Monday, 24 September 2012

How much of our income for energy?

By the current UK definition a household is fuel poor if it needs to spend 10% of more of its total income on fuel in order to be comfortable. By this definition, there were about 5 million households in fuel poverty in 2010, compared to just 2 million in 2004 [1] and the number is predicted to rise to 8 million by 2016 [2]. That would be more than a quarter of households [3]. The government has a consultation out now (until 30th November) about changing the definition, such that only about 3 million households would be in fuel poverty. The new definition makes a lot of sense, but from the projections under the old one we can all expect to be spending a greater proportion of our income on energy in the future, unless we take steps to reduce our energy usage.

Projections of the number of fuel poor households from [2]

Using the 10% of income definition, fuel poverty increases if income levels rise slower than energy prices. Energy prices go up and down as you can see from the chart below - and one of the criticisms of the current definition is that households can go in and out of fuel poverty from one year to the next - but judging by the projections the government does accept that energy prices will in the main rise and we can all expect to be paying a much higher proportion of our income on energy if we don't do something about it.
Energy price increases relative to RPI from [4]

The proposed definition is very different. Firstly, to be in fuel poverty, you would need to have energy costs higher than the median, (with an adjustment for the type of household but not for the size of your home).  Secondly, you need to have a low income after subtracting housing costs and energy costs - if this leaves you with less than 60% of the median then you qualify as fuel poor. There are strong merits to this new definition. For example, any support for energy efficiency targeted at the new fuel poor will be directed towards homes with large heating costs. Under the old definition, you could be fuel poor even in an efficient home if your income was very low, but in that situation income support would be more useful than more energy efficiency. Also, under the old definition you could be fuel poor even if you had a relatively high income, if your home was sufficiently large and hard to heat. (Buckingham Palace springs to mind).

Another feature of the new definition is that it is less sensitive to the standard of comfort which is regarded as acceptable. Some people think that 18C is quite warm enough even in a living room - others would prefer at least 20C or even more (See also What is a reasonable setting for my thermostat?). Under the new definition, whichever temperature is taken as the standard only homes which require more energy than average to heat can be considered as fuel poor.

Whatever the definition, there are four ways to reduce your energy costs, if you think you need to.

[1] UK National Statistics, topic guide to fuel poverty
[2] Fuel Poverty: changing the framework for measurement DECC
[3] Live tables on household projections, Communities and local goverment predicts the number of households to grow to around 29 million by 2018.
[4] Retail Price Index UK fuel components in the UK (QEP 2.1.1)

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