Who is in fuel poverty? The government has no idea as it moves to cut winter fuel payments

Energy is an unusual commodity as it imposes running costs and capital expenditure. The main way to permanently reduce running costs is to spend money on more efficient use of energy: better insulated homes, more modern boilers, new appliances. Energy price rises since 2020 have provided the incentive to better-off households to focus on these improvements and make the switch to self-generation by installing solar panels.

Unfortunately, not everyone has the savings to make these purchases. Many of the poorest households have little or no cash, and anything they did have has been largely used up by the cost of living crisis. If you cannot afford your fuel bills, and are often cold and without gas or electricity, you are fuel-poor.

Even if people in fuel poverty had some money to invest in their homes, many are social and private tenants who lack the legal right to alter the property. Being in poverty is not the same as being in fuel poverty: extra income is required to ameliorate poverty, whereas capital investment is needed to improve the energy efficiency of the dwelling and reduce the cost of keeping warm.

To help pensioners in the UK pay for adequate heating, the state offers a winter fuel allowance. These payments were available to all pensioners, but the government recently decided to restrict them to those in receipt of pensions credit, or other means-tested help. Does this mean the government is targeting assistance to those who really need it?

According to the government’s statistics on fuel poverty, there were about 1 million pensioners in fuel poverty in England in 2023, and 1 million pensioners on pension credit. The two might look the same, but in fact, eligibility for means-tested benefits is a poor indicator of fuel poverty, as it does not account for the energy efficiency of the home. Around 20% of people who are fuel poor do not qualify for a means-tested benefit.

Finding the fuel poor

The richest households spend a lot less on energy as a proportion of the weekly budget than the poorest households, by almost a factor of two. We have a situation where better-off households can afford their energy bills and spend capital to reduce them. At the other end of the spectrum, the poorest households are unable to afford to heat their home and do not have the means to reduce that cost.

The size of these two groups is not known, nor is the number of households that are in between. But the price increases since October 2020 have dramatically increased the numbers that are suffering from real hardship.

This growth in suffering is not reflected in the government’s statistics. These show 3.17 million households in England in fuel poverty in 2023, a number that had barely changed from the 3.16 million households in 2020, despite fuel prices doubling. A more accurate assessment is that 5.6 million UK households were in fuel poverty in 2023. This is the confusing background to the furore over the winter fuel allowance, which helps pensioners and no other groups of fuel-poor.

The original system gave similar amounts of money to each pensioner, regardless of income. There was an increase if you were over 80 and less than double if you were a couple. In total, 12.6 million payments across the UK were paid at an average of £140, to give a total cost of £1.764 billion.

There is general agreement that rich pensioners do not need the allowance. A proportion of better-off households recognise this and donate their payments to a charity. There is also, now, considerable disquiet that the new scheme will only be going to about 10% of pensioners: the realignment has been too harsh. If the new scheme gave the winter fuel allowance to the poorest 50% of pensioner households, there would be a lot less concern. The real difficulty is to identify that 50% on an address-specific basis, so the money can be paid to them.

The government’s new scheme limits eligibility to just those on pension credit, which is one of the most restrictive of the UK’s means-tested benefits. The winter fuel allowance would go to only 1.1 million households who already receive pension credit. A further 880,000 households are thought to be eligible for pension credit, but have not claimed it. Part of the explanation is that there are up to 243 questions for those applying, which is more than daunting. Also, a claim in September might not have been processed by Christmas – the administration is slow and there is a backlog.

And to cap it off…

There is no clear set of characteristics or data to identify the fuel poor. To find the 50% of pensioner households most vulnerable to the cold is a difficult task, especially if it is to be done quickly, by the end of the October budget.

Then there is the new price cap for electricity and gas, announced on the day after the government’s announcement and showing an increase of £150 to £1,717 in the annual cost from October 1. So, on consecutive days, pensioner households were told their costs would increase by £150, but their income would drop by about £300.

One of the solutions would be a positive initiative: to revamp the cold weather payment. Only £25 is paid after seven consecutive days of below freezing weather to eligible households. This is too harsh and retrospective. A fairer design would be to pay £10 in advance to eligible households on days when the Met Office forecasts that the minimum temperature will be -4°C below tomorrow.

This has the advantage of incurring little expenditure from The Treasury during mild winters and a politically essential level of support when the weather is really cold. It would not be limited to pensioners either, but to all households that are really fuel-poor and suffering considerable deprivation at the moment.

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