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1 December 2017updated 08 Dec 2017 11:45am

How fuel poverty is burdening the UK economy and the NHS

More than 2.5m households across the country are struggling to pay their heating and electricity bills.

By Rohan Banerjee

Fuel poverty is a quiet crisis affecting millions of low-income households across the United Kingdom. According to the Warm Homes and Energy Conservation Act, the term describes the inability to “keep a home warm at a reasonable cost” and figures from the Department for Business, Energy and Industrial Strategy (BEIS) indicate that almost 60,000 households in Birmingham alone can be considered fuel-poor. Local authorities further north, including Liverpool, Manchester and much of Yorkshire are also under particular pressure.

Dr Lucie Middlemiss, of the School of Earth and Environment at the University of Leeds, signposts three core drivers behind fuel poverty. “Inefficient buildings and appliances, inadequate incomes, and high-cost energy bills in the UK all contribute. People on low incomes often experience all three of these drivers, given that they are more likely to live in poorly maintained buildings, and to have limited access to opportunities to switch supplier. There are also other factors that tend to exacerbate people’s vulnerability to this problem – if you are ill, or if you are a rental tenant that does not dare challenge their landlord to improve their property.”

Peter Smith, director of policy at National Energy Action (NEA), a pressure group dedicated to tackling fuel poverty, says the situation in the UK is more serious than the government would like to let on. Like Middlemiss, he links the hikes in energy prices – for example, British Gas customers were hit with a 12.5 per cent rise (£76 per year) on their electricity bill in September – to wider problems relating to physical health and wellbeing. “There are thousands of people with existing medical conditions facing a winter without any effective space heating or hot water, which presents yet another issue to an already stretched National Health Service. Whatever definition of fuel poverty is applied, the point is that living in damp, cold homes impairs people’s health and this contributes to an excess of 31,250 winter deaths which occur in the UK every year. This is not acceptable in the fifth-largest economy in the world.” NEA’s research estimated that over the past four years approximately £5bn of taxpayers’ money has been spent treating conditions worsened by insufficiently heated homes, including heart disease, asthma and arthritis.

The MP for Barnsley Central Dan Jarvis points out that the health risks associated with fuel poverty are most pronounced in elderly communities. He recalls the experiences of one of his constituents. “Some of the stories from those most at risk over the winter months are heart-breaking, like that of William – a low-income pensioner struggling to get by. It is a choice between heating and eating. William served in the navy, but he is now reduced to living in a home he calls a ‘shack’. He suffers with respiratory problems and has to keep his flat warm to protect his health, but the money he spends on heating often stops him from putting a decent meal on the table.”

As well as the rise in energy costs – which Middlemiss attributes to an “under-regulated market” – recent NEA research suggests that government cuts to support for replacing and repairing boilers have consolidated the fuel poverty problem. The number of replacement boilers being fitted through the energy company obligation (ECO) has dropped from a high of 85,000 in 2013 to an all-time low of 7,000 between April and June this year. The scheme, set up by the government in 2013, has had its annual budget slashed from £800m to £640m. The ECO is paid for by the so-called big six energy firms in the UK, adding around £50 annually to the average gas and electricity bill, and each obligated supplier has a target set for based on its share of the market.

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The money generated by the ECO is spent on making housing stock more energy-efficient by introducing measures such as loft insulation. It also helps low-income households to replace old or inefficient utilities. But recently the scheme’s budget has been concentrated on replacing a small number of defective boilers, rather than repairing them. While reducing ECO commitments might drive down the initial cost of an energy bill for the consumer, the “short-termism” of such thinking, Smith highlights, is exposed if one considers the long-term costs, in both monetary and health terms, to a household unable to pay for repairs or replacements themselves. Indeed, NEA’s findings showed engineers and local authorities were liaising regularly with people who had their utilities identified as sub-standard but could not afford to fix them because of a lack of financial support from the state.

Maria Wardrobe, NEA’s director of communications, outlines the organisation’s Warm Homes Campaign as part of a potential solution. She says: “NEA is calling for five key actions this winter. An immediate priority is to stop families having to go the entire Christmas period not heating. The government needs to reverse the freeze on working-age benefits, energy discounts and tax credits by uprating them in line with inflation.” She adds: “NEA calls for smaller suppliers to deliver energy rebates via the Warm Home Discount scheme, helping to extend the planned price cap to other vulnerable customers. The chancellor should provide emergency assistance for low-income households that are living without a functioning heating system.”

Reducing ECO commitments becomes even more of a challenge if suppliers are able to raise their prices at will anyway. The ECO scheme has attracted criticism from the big six, who claim that it puts them at a disadvantage because smaller rivals don’t have to do the same. And Lucie Middlemiss says: “It is difficult to incentivise energy efficiency for the energy companies – given that this reduces the amount of profits they can make. Some companies do engage with this agenda, but it does not make sense to leave it entirely to the market, given that the main purpose of energy companies is to sell more energy and to make a profit.”

The management of the UK’s energy market is certainly a political football and increased regulation has been touted by both the Conservatives and Labour in recent years. The Prime Minister pledged a “crackdown on rip-off energy prices” in her 2017 manifesto, her proposed relative caps not massively dissimilar to a policy tabled by former Labour leader  Ed Miliband four years previously; a policy which the Daily Mail called “Marxist” and “dangerous”.

The big six have reasoned their price hikes by pointing towards a blend of rising wholesale costs, installation of smart meters and government policies with decarbonisation targets paid for through bills. Subsidies added to bills to support renewable power, they say, mean that prices have to rise in order to cover them. Middlemiss says: “If energy policy was paid for through general taxation instead of levied on energy bills, this would make for a fairer distribution of costs. This could also be a way of ensuring more substantial investment in energy efficiency.”

Smith warns that energy policy must not be viewed in isolation but rather as an “infrastructure priority”. The wider impact of poor energy policy, Smith explains, stretches beyond the cost of the initial bill and into the overall economy and people’s welfare. “Beating fuel poverty will contribute towards achieving other government objectives, including delivering a successful industrial strategy, carbon emissions reductions and reducing health and social care costs.”

While public appetite for nationalisation of the energy market might have been whetted by the blue-skying of Labour’s 2017 manifesto, the editor of Management Today Matthew Gwyther notes: “The shareholders of these [energy] businesses are not going to go away quietly without massive pay-offs.” Strengthening regulation, then, both in the context of the energy market itself, and in housing maintenance standards, seems to be the more viable for any government to take. Jarvis says: “Ofgem must be given the ability to bring real pressure to bear on energy companies – and implement the price cap which now has the support of MPs from all parties.”