Redefining Fuel Poverty: Who Stands to Gain?

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September 27, 2012 by Nash Riggins

Energy and Climate Change Secretary Edward Davey announced a series of new measures this week geared at helping to ensure that energy consumers are treated fairly and have better access to more competitive tariffs; however, is this announcement merely a smokescreen geared at hiding a far more ominous change in government energy policy?

Indeed, this latest series of policy modifications by the Department of Energy & Climate Change (DECC) should be pegged as an undeniable victory on behalf of the energy consumer. Mr Davey’s five-point plan included the introduction of the following measures:

  • Energy industry regulator OFGEM is set to receive new powers – including the ability to require all energy suppliers to compensate consumers who have lost money as a direct result of said suppliers’ breaching of any license conditions. At present, OFGEM relies upon a voluntary approach towards such compensation.
  • At the moment, prepayment meter customers who are more than £200 in debt to their energy supplier cannot switch to another company – perpetuating their financial strain further by disallowing said customers from pursuing a better deal. The DECC and OFGEM will now pursue a voluntary agreement with suppliers that would raise this threshold to £500.
  • Mr Davey is set to promote the idea that entire communities should switch energy suppliers collectively in order to save drastically on household energy bills. To do this, the Energy Secretary is proposing a £5m competition for the most innovative local authority or third sector schemes that pursue such energy-saving methods.
  • The DECC and OFGEM are to work with suppliers in order to ensure that all energy consumers have clear information on their bills about the supplier’s cheapest tariff and the savings consumers could make by switching. The Government is also working with suppliers to get better information for consumers, including the possibility of putting Quick Response (QR) codes on energy bills that could make it possible to switch tariffs via mobile phones.
  • In order to address a lack of competition within the industry, the government has announced plans to sponsor an ‘independent suppliers summit’, in which the nation’s smaller energy suppliers can establish collective plans geared at increasing market competition.

Mr Davey’s announcement should undeniably be hailed as substantially advantageous to energy customers nationwide – with the possible exception being OFGEM’s pursuit of an increase of the debt threshold that prevents financially-strained customers from switching to cheaper energy tariffs. In truth, an increase in this amount will positively impact the fiscal situations of many customers; however, for many more, the existence of any threshold whatsoever merely serves to perpetuate the ever-growing number of individuals in the UK suffering under fuel poverty – and it is an impending change in the government’s take on fuel poverty in which this latest announcement may be attempting to drown out.

Earlier this month, the Energy and Climate Change Secretary claimed that he would be making an announcement regarding the DECC’s adoption of a new definition surrounding the idea of fuel poverty at the New Year; however, inside sources suggest that these decisions have already been made – and they will only hurt those currently suffering under fuel poverty.

At present, in order to be considered living in fuel poverty in the UK, a household must spend more than 10% of its annual income on fuel (assuming said household is maintaining a median-level heating regimen). This definition is often built upon the the energy efficiency of a home, the current cost of energy for that home and the combined income of all occupants. Under this current definition, it has been estimated that over 24% of UK homes were living in fuel poverty last year alone, with this figure expected to rise drastically in 2012 amidst household energy prices spiking by up to 40%.

The threat of fuel poverty is all too real in many areas throughout the UK, and has been known to cause some families to forgo meals in order to adequately heat their homes. Admittedly, the DECC has attempted to tackle this issue on several occasions; however, most of the measures in which the government has implemented have proven to leave many stones left unturned.

The Warm Homes Scheme, for example, has emerged as one of the UK government’s foremost regulatory tools geared at eradicating fuel poverty. Established in April 2011, the four-year plan is designed in order to lessen the burden of energy bills for low-income families. Over £1.1 billion is expected to be funnelled into the plan by its expiration in 2015 via participating energy suppliers, and the DECC hopes it to assist around two million low-income households per year. Yet after just one year, this ‘quick fix’ method has already turned away many customers who are currently unable to pay for their energy bills.

Why? The programme operates based upon an arguably outdated working definition of fuel poverty. Accordingly, Mr Davey has at long last recognised this point of view, and plans to make changes to the ways in which the DECC recognises those living in fuel poverty; however, it is expected that the DECC is to adopt a complete reversal of said definition in which many of those currently considered in fuel poverty shall no longer be deemed worthy of government aid.

Indeed, experts are anticipating that Mr Davey is to announce the introduction of two major caveats to the entire conceptualisation of fuel poverty, based upon two new factors: that to be considered living in fuel poverty, the person must already be on some other form of welfare benefit, and that the said person’s energy consumption must also be quite out of the ordinary compared to homes of a similar size. In effect, these alterations are made based upon the assumption that many energy customers are effectively ‘conning’ the system in order to receive government aid, and that the actual figures surrounding fuel poverty are not as ominous as advocates would have the nation believe.

In print, such a move would transform the UK from a nation suffering from fuel poverty into one of Europe’s least-afflicted nations overnight – yet in actuality, this redefinition would render millions of struggling energy customers virtually helpless. Under the DECC’s current definition of fuel poverty, the UK government is contractually obligated to provide at least some aid to fuel poor individuals via programmes such as the Warm Homes Scheme; however, under that very same definition, many customers who struggle to pay their energy bills are being turned away because they ‘aren’t poor enough’. Yet by adding the proposed amendments to the government’s working definition of fuel poverty, only a tiny fraction of those who are in need of fuel aid will actually receive it – rather than vice versa.

As a result of this major oversight calculating the number of those who actually need government aid, the DECC can subsequently expect a drastic rise in the number of winter-time deaths amongst the UK’s elderly – who, in times of financial hardship, typically and justifiably choose to turn off their heating systems rather than face insurmountable debt. Meanwhile, the UK government shells out up to £200 per winter in order to help heat the homes of elderly British citizens who have retired to exotic Mediterranean locales such as La Manga, Spain – in which fuel poverty unsurprisingly poses a minimal threat to the lives of UK expats. If the DECC truly believes that the UK government is wasting money by incorrectly deeming citizens as ‘fuel poor’, would it not make sense to eliminate unnecessary expenses based upon these types of ridiculous situations, rather than deny help to all of those who cannot pay for their energy because they aren’t already enjoying unrelated government benefits?

With any luck, Mr Davey will reconsider such proposals before making his announcement surrounding the DECC’s new approach towards eradicating fuel poverty; however, only time will tell. Yet customers who feel as if they may be paying too much for their energy bills should not merely sit around and wait for the DECC to deem their fiscal situation ‘worthy or unworthy’ of government entitlements. Energy customers have the ability to drastically save on energy bills by pursuing switching suppliers independently – and although such changes are not necessarily bound to rescue victims of fuel poverty outright, it can help to substantially relieve customers of a fraction of needless household expenditures. In the meantime, perhaps Mr Davey and the DECC would do well to cut a fraction of their own needless expenditures, too.

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