Thursday, 24 April 2014

Report warns retrofit levy could have a ‘regressive impact’ on poor households

ECO subsidy threat to low-income tenants

Money raised from energy bills to subsidise the government’s national retrofit programme could exacerbate fuel poverty for thousands of low-income households, an independent report has warned.

In the interim results of a review into fuel poverty commissioned by the Department of Energy and Climate Change, Professor John Hills said the forthcoming energy company obligation – ECO – would have to be carefully designed to avoid having a ‘regressive impact’ on the poorest households in England and Wales.

The design of ECO, which is a levy taken from consumers’ fuel bills by energy companies to tackle fuel poverty and subsidise energy efficiency measures in the government’s £7 billion a year green deal retrofit scheme, will be unveiled at the end of the month.

Last week Inside Housing reported that DECC was planning to exclude social landlords from accessing the fuel poverty element of the multibillion pound ECO subsidy – despite social tenants making up 17 per cent of the fuel poor (see box, below).

Professor Hills’ interim report showed that ECO could lead to an increase in energy prices for the poorest households if it is not distributed fairly.

He warned fuel poverty could be worsened as a ‘distributional consequence’ of carbon cutting efforts, and argued low-income households need ‘higher levels’ of ECO.

Professor Hills, who also wrote the influential 2007 review of social housing, said the way ECO resources are split between measures directly benefiting the fuel poor and carbon reduction measures would be ‘crucial for the net effect of the policy package on distribution and on fuel poverty’.

The review also found that the scale of fuel poverty, which the government must eradicate by 2016, has been underestimated previously.

It showed that even at a ‘conservative estimate’, 2,700 people die every year in England and Wales as a result of fuel poverty – more than die on the roads.

Professor Hills said: ‘The way we have measured fuel poverty painted a false picture about how well we were addressing it… Things are hardly on track for the problem to be eradicated in just a few years.’

In numbers: fuel poverty

4 million - households in England in fuel poverty in 2009

2.7 million - households with high fuel costs and low incomes in 2009, down from 2.9 million in 1996

2,700 - deaths each year as a result of fuel poverty in England and Wales

Source: DECC; Professor John Hills

Readers' comments (5)

  • Jono

    Another ill thoughtout intervention by the Government...

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  • Really difficult for any government to raise funds from these guys. Whatever they do, the suppliers will just punt it down to customers and hide it as "cost of wholesale fossil fuels going up."

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  • Trevor Galley

    Perhaps this explains the Governments lack of a real challenge to this sectors profits? TESCO's UK chief executive, Richard Brasher, has claimed that the "inexorable rise of fuel prices", as well as other rising household costs, add up to a 5% rise in income tax for poorer families.

    Filling up at the pumps, as well as higher utilities bills and taxes, is estimated to be costing households £12 more a week than last year and Brasher said the squeeze on disposable incomes was a "real challenge" for Tesco's customers. He said shoppers were now "paranoid about debt", with financial tips websites like Martin Lewis's now have an almost biblical following!

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  • Jono

    Trevor - you raise an important point when discussing diesel and petrol.

    In the US, they look at affordability by considering the cost of rent, transport and key utilities rather than rent alone. This is because some will spend more on rent to live nearer to work for example, to save on fuel costs. So for them the total outgoings on housing, fuel etc may be less or equal to someone else's costs who pay less rent, but have to travel further etc. In the UK, reports like Shelter's latest on PRS ignore the money residents have left over after rent, and what this has to be spent on.

    Diesel is about £1.39 a litre where I live, of which 45p is the actual cost of the diesel, and the other 94p is for Mr Taxman.

    Someone who earns £10,000 and buying 75 litres of diesel per month would spend, on current prices £70.50 per month or 8.5% of their gross income in fuel related taxes. They also of course have to pay the £33.75 cost of diesel (which is only 31% of the total price).

    There are plenty of unfair taxes which burden those on low incomes. VAT for instance - if you spend £300 a month on VATable goods, you are paying £60 on VAT - or 7.2% of gross income.

    They need to scrap these taxes and introduce a fairer, flat percentage rate.

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  • F451

    Dave - there is a way, it's called nationalisation - perhaps selling the companies off for a handful of beans was not the golden goose it was sold as - indeed, we've been paying through the nose ever since, and gained what exactly.

    Increasing the number of middlemen and companies needing to make a profit is never going to reduce prices for consumers. If it really was the people's interest that was represented by the national interest there would be no problem, however with this goverment the nation is only made up of around 1,000 people - the rest are simply expendable customers.

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