Maria Wardrobe: Flawed energy efficiency scheme leaves poorest out in cold

FUEL poverty is a serious and growing problem. Around 2.4 million households in England, and 250,000 in Yorkshire and Humberside alone, are now estimated to be unable to afford to heat their homes, and many will be facing difficult choices this winter over which household necessities they will need to do without.

Living in a cold home is not just uncomfortable, it can have serious health consequences, causing or exacerbating a range of conditions such as asthma, heart attacks and strokes.

On average, at least 7,800 people die every year from living in cold homes – more than four times the number of people who die on British roads, and treating cold-related illness is estimated to cost the health service nearly £1 billion each year.

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Since Ed Miliband announced his intention to freeze energy prices should his party gain power in the next election, energy prices and the plight of those struggling to heat their homes affordably have rarely been out of the headlines.

While it is encouraging that so many senior public figures are recognising that fuel poverty is reaching crisis levels, much of the debate does ignore the fact that the main problem is not the price we pay per unit of energy, but the fact we have some of the poorest quality, energy inefficient housing in Europe.

Over half of all fuel poor households live in properties with a low energy efficiency rating of E, F or G, and are much more likely to have uninsulated, non-cavity walls.

Improving the energy efficiency of a building will not only make it a warmer and more healthy place to live, it can also dramatically reduce energy bills and “proof” the property against future price rises.

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The difficulty, of course, is that these measures can cost quite considerable sums and are unaffordable for the majority of households on low incomes. The Government’s current solution to this is the Energy Company Obligation – a national scheme to subsidise or fully fund heating and insulation measures funded through levies on consumers’ energy bills. While it is absolutely right that the poorest and most vulnerable members of our society receive help to live in a warm, dry home, this is not the way to fund it.

Even if you ignore for a moment the skewed logic of funding fuel poverty measures through something which increases bills, the ECO is grossly unfair. It has been widely reported that all of the £1.3bn which ECO is expected to cost is directed towards vulnerable households, when in fact funding for this consumer group is only £540m and the rest is used to subsidise expensive insulation in able-to-pay households with solid walls or non-standard cavity walls.

This represents a cut of around 50 per cent in available funding compared to 2011-12, and also means that those on lower incomes are effectively contributing to a scheme from which they may gain no personal benefit. Low-income households also tend to be lower energy users but still have to pay the same standing charges and levies as those with higher incomes and energy use.

What we need is for the Government to recognise that social welfare is its own responsibility and implement a national energy efficiency scheme which is funded directly from the Treasury.

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Never mind a windfall tax on profits – if, as anticipated, all suppliers end up raising their prices by an average of 10 per cent this winter then the Treasury would benefit from an additional £150m in increased VAT revenues alone, while other carbon taxes are expected to raise an additional £4bn a year.

“Recycling” this revenue into an energy efficiency scheme could take nine out of 10 households out of fuel poverty, as well as bring a host of other benefits such as increasing jobs and reducing the burden on the health service.

Improving energy efficiency also has a significant impact on carbon emissions and demonstrates that social and green objectives can coexist quite happily.

In the short term, however, it is vital that ECO is not watered down or scrapped completely until a suitable alternative is put in place.

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Despite its flaws, removing the scheme or extending it so that a lower number of households benefit in any given year would be disastrous.

What we need is for the entire £1.3bn ECO budget to be redirected to assisting those in fuel poverty, rather than more well-off consumers living in barn conversions and chocolate-box cottages.

We also need the energy companies to introduce an initial “block” of consumption which is protected from levies so that low-energy users don’t pay a disproportionate amount of their bill on funding these schemes. This is far from perfect, but with winter coming it’s all that we have.

*Maria Wardrobe is director of external affairs for the charity National Energy Action.