not be worthwhile for them to do so. For example, they may be without the wherewithal to switch or may be in arrears with fuel bills. For those with
PPM there may not be a choice of competitive tariffs. PPMs are popular amongst low income households as they provide greater control over payment and thus prevent arrears accruing. A PPM allows small cash payments and so is an attractive way of budgeting for fuel; particularly for those without a bank account.
Unfortunately, this method of payment can also be the most expensive; particularly when compared to direct debit payment methods which offer a discounted tariff.
3.11 As fuel prices have been rising since 2003 in response to world energy markets, the UK Government has exhorted suppliers to do more to protect vulnerable energy customers including the provision of social tariffs. Social tariffs are a low cost energy tariff designed to mitigate the impacts of high fuel prices on lowincome households. These vary across energy suppliers, as do their benefits, but are normally offered to a specific group of energy customers (for example, pensioners) and are often means tested. Perceptions of the success of social tariffs vary across Government, energy suppliers and stakeholders and are often viewed as a complementary measure to improved energy efficiency, rather than a contribution to reducing fuel poverty.
3.12 The Energy White Paper set out the UK Government’s commitment to instruct
Ofgem to evaluate the energy companies’ Corporate Social Responsibility measures including social tariffs to see how these compare in terms of supporting the fuel poor.
This review was to compare measures across the companies, highlight good practice and draw attention to areas where improvements were needed. Ofgem concluded from the review that each company had initiatives and approaches with
“worthwhile aims” providing assistance to some of their most vulnerable customers.
It furth er concluded that these initiatives should be “recognised as valuable steps which go beyond suppliers’ regulatory obligations.”
3.13 The White Paper also stated that the UK Government would introduce powers within the Energy Bill to enable the Secretary of State to require companies to have an adequate programme of support for their most vulnerable customers, and to consider the role of mandated minimum standards for social tariffs. However, the draft Energy Bill does not include such powers. We understand that this was deemed
26

unnecessary as the Ofgem review had concluded that the measures provided by the companies were effective. On 21 February 2008, energy regulator Ofgem announced an investigation into the markets in electricity and gas in response to public concern about whether the market is working effectively and customers getting a good deal. Their probe will focus on all energy customers, including those with prepayment meters, or who do not pay by direct debit.
3.14 A Fuel Poverty Summit was held on 23 April 2008, chaired by Ofgem chair Sir
John Mogg, to discuss what further action can be taken to tackle fuel poverty. The
Minister for Communities and Sport attended and proposed further measures to combat the impacts of high fuel prices in Scotland. He suggested actions should include reconvening the UK-wide Ministerial Fuel Poverty Group, transparency around Carbon Emissions Reduction Target spending by energy companies in
Scotland and sharing of Department for Work and Pensions data to help focus resources on those most vulnerable to fuel poverty.
3.15
Action on pricing needs to be seen in the context of the legal obligations faced by energy companies under the Energy Efficiency Commitment (EEC) and 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. A significant proportion of these savings are aimed at low-income consumers in order to alleviate fuel poverty. EEC/CERT is funded through a levy on all domestic fuel bills and thus represents a redistribution between fuel company customers, rather than direct investment by the UK
Government.
3.16 The UK Government began a new three year programme called CERT
(Carbon Emission Reduction Target), building on the previous EEC scheme, but with a stronger emphasis on carbon saving. CERT doubles the level of activity compared to EEC, and includes provision for full funding of measures for low income priority groups and the offer of discounts to those who are “able to pay”. CERT could potentially be equivalent to provision of investment in energy saving measures of around £80m per annum in Scotland - significantly more than the amount currently invested in Scottish Government fuel poverty programmes. There is anecdotal evidence that Scotland’s householders are not receiving a proportionate share of
EEC resources.
Delivering household central heating and insulation programmes
3.17 In the context of its limited powers to address the key contribution of household income and fuel prices to fuel poverty, the Scottish Government has instead focussed on seeking to improve household energy efficiency. These measures consist of a mixture of programmes to improve housing and domestic energy efficiency across the board and schemes focussed specifically on fuel poverty.
3.18 Measures to improve energy efficiency in the housing stock as a whole, include :
27

- provision of energy efficiency advice through the Energy Saving Trust and a
Scotland-wide network of energy advice centres;
- setting the highest energy requirements in the UK in the building standards for new buildings, including housing. The Minister for Transport, Infrastructure and Climate Change commissioned an Expert Panel to advise the Scottish
Government on a Low Carbon Building Standards Strategy aimed at moving the construction of new buildings, including housing, to the rigorous energy performance levels imposed in Scandinavia. The cost implications arising from its proposals are being considered;
- the introduction of Energy Performance Certificates (EPCs) - linked to the
Home Report in the case of home sales - will mean that the energy performance of houses will be rated when they are constructed, sold or rented.
- introduction of minimum insulation standards through the Tolerable Standard.
3.19 Measures intended for fuel poor and/or low income households include :
- The Scottish Housing Quality Standard (SHQS) which includes a commitment to ensure all social rented houses (615,000 homes) have effective insulation and a full, efficient central heating system by 2015.
- The Central Heating and Warm Deal (insulation) programmes.
Our main programmes for tackling fuel poverty are therefore the Central Heating
Programme and Warm Deal, to which we now turn to assess in more detail.
CENTRAL HEATING PROGRAMME (CHP)
3.20 The Central Heating Programme (CHP) is a national Scottish Government programme providing a package of measures to pensioner households (i.e. those over 60). These are :
- A full, efficient central heating system;
- All suitable insulation measures 18 ;
- Cold alarm, smoke and carbon monoxide detectors;
- Energy efficiency advice;
- Optional benefits health check provided by the Pension Service.
3.21 The first phase of the programme was aimed both at pensioners and also households of all ages living in social housing. A major achievement of this phase was the provision of free central heating to all public sector tenants where they had not previously had central heating, and wanted it installed - 25,000 households in social housing received the package. This part of the programme is complete and attention is now focussed on pensioner households in the private sector.
3.22 The original intention of the programme was to tackle the energy efficiency aspect of fuel poverty by installing energy efficient heating and insulation in the homes of pensioners without central heating. Over time, eligibility for the scheme has
18 That is, depending on the nature of the property : loft, cavity wall, tank and pipe insulation and draught proofing.
28

gradually expanded with a mix of universal and means-tested entitlements and the programme now effectively has three sets of eligibility rules 19 . Any householder or their spouse living in private sector housing who conform to the following age/income requirements are currently eligible for the central heating package :
- Aged over 60 and have no central heating or a system broken beyond repair;
- (Introduced from May 2004) Aged over 80 who have a partial or inefficient system;
- (From January 2007) Aged 60-79, who receive the guarantee element of
Pension Credit and have a partial or inefficient system.
3.23 In 2006/07, 5,847 homes (57% of the overall central heating programme) benefited from the main (over 60s) programme; 3,982 homes (39%) received replacements under the over 80s programme; and 409 dwellings received replacements under the more recently introduced programme for 60-79 year olds in receipt of pension credit. Since the beginning of the programme in 2001, up to March
2008, nearly £300 m was spent by the Scottish Government installing central heating systems in nearly 100,000 homes in the private and public sector.
Targeting of the CHP
3.24 The Scottish Government’s commitment to tackle fuel poverty covers all household types in fuel poverty, however, our programmes are not specifically targeted on the fuel poor. Instead, the Central Heating Programme is targeted at the household type that is statistically most likely to be fuel poor – that is, pensioners.
Table 2 , which uses 2005/06 data from the SHCS, has shown that fuel poverty is much more prevalent in pensioner groups than in other household types. Nearly half
(47%) of single pensioners and 41% of “older, smaller” households are fuel poor.
The household type with the next highest incidence of fuel poverty is single adults, with the much lower rate of 24% 20 . It is clear that if resources are to be targeted on any particular household type, then pensioners are the most effective group to target, and it avoids issu es around “means-testing” that could follow from alternative methods of targeting. However, the end result is that it would be expected that more than half of the household group primarily benefiting from public expenditure on fuel poverty programmes is not actually fuel poor. At the same time, many household types that include significant numbers of fuel poor
– such as single adults and lone parents - are not eligible for the CHP (although such households do qualify for Warm
Deal (insulation) measures, if in receipt of certain benefits).
3.25 Figure 5 shows the proportion of those living in private sector homes (i.e. the sector targeted by the CHP) that are fuel poor, according to age. This indicates that pensioner households are more prone to fuel poverty, but not exclusively. Around half of pensioner households in private homes were estimated to be fuel poor in
2005-06, and just over a tenth of non-pensioner households. It also shows that amongst pensioner households, a larger proportion of over 80s are fuel poor (62%), compared to those between 60 and 80 (48%).
19 The element of the programme dealing with central heating in Glasgow Housing Association dwellings is now complete.
20 Source : SHCS, 2005-06
29

Figure 5: Relationship between Fuel Poverty and Age
– Proportion of
Households in Group that is Fuel Poor
70
60
50
40
30
20
10
0
25
51
11
48
62
All ages All over 60s < 60 60-79 80+
Source: Scottish Housing Condition Survey, 2005-06, Private households only
3.26 Figure 6 takes this a stage further and breaks down each group into those that are on a low income, defined here as the bottom two deciles, and those that are not. This indicates that there is a much closer correlation between low incomes and fuel poverty than between age and fuel poverty. Three-quarters of those in the bottom two deciles of income are fuel poor, whereas only half of the over 60s are fuel poor.
30

Figure 6: Relationship between Fuel Poverty and Household Income
–
Proportion of Households in Group that is Fuel Poor
100
90
80
70
60
50
40
30
20
10
0
77
15
57
6
88
32
94
47 inc om e inc om e inc ome inc ome
inc ome
All age s,
low s,
not
low age
All
<6
0,
low
0 not
<6
low
60
-7
9, low
60
-7
9, not
low
inc ome
80
+,
low
80 inc ome
+,
not
low inc ome
Source: Scottish Housing Condition Survey, 2005-06, Private households only. Low income defined as bottom two deciles.
3.27 Pensioners in Scotland are gradually becoming better off as measured by the official poverty statistics. In 1996-7, there were around 270,000 officially poor 21 pensioners in Scotland (31% of all pensioners). This had fallen to 220,000 (25%) by
2002-3 and has fallen further to about 160,000 (18% of all pensioners) by 2005-6.
This means that over the 9 years to 2005-6, the number of pensioners in poverty in
Scotland fell by around 40% due to such factors as the introduction of Pension
Credit.
22 Therefore, if such trends continue, the expectation would be that there would be downward pressure on the level of fuel poverty among pensioners as incomes increase making the targeting of pensioners as a group even less effective than at present.
Impact on fuel poverty
3.28 Table 6 provides illustrative comparative data on the effectiveness of the CHP and Warm Deal programmes in terms of energy efficiency, carbon saving and fuel poverty reduction. The impact of the schemes will vary according to the particular property and household affected. The data for this modelling exercise is based on a
3 bedroom semi-detached house in Edinburgh, which in many ways is typical for
Central Scotland. This shows that, in this example, first time installations under the
CHP have greater impact on energy efficiency and fuel poverty than replacements;
21 Poverty is defined as below 60% of median income after housing costs.
22 From Households Below Average Income Dataset (Department for Work and Pensions).
31

and that boiler-only replacement is more cost-effective than whole system replacements. While this example is illustrative only, it is based on contemporary data. Other more detailed, academic studies have also been undertaken to assess the impact of previous phases of the CHP.
Table 6: Comparison of effectiveness of different types of central heating provision
First time fitting of efficient central heating (house with no insulation, no central heating)
Thermal comfort (NHER scale 0-10)
Annual fuel bill (£)
Without
2.2
1,562
With
5.8
1,004
Change
3.6
-558
CO 2 emissions (tonnes)
Percentage of income spent on fuel
8.5
13.6
5.6
8.7
Replacement of inefficient central heating with efficient central heating
(house with no insulation, inefficient central heating)
Thermal comfort (NHER scale 0-10)
Annual fuel bill (£)
Inefficient
3.9
1,327
Efficient
5.8
1,004
-2.9
-4.9
Change
1.9
-323
CO 2 emissions (tonnes)
Percentage of income spent on fuel
7.9
11.5
5.6
8.7
-2.3
-2.8
Replacement of inefficient central heating with efficient central heating boiler only
(house with no insulation, inefficient central heating)
Thermal comfort (NHER scale 0-10)
Annual fuel bill (£)
Inefficient
3.9
1,327
Efficient
5.8
1,004
Change
1.9
-323
CO 2 emissions (tonnes) 7.9 5.6 -2.3
Percentage of income spent on fuel 11.5 8.7
Source: Scottish House Condition Survey, using National Energy Services Software
-2.8
3.29 A study was carried out by Alembic Research in the early years of the Central
Heating Programme (2001-04) to assess its effectiveness. It found that just over half
(54.3%) of the households surveyed were found to be in fuel poverty prior to participating in the programme.
23 The rest were not fuel poor, but qualified because of their circumstances. Seventy-six percent of households that were previously fuel poor were removed from fuel poverty after having the central heating and other measures installed. This essentially means that the rate at which the programme actually removed households from fuel poverty was in the region of 41%. Thus, in the remaining 59% of cases the programme did not remove the household from fuel poverty - either because they were not in fuel poverty in the first place, or because they were so fuel poor (as defined) that even free central heating and insulation could not get them out of fuel poverty.
3.30 Fuel prices in Scotland started to rise substantially in 2003 and continued to do so until dropping back slightly in 2006 (though still above previous levels). In
23 This is a little above what would have expected to see given that even today only some 42% of
CHP-eligible households are actually fuel poor.
32

order to assess the impact of this on the efficacy of the programme, further analysis was undertaken. This showed that taking account of 2006 fuel prices, 78.4% of participants would have started out fuel poor. Half of these initially fuel poor participants would have been lifted out of fuel poverty by the programme. (That is,
39.3% of all participants would have been lifted out of fuel poverty by the scheme.)
3.31 It should be noted, however, that any increases in incomes were not taken into account in the up-rating of the figures. It should also be borne in mind that the sample included social sector participants eligible at that time as well as pensioners.
The sample of households surveyed and price and income factors at the time of the research are not therefore directly comparable to the situation today. This is because much has changed – i.e. incomes, prices and the groups targeted by the programme. The progress of this research itself illustrated how difficult it is to actually measure fuel poverty and to assess the inter-related impact of the different and dynamic determining factors. It must also be borne in mind that the percentage of replacement systems would have been smaller over 2001-04 compared to what it is today (approximately 93%). Such a high rate of replacements will most likely mean the percentage of households currently being lifted out of fuel poverty by the
CHP is considerably lower than the 39% indicated by the recalibrated Alembic research.
The shift from first-time installations to replacements
3.32 As noted above, in recent years, the programme has progressively shifted from a focus on installing first-time systems to being a programme to replace broken/worn out, partial or inefficient systems. Figure 7 indicates the changing numbers of systems under the different parts of the Programme over the years, and
Figure 8 illustrates how this has led to the proportion of first-time systems steadily falling from 91% in 2001-02 to only 7% in 2007-08. Installing central heating for the first time
– perhaps replacing gas or electric fires in each room – is likely to have a much bigger impact on fuel poverty than replacing an inefficient central heating system with a more efficient one. This trend is therefore likely to have further reduced the impact of the programme on fuel poverty.
33

Figure 7: Numbers of Installations under the Different Elements of the
Programme 24
16000
14000
12000
10000
8000
6000
4000
2000
0
20
01
/0
2
20
02
/0
3
20
03
/0
4
20
04
/0
5
20
05
/0
6
20
06
/0
7
20
07
/0
8
Figure 8: Switch from First Time Systems to Replacements
Pension Credit
Replacements
Over 80s
Replacements
Main Programme
Replacements
First Time Systems
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
20
01
/0
2
20
02
/0
3
20
03
/0
4
20
04
/0
5
20
05
/0
6
20
06
/0
7
20
07
/0
8
Pension Credit
Replacements
Over 80s
Replacements
Main Programme
Replacements
First Time Systems
3.33 Table 7 below shows that the presence of full efficient central heating is now extremely common in Scottish households. This is largely because of investment by individual home owners themselves seeking to improve their quality of life and improve the asset value of their home. However, the scale and duration of the central heating programme means that it has also made a considerable contribution to the position where central heating is now commonplace in Scotland and the lack
24 The Over 80s part of the Programme started in May 2004 and the guaranteed element of Pension Credit started in January 2007
34

of it a rarity. It is also the case that some households do not want central heating - either because of concerns about upheaval or fear that it will lead to higher fuel bills.
Table 7: Central heating status of fuel poor pensioner households
Full efficient central heating
Number of households
(000s)
315
% of all fuel poor pensioner households
86%
Full but inefficient central heating
Partial central heating`
11
25
3%
7%
No central heating 14 4%
Source: Scottish House Condition Survey, 2005-06
3.34 Even in fuel poor pensioner households, 96% have some form of central heating and only 14,000 such households remain with it 25 . Thus, on the face of it, the scope for making gains in terms of reduced fuel poverty through provision of additional central heating is limited. However, while the number of homes without central heating at all is now relatively small, demographic factors, together with the wide access to systems that the scheme provides (i.e. second or even third-time replacement is possible), means that the potential for replacement systems is enormous. In 2005-06, there were around 603,000 pensioner households in the private sector eligible for the CHP all of whom at some point in the next 5-15 years might be seeking a replacement system 26 . Demographic trends mean that the numbers of elderly households will increase year on year, with as many as 535,000 people expected to reach age 60 between 2008 and 2015 27 . There is a real prospect that the programme becomes self-perpetuating with replacement systems, and waiting times grow longer as demand increases.
Delivery of the programme
3.35 The CHP was administered by EAGA from its launch up to September 2006.
Following a competitive tender exercise this programme is now managed by Scottish
Gas. As noted above, the programme has been successful in delivering large numbers of free central heating systems. An initial target to install central heating systems in 40,000 private sector homes up to March 2006 was exceeded - with
46,335 systems installed. In 2007/08, 14,377 central heating systems were installed, the highest level ever installed in private homes.
25 In 2005-06, 96% of all Scottish households and 98% of all fuel poor households had some form of central heating.
26 A further 276,000 pensioner households in the social sector are currently not eligible under the
Programme, as these are catered for through investment by Local Authorities and Housing
Associations.
27 Source : GROS estimates of Scottish population (June 2005). Total number reaching key pension ages
35

Waiting lists
3.36 Demand for the central heating programme has, however, increased since its inception. This is due to a combination of factors, probably the most important of which are growing public awareness, the extension of eligibility for the programme to other groups and an increasing rate of failure in existing installations mirroring the surge in new central heating installations by private householders 20 or 30 years ago. One area of dissatisfaction with the programme has been the existence of a waiting period between application to the programme and installation.
3.37 As an installation programme (and not an emergency repair service) there is a necessary lead-in period for the assessment and preparatory processes for each installation, which varies according to the type of fuel and the particular circumstances (for example, whether the house is on the gas grid or whether it has an electrical supply capable of handling the demand from an electrical central heating system). In addition, there need to be sufficient applications in the system to be able to manage the flow of installations throughout the country in a cost-effective way.
3.38 Average waiting times have been between 5 and 6 months for a number of years under the present and previous managing agent. There may be scope to make some reduction in that average by improving delivery, for example, by increasing installer capacity. However, whilst we continue to provide replacement heating systems on an ongoing basis we cannot expect to see a significant decrease in demand and consequently waiting times within existing budgets. This is problematic in itself as managing this growing demand (much of it from fuel rich households) prevents activity to seek out the remaining small number of fuel poor pensioners who have no central heating (about 14,000) and could benefit most from the programme in fuel poverty terms.
3.39 Individual waiting times naturally vary around the average. Much recent effort has been concentrated on improving the managing agent’s processes to minimise the number of individual cases where waiting time is substantially longer than average. Changes in eligibility, such as targeting replacement systems at the poorest pensioners, could be expected to put a downward pressure on waiting times as it will naturally reduce the numbers of applicants. However, it must be acknowledged that cost-effective delivery would continue to require an in-built waiting time which might not be substantially less than the current average.
3.40 An ongoing issue for the central heating programme is how to deal with those pensioners who are eligible under the programme and whose need for a central heating installation is urgent. The reason for urgency is likely to be failure of an existing central heating system or medical or social problems exacerbated by having no system or a partial or ineffective system. Except in the few cases where there is no existing system, such reasons usually have little bearing upon fuel poverty. They nonetheless need to be considered, and the result is a programme that accepts applications on the basis of a poor surrogate for fuel poverty, and then manages the queue on the basis of valid considerations of urgency, but which in the main are even less related to fuel poverty. Extending the number of priority cases in this way
36

often therefore takes us further from our fuel poverty objectives and, rather than addressing waiting times directly, merely shuffles the queue.
Value for money and controlling costs
3.41 To achieve better value for money and control programme costs, the previous administration introduced a financial cap from 2007. The cap is set at a level under which the lowest cost central heating system, together with all the other measures in the programme, can be installed. It is currently set at £3,500 with an upper cap of
£5,500 if the lowest cost system cannot be installed under the lower cap.
3.42 The cap is working in the respect of ensuring that the maximum number of people can benefit from the programme, however a negative aspect of its implementation is that a number of people in non-gas areas are given an electric heating system which can (in present price terms) be more expensive to run than oil
(both are more expensive than gas). This, along with the fact that many of these homes can be hard-to-treat (given that they cannot take the insulation measures allowed under the CHP such as cavity wall insulation), means that the benefits of the programme in reducing fuel bills or carbon emissions are not being fully realised.
There are a range of insulation solutions which such homes may benefit from such as internal wall, under-floor insulation, or over-cladding, however these solutions can prove cost prohibitive and so are not included in the programmes. Consequently, the impact of the central heating programme as currently designed is reduced in these homes; many of which are in rural areas where fuel poverty is most prevalent. An alternative fuel option for these homes may be microgeneration technologies. The
Scottish Government is running a two year pilot to test this option.
WARM DEAL
3.43 The Warm Deal Programme was introduced on 1 July 1999 to tackle fuel poverty in low-income homes. It provides energy related advice and funding for the i nstallation of a package of measures (up to £500) for insulation, draught proofing and energy efficient lighting. The Warm Deal comes in two parts – one part is now managed by Scottish Gas and is for all private housing; the other part is administered by local authorities and is for social housing. To be eligible for support, the applicant must receive income or disability-related benefits 28 . Individuals over 60 who do not receive any of these benefits can still receive support of up to £125 29 .
Currently benefit health checks are not offered for applicants to the Warm Deal
Programme, in the same way as is offered under the Central Heating Programme.
28 Despite being targeted on households that are, by definition, on low incomes (ie, benefit recipients), the nature of the complex definition given to fuel poverty means that it is not necessarily well-targeted in terms of “fuel poverty”. It is estimated that around a third of those eligible for the Warm Deal are actually fuel poor.
29
While the Warm Deal is available to a wider range of potential applicants (if in receipt of certain benefits) than the Central Heating Programme, certain groups which, according to Scottish
Government research, are known to be at risk of fuel poverty, such as residents of mobile homes, are, in effect, unable to access the programme. This relates to issues around the legal definition of mobile homes and practical issues around the use of effective insulation for such dwellings.
37

3.44
A total of £80 m was spent on the Warm Deal in the private and social sector from 1999-00 until 2007-08. Over that period, the programme has resulted in:

Nearly 280,000 improved dwellings;

the average NHER (National Home Energy Rating) of homes treated had improved from 5.3 to 6.0; and

in 2006-07, under the managing agent programme, it is estimated that annual fuel bills were redu ced by £120 for owners and £31 for tenants of housing associations.
Interaction with EEC/CERT
3.45 As outlined earlier in this report, in April this year the UK Government began the Carbon Emissions Reduction Target (CERT) which is the main vehicle for delivering energy efficiency into homes across Great Britain. Previously known as the Energy Efficiency Commitment (EEC), this three year programme places an obligation on energy supply companies to achieve targets for assisting households to take up energy efficiency measures. CERT will build upon the previous EEC scheme, but will have a stronger emphasis on carbon saving, and will double the level of activity compared to the last phase of EEC.
3.46 This means that CERT could potentially be equivalent to provision of investment in energy saving measures of around £80m per annum in Scotland. This is signif icantly more than the £45m per annum to be invested in Scottish
Government fuel poverty programmes over the next three years. While only a proportion of CERT investment will be targeted at fuel poor households, given the scale of these resources it is important to consider their potential contribution. It is suggested that Scotland has not seen a proportionate share of EEC measures in the past and the Scottish Government is keen to remedy this with CERT. It is currently funding a dedicated CERT Strategy Manager for Scotland within the Energy Savings
Trust (EST) to consider this issue. This work includes development of a CERT
Strategy for Scotland and its implementation. This will include facilitating discussions between the Scottish Government, the managing agents for our fuel poverty programmes and CERT providers (i.e. fuel companies) to ensure that barriers are removed to allow the best deal to be struck for Scottish householders, including those in fuel poverty. To this end we are establishing a Scottish CERT Strategy
Steering Group, in partnership with the energy supply companies and chaired by the
Minister for Communities and Sport, that will help make Scotland a more attractive place for delivering CERT.
3.47 The measures available under CERT are generally the same as those available through the Warm Deal (and also under the insulation aspects of the central heating programme), i.e. loft and cavity insulation, pipe and tank lagging, low energy light-bulbs and draught proofing. However, in practice, EEC providers have tended to focus on cavity wall insulation and first time loft insulation. This may disadvantage rural areas which have a higher proportion of stone built properties without cavities. It is important to seek to ensure that Scottish Government schemes are complementary to, and not in competition with, resources available under CERT and work is already underway to try and avoid duplication and maximise the contribution of CERT in Scotland.
38

3.48 Options for dealing with this issue range, on the one hand, from seeking to ensure much better integration and complementarity between the schemes, through to the abolition of Warm Deal. The managing agent is contracting with a CERT provider for delivery of the measures alongside the Scottish fuel poverty programmes, and it is expected this will bring in additional resources to the programmes.
3.49 In regard to the public sector part of the programme, local authorities and housing associations are also encouraged to enter partnership arrangements with
EEC/CERT providers to deliver the Warm Deal Programme. This appears to have been very successful with over 90% of participating local authorities and housing associations indicating they have undertaken all reasonable measures to supplement their Warm Deal funding with EEC.
Conclusion
3.50
The Scottish Government’s fuel poverty programmes have achieved a great deal. To date, more than 90,000 central heating systems have been installed and energy efficiency measures (primarily insulation) put in place in a further 256,500 homes 30 . This has made many Scottish households warmer and more comfortable and reduced their fuel bills compared to what they otherwise would have been, as well as contributing to lower carbon emissions. However, the central heating programme is not well-targeted, either according to definitions of fuel poverty, or income poverty. There is also a fierce set of delivery problems facing the CHP, in particular, relating to the public’s expectation of an emergency replacement service and its perception of waiting times. The shift to replacements has diverted attention and resources away from the relatively small number of households still requiring first time installations. This has further reduced the potential impact of the scheme on fuel poverty and, given demographic factors, is creating a self-perpetuating programme. While the Warm Deal is targeted on those on low incomes (i.e. benefit recipients) the complexities of the fuel poverty definition mean that it is not necessarily well-targeted in terms of fuel poverty. The Warm Deal (which focuses on insulation) is more cost-effective than the provision of central heating through the
CHP, however, it is likely that the Warm Deal duplicates activity that could be undertaken through fuel companies under the CERT scheme.
30 Source : Communities Scotland – figures up to end January 2008.
39

4. FIT WITH SCOTTISH GOVERNMENT STRATEGIC OBJECTIVES
4.1
The Scottish Government’s long-standing commitment to tackle fuel poverty now sits within a new set of strategic objectives. This part of the report examines the connections, synergies and, in some cases, tensions, that exist between the current approach to tackling fuel poverty and other Scottish Government policy objectives in relation to tackling poverty, repairing and improving housing and tackling climate change.
Relationship to policy on a fairer Scotland
4.2 The Government Economic Strategy (GES) makes clear that the Scottish
Government’s overarching purpose is to create a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth. It recognises that such growth must be accompanied by a fairer sharing of the wealth of the country and should go hand in hand with the Government’s three
“Golden Rules” of solidarity, cohesion and sustainability. There is an absolute commitment to tackling poverty and disadvantage by improving the life chances of those who are most in need. The Solidarity golden rule is to increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017. The Cohesion golden rule focuses on reducing the significant levels of economic inactivity in Scotland – 600,000 of the adult population are economically inactive, and 285,000 are on Incapacity Benefit
– and narrowing the gap in economic activity between Scotland’s best and worst performing regions. The Sustainability golden rule aims to improve Scotland's environment today and for future generations, while significantly reducing Scotland's negative impact on the global environment through emissions.
4.3 For these purposes, p overty is technically defined as when a person’s household income (adjusted for the size and composition of the household) is less than 60% of the UK median income. This differs from the definition used to assess fuel poverty which is based not only on income but also on fuel prices and the energy efficiency of homes.
This means that a household can be “fuel poor” even if it is in receipt of a relatively high income, depending on the price of fuel and the energy efficiency characteristics of their home. These different definitions produce a different distribution of poverty and disadvantage (see Table 8 ). It would appear that rather than being a sub-set of poverty,
“fuel poverty” is actually more common in Scotland than “income poverty”. For example, while income poverty rates in Scotland are similar to those for the UK, fuel poverty in Scotland is three times the rate in
England. Another contrast is that income poverty is far less prevalent among pensioners than is fuel poverty, reflecting amongst other things the different definition of fuel poverty in Scotland.
4.4 It is clear that the approaches to these issues have not developed in ways that take account of each other. This has produced an anomalous and counterintuitive outcome. From the point of view of seeking to target resources more effectively, there is likely to be greater synergies in impact if common definitions were to be applied. However, this would significantly change the pattern of resource distribution. For example, if resources to make housing more energy efficient were
40

focused on the income poor, rather than the fuel poor, this would shift resources away from single pensioners in particular towards other household types on lower
“equivalised” incomes (i.e. adjusted for household size) such as single parents.
Table 8: A comparison of income poverty and fuel poverty
Income poverty Fuel poverty
Definition
Relative/absolut e concept
Factors in the definition
Numbers affected
Equivalised net income below 60% of UK median income
In 2005/06, a two-adult two-child family was p oor if household income below £17,000 per annum
In 2005/06, a two-adult two-child family was in severe poverty if they had an income below £12,000 per annum
Relative – depends on the median income of all families in the UK
Net income, household composition
670,000 adults of which 470,000 working age adults
>10% of income (at whatever level of income) spent on fuel
Fuel poverty occurs at virtually all income levels to various degrees. More common in poorer households but not restricted to them
Extreme fuel poverty >20% of income
(of whatever level) spent on fuel
Relative - does not depend on what is spent on fuel but what proportion of income is
(theoretically) spent on fuel
Incomes, fuel prices, energy efficiency of the housing stock
N/A
220,000 working age households and 190,000 pensioners
210,000 children
324,000 pensioner households
N/A
Rate
Trend
880,000 people (total)
1 in 6 people, 1 in 20 (severe poverty)
Down 8% 2001-02 to 2005-06
959,000 people (total)
543,000 households (total)
1 in 4 households, 1 in 15 (extreme fuel poverty)
Up 73% 2002 to 2005-6
Rate in Scotland (23.5%) is more than three times higher than England (7%)
Scotland v UK: proportion of households affected
Similar to UK (18%)
Scotland v UK: trend over time
Other countries
Reserved policies
‘arc’
Scotland/UK falling at very similar rate
UK/Scotland 18%, Ireland 20%, Scandinavia
(9%-12%)


Overall fiscal/monetary policy and social security and tax systems.
Minimum wage, employment legislation.
Scotland rising at much faster rate
Not formally measured outside UK

Overall fiscal/monetary policy and the social security and tax system.

Minimum wage, employment legislation.

Energy policy.
Targets UK target to eradicate child poverty by 2020 Eradicate by 2016 (as far as reasonably practicable)
Sources : Scottish House Condition Survey; Households Below Average Income.
41

Relationship to policy on housing repairs and improvements
4.5 The CHP and the Warm Deal seek to improve the energy efficiency of the house as a way of addressing the householder’s potential fuel poverty. These programmes are therefore in the overlap between housing policy (improving the physical fabric of dwellings) and social policy (tackling poverty). This is reflected in the migration of the powers underpinning the policy from housing to social security legislation 31 . This suggests that a development in the policy rationale has taken place to focus on the impact of the energy efficiency of the house on the needs of the occupant.
4.6 There are parallels between this policy background and current policy developments in relation to other works to private sector housing. The Housing
(Scotland) Act 2006 embodies a range of recommendations by the Housing
Improvement Task Force that reflect the underlying principle that the owner of a house has primary responsibility for its condition. Any help should be geared to what the owner needs to overcome genuine barriers to action. In many cases that will be non-financial assistance and where funding is a problem, will often be in the form of access to suitable lending. Grant should normally be the last option, where the local authority regard the work as a priority and the owner cannot arrange to fund the work without grant. Low income in itself would not necessarily lead to grant because a number of home owners on low incomes have significant free equity in the house and it is reasonable to tap into that equity in order to improve or repair the house.
4.7 Applying these principles to central heating installations would generally mean that firsttime installations were treated as optional improvements to the owner’s house. Repairs would be the owner’s responsibility, in the same way as repairs to the roof. In either case assistance could be in the form of information, advice and possibly access to borrowing, with grant as the last option, probably tied to actual fuel poverty as the test of priority.
4.8 However, the implementation of the 2006 Act also involves a distinct approach to helping owners adapt what might otherwise be a perfectly sound house to suit the needs of a disabled occupant. Proposals, which will be subject to consultation, would require grant to be paid for most adaptations, reflecting the fact that the need for work does not arise from a failure to carry out the responsibilities of ownership, but from the impact of a person’s disability.
4.9 If central heating were dealt with in a similar way, it is possible that grant could be made available automatically in those cases where central heating was being installed for the first time for a person who needed it for reasons of disability or frailty. Under this approach, central heating replacement would either not be available at all, or be subject to a test of resources.
4.10 The powers in the 2006 Act are given to local authorities. They will require to take a strategic view of local needs and priorities for action on private sector housing condition. They will need to personalise the delivery of assistance so that it is
31 The powers under which the programmes operate were originally established in the Homes
Insulation Act 1978, re-enacted in the Housing (Scotland) Act 1987 and then replaced with similar powers in the Social Security Act 1990, which remain in force.
42

attuned to individuals’ needs and circumstances. Handling central heating on the same principles would also need a delivery mechanism that could provide a more personalised service.
Relationship to policy on climate change and energy efficiency
4.11
Housing must play a major role in achieving the Scottish Government’s target to reduce CO2 emissions by 80% by 2050 given that it is a significant energy enduser and producer of emissions. All sectors of the economy must play a part, however, there is potential for lower carbon emissions to be achieved through improved housing energy efficiency, while offering householders additional benefits, including warmer homes and lower energy bills. The Scottish Government is already addressing this issue through much tougher regulations on new buildings. We already have the highest building standards in the UK in terms of their requirements on energy efficiency and the Sullivan Report, produced by the panel of experts commissioned by the Minister for Transport, Infrastructure and Climate Change, sets out challenging recommendations for progressively enhancing building standards.
Improvements to existing homes are, however, key given that they will form the majority of the housing stock well into the future.
4.12 The Scottish Government is already taking action to improve housing energy efficiency. In addition to the provision of efficient central heating and insulation measures through its fuel poverty programmes, the Scottish Government also provides support for microgeneration installations; has plans to introduce Energy
Performance Certificates; and is upgrading the delivery of energy efficiency advice through the Energy Saving Scotland Advice network managed by the Energy Saving
Trust. There is potential to do more to encourage home-owners who can afford it to carry out energy efficiency improvements and/or enhance the provision of microgeneration to their homes. Lenders might have a potentially significant role to play through energy efficiency loans or green mortgages.
4.13 While our fuel poverty programmes are not aimed at carbon reduction, given that poor household energy efficiency is an important contributor to both CO2 emissions and fuel poverty, there are obvious potential synergies between these policies. There are also potential tensions, however, in that carbon saving may be achieved more cost-efficiently by seeking to influence fuel-rich households, with the potential to save relatively large amounts of carbon per property and less need to rely on grants. Measures which subsidise the cost of energy consumption for low income households (e.g. supplementary payments as part of the benefit system) can be seen to be counter to carbon saving objectives, as opposed to measures that seek to lower fuel bills through reduced consumption (e.g., energy efficiency measures).
4.14 Recent analysis by Halcrow (due to be published in the summer) for the
Scottish Government analysed the cost-effectiveness, in terms of carbon displacement, of a range of different programmes. This found that the most costeffective schemes were those based on the provision of market infrastructure through online and telephone advice. The least cost-effective, in terms of carbon displacement, related to the provision of direct subsidy for resource acquisition of non-insulation measures, such as those provided under the Central Heating
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Programmes. Direct grants, as in the case of the CHP, were less cost-effective than loans, because in the latter case, some of the costs are met by the end users. The cost per tonne of lifetime carbon saved under the CHP was estimated at £207. This compared to £64/lifetime tonne carbon for insulation measures under the Warm
Deal. This suggests that while carbon saving is an important ancillary benefit of our fuel poverty programmes, the CHP is not a cost-effective way of saving carbon.
Replacement of existing systems will also be less significant, in terms of energy- and carbon-saving than the installation of new systems (see Figure 8 ).
4.15 The Home Energy Conservation Act (HECA), introduced into Scotland in
1996, designates Scottish councils as energy conservation authorities with a duty to devise strategies to achieve significant improvements in energy efficiency across all housing tenures over the ensuing 10 to 15 years. HECA has been in place for ten years, and now sits alongside a range of other related reporting requirements, including local housing strategies and standard delivery plans for the improvement of social housing. The biennial progress reports produced by local authorities have identified significant progress towards local energy efficiency targets. As part of our fuel poverty and carbon reduction strategies, and given the new relationship with local authorities set out in the Concordat, it is important that improvements in the energy efficiency of our housing stock continue, but we need to consider the best way of achieving this and think through what role HECA should play in this.
Conclusion
4.16 Our policies on tackling poverty, housing repair and addressing climate change do not currently dove-tail effectively with our approach to fuel poverty. For example, our definition of fuel poverty bears no clear relationship to the incomebased definition of poverty that informs our commitment to tackle poverty and disadvantage. The poor targeting of current programmes, with more than half of the target group for the CHP not being fuel poor, does not fit well with our commitment to tackle fuel poverty “as far as reasonably practicable”. It also conflicts with the principles underlying programmes to deal with housing disrepair, which emphasise the responsibility of home owners, with grants as a last resort. While our insulation programmes contribute to carbon saving and energy efficiency objectives, as well as fuel poverty, our central heating programmes are less cost-effective in this respect than our insulation programmes. This means that it is open to question whether or not public resources are being allocated in a way that is consistent with the Scottish
Government’s Purpose, or indeed our greener and fairer objectives. These differences in approach reflect the fact that these policies have developed in a variety of different ways. A more streamlined and logical approach, which seeks to integrate our inherited fuel poverty programmes with the strategic objectives set by this Government is required.
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5. CONCLUSIONS OF THE REVIEW
5.1 This chapter summarises the main issues arising from the review. It concludes that a continued emphasis on energy efficiency measures alone will not be enough to tackle fuel poverty and makes the case for reform of current programmes.
Despite the successes of our programmes, fuel poverty continues to grow
5.2 Whilst these programmes are broadly popular, have provided benefits to many Scottish householders (warmer homes, lower fuel bills and reduced carbon emissions) and have helped to keep fuel poverty levels lower than they would otherwise be, the statistics now show a pattern of consistent annual increases in fuel poverty since 2002.
Fuel poverty is more prevalent in Scotland
5.3 Whilst fuel poverty has been rising across the UK, the incidence is much higher in Scotland than in England, despite the fact that Scotland’s housing stock is more energy efficient. This is partly because of structural factors such as Scotland’s climate, its rurality, income levels and the fact that it has a higher proportion of older people. Part of the explanation is also that Scotland has chosen to use a more demanding definition of fuel poverty for pensioner households than in England.
The definition makes the target challenging
5.4 In a context of rising fuel prices, the extent of the increase in household income s required to abolish fuel poverty is daunting. The “multiplier effect” that is locked into the current ‘10% of income’ definition of fuel poverty means that the real incomes of those on the margins of fuel poverty would need to rise by an amount ten times greater than any increase in fuel prices assuming constant energy efficiency of the housing stock.
Fuel poverty is likely to increase further with fuel price rises
5.5 The review makes clear the importance of household income and fuel prices, as well as energy efficiency, in determining levels of fuel poverty. The indications are that fuel prices will continue to increase, in which case, despite our best efforts, fuel poverty in Scotland is likely to rise still further in future years.
Causes and action on tackling fuel poverty
5.6 There are three principal factors that determine the number of households that are fuel poor: fuel prices, household incomes and the energy efficiency of housing. The devolution settlement means that, whilst the Scottish Government can and does seek to influence incomes and fuel prices, the powers to control these factors lie with Westminster. Its response to fuel poverty has therefore focussed on schemes to deal with the third factor – improving the energy efficiency of housing - through provision of central heating and insulation.
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Energy efficiency measures are not enough
5.7 Significant improvements have been made to the energy efficiency of
Scotland’s housing stock, and further improvements will continue to help make fuel bills lower than they would otherwise have been, make homes warmer and reduce carbon dioxide emissions. However, further improvements will become more difficult to achieve as the focus shifts to tackling hard-to-treat homes, and, even if the energy efficiency of all the Scottish stock reached the highest levels, fuel poverty would still exist in Scotland to a significant degree. Unless fuel prices and/or incomes change favourably as well, fuel poverty is unlikely to significantly reduce in the foreseeable future.
The Central Heating Programme now largely provides replacement systems
5.8 While the CHP and Warm Deal are popular programmes the CHP in particular has been subject to policy drift. Rather than its initial focus on the delivery of firsttime central heating systems to households without such systems, it has increasingly become a scheme for central heating replacement. Installing a replacement system that is somewhat more fuel efficient than its predecessor will have significantly less impact on fuel poverty than installing a new system for the first time. While there are only around 14,000 fuel poor pensioner households who now lack any form of central heating, a further half million people will reach age 60 between 2008 and
2015, adding to the households that could potentially apply for replacement systems at some stage.
Existing fuel poverty programmes are not focussed on the fuel poor
5.9 Half of those who are eligible for the Central Heating Programme are not actually fuel poor, and non-pensioner fuel poor households are excluded from the
Programme. The Programme has attracted large numbers of applicants, and created substantial waiting lists. The existence of a waiting list of some kind is inevitable, but during the winter months, there can be an expectation that the Programme provides an emergency replacement service for when old systems break down. This means that some people in fuel poverty must queue behind those who, in many cases, could afford to replace their own system, so that the people most in need of help – such as older / poorer pensioners and those with no central heating installed - are required to wait longer for assistance.
Need for better fit with our strategic objectives
5.10 Our definition of fuel poverty is inconsistent with the income-based definition of poverty being used to underpin the Scottish Government’s emerging response to poverty and disadvantage. One approach to fuel poverty would be to help people on low incomes use fuel efficiently, given that the Scottish Government has few powers to influence incomes and fuel prices. The CHP offers a benefits “health check” delivered by a reciprocal agreement with the Pension Service in Scotland. This has been a successful part of the programme with almost 8,000 pensioners being referred for a benefits check last year. Applicants to the Warm Deal who are not of pension age might also benefit from such advice.
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A national programme may be less flexible
5.11 A combination of demographic, housing and infrastructural factors mean that fuel poverty is much higher in rural than in urban areas and national programmes may be too inflexible to respond effectively to the diversity of local circumstances impacting on fuel poverty. We need to investigate more thoroughly the best way of tackling fuel poverty in rural areas, and how to address the challenges posed by hard-to-treat properties and those off the gas grid. This could take place as part of a shift away from a single, national scheme enabling greater personalisation of service and with more focus on delivery at local level which is flexible enough to consider local circumstances.
The programmes may be displacing CERT spending in Scotland
5.12 It is not clear that the most effective use is being made of the substantial resources potentially available under the UK Government’s EEC scheme, and its successor
– the Carbon Emissions Reduction Target (CERT). It is important to ensure that Scottish Government schemes are complementary to, and not in competition with, resources available under CERT. Work is underway to try and avoid duplication and maximise the contribution of CERT in Scotland.
Need for collaborative working
5.13 The complex range of factors affecting fuel poverty means that stakeholders at UK, national and local level all have a role to play – including energy companies, charities and the insulation sector – as well as all parts of Government. In taking forward our fuel poverty programmes we need to engage effectively with stakeholders in Scotland. The Scottish Fuel Poverty Forum provides a platform for this, and stakeholders have requested that it be re-established with an independent chairperson, to provide the opportunity to contribute to the debate and help shape the future direction of policy.
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