Fuel Poverty Defined – What is it and What is the UK doing about it?

In this modern age, we have all manner of technological contrivances in place to keep us warm, happy and healthy all year round. Even when the weather is cold, frosty and gloomy outside. From boilers and radiators to electric storage heaters and gas fires, these keep our living space and our water warm, ensuring that we have heat when we need it, and that our homes can say bright, warm dry and cosy. But these devices require gas and / or electricity to run. And in a free market, the rising cost of fuel has made this a daunting prospect for those of us less financially well off. Those of us who are unable to afford the cost of heating and lighting our homes are in what is known as fuel poverty, and might be eligible for government grants.

In this post, we’ll take a close look at the problem of fuel poverty, as well as examining the help and support that is available to those experiencing fuel poverty in 2020.

What is fuel poverty?

Since the energy market was privatised in 1990 and scarcely regulated until 2000 with no cap on household energy costs coming into effect until 2019, energy costs for most UK households have skyrocketed over the past few decades.

And when the cost of fuel exceeds people’s ability to pay for the fuel they use, this combination of Low Income and High Cost (known as the LIHC indicator) can lead to the problem of fuel poverty. Vulnerable people either aren’t able to cover the cost of the energy they use or they have to go without other essentials to pay for their energy bills.

All energy suppliers are obliged to offer support to customers who are finding it difficult to pay their bills. However, even with the added flexibility afforded by energy suppliers, fuel poverty can become a black hole of expense that decimates the precarious household budgets of our most vulnerable people.

The energy industry regulator Ofgem has some useful information on what to do if you’re having trouble paying your bills in addition to the information that we’ll provide here.

What causes fuel poverty?

There are a number of factors that can give rise to fuel poverty in UK households:

• The rising costs of wholesale energy, which suppliers pass on to their customers
• Inadequate insulation and energy saving measures
• Inadequate heating infrastructure meaning that more expense is incurred for less heat
• Low incomes (pensions, job seeker’s benefits, disability benefits etc.)

Who is affected by fuel poverty?

The unfortunate truth is that many of us in the UK are only a payday or two away from fuel poverty. And with the recent pandemic making many of our jobs seem increasingly precarious, it’s in our interest to understand the problem of fuel poverty, even if it’s not an imminent and immediate threat to us right now.

Typically those of us at the greatest risk of fuel poverty include:

• Children under 16 years of age
• People with disabilities or who are suffering from long-term illnesses
• The elderly
• Those of us on low paid incomes (on universal credit or in-work benefits)

What is the "fuel poverty gap"?

While the Low Income High Cost (LIHC) indicator is used to measure the extent of fuel poverty, the fuel poverty gap is used to measure its depth. The fuel poverty gap is the reduction in required spending that would be necessary to lift a household out of fuel poverty.

Essentially, it’s the difference between where households are and where they should be in order to keep their homes warm and conducive to good health.

Want to switch energy suppliers? Switching with us has never been simpler.

Find out more

Free Service

Let Switch Plan help you with your electricity and gas needs.

How is fuel poverty calculated?

In England, fuel poverty is measured using the Low Income High Costs (LIHC) indicator. It determines that a household is in fuel poverty if the occupants’ required fuel costs are above the national average and spending this amount would leave them below the official poverty line.

Again there are 3 variables used to determining whether a household is in fuel poverty:

• The household’s combined income
• The household’s energy requirements
• The current fuel prices

How many UK households are in fuel poverty?

According to the latest reports (which use 2018 data), there are approximately 2.4 million UK households in fuel poverty. That’s just over 10% of the UK’s population. You can read the full report here.

How does fuel poverty affect health?

Fuel poverty can have a profoundly negative effect on both physical and mental health. In fact, it can even have fatal consequences. According to research carried out by fuel poverty charity National Energy Action in 2015 cold, fuel poor homes are a bigger cause of death than road accidents, alcohol or drug abuse across the UK.

Fuel poverty (as well as poverty in general) is a tremendous source of stress. And over time this stress can become chronic. This chronic stress can increase our risk of and exacerbate a number of serious chronic diseases by triggering the body’s inflammatory response. Research in the US has linked chronic stress and inflammation to a range of serious illnesses including heart disease, diabetes and even cancer.

Living in a cold home can also exacerbate serious circulatory and respiratory conditions, which carries more immediate and serious risks in the winter months.

Which is why it’s important to get the help to which you’re entitled in order to combat fuel poverty.

What help is available for fuel poor households?

The good news is that the government is aware of the problem of fuel poverty and there are a number of mechanisms in place to help the nation’s most vulnerable to keep their homes powered and warm over the cold winter months. Some of these are discounts facilitated by energy suppliers while some are grants that are claimed directly from the government.

Here, we’ll take a closer look at these provisions, how they work and how you can apply:

The energy price cap

The cost of energy has tripled over the past 20 years. In order to combat the growing problem of escalating fuel prices, the energy watchdog Ofgem has begun to apply a cap on energy prices. Energy companies are unable to sell energy at prices that exceed this, and are forced to pay hefty fines (as well as refunding customers) when they don’t abide by it. This energy price cap first came into effect in January 2019 and is re-evaluated every 6 months to ensure that consumers get a fair deal.

As of October 2020, the energy price cap is set at £1,042. The lowest it has been since it was first implemented.

Nonetheless, even with this cap in place, many households may struggle to pay their fuel bill in the winter months. Which is why the following measures have been put in place to protect the most vulnerable in the UK.

Winter Fuel Payment

The Winter Fuel Payment (or Winter Fuel Allowance) administrated by the Department of Work and Pensions. It is a means tested, one-off, tax-free payment made to energy consumers of pensionable age to help them meet the rising cost of winter fuel.

How much of a Winter Fuel payment you are entitled to depends on your circumstances during what is known as the "qualifying week" of 21-27 September 2020.

The criteria for this payment are fairly simple. You are eligible for a winter fuel payment if you:

• Were born on or before October 1954 (of course the date will change to 1955 next year).
• Will be resident in the UK for at least one day of the qualifying week.

Payments can range from £100-£300.

The table below explains how your circumstances will affect your payment…

You can find out more about the Winter Fuel Payment on the government’s website here.

Warm Home Discount

The Warm Home Discount is a government initiative but it is administrated by energy suppliers. Although they will usually contact you to let you know if and when you are eligible for this discount, it’s definitely worth being proactive and contacting then if you believe that you meet the criteria. Be advised, however, that not all energy suppliers offer the Warm Home Discount.

The scheme was established in April 2011 as a means to help the most vulnerable in society to keep their homes warm during winter. Although it was originally supposed to end on 31 March 2015, it has been extended twice and is still available in 2020.

Unlike the Winter Fuel Payment, the Warm Home Discount does not change depending on your circumstances. It is a flat discount of £140 and is deducted automatically from your energy bill.

You can apply for this discount if you are a member of either a "core group" or "broader group".

The government’s definition of the "core group" is:

• Anyone who receives the Guarantee Credit element of Pension Credit, and
• Is the main account holder or their spouse.

The "broader group" includes anyone in receipt of the following means-tested benefits:

• Income support.
• Income based Jobseekers’ Allowance.
• Income related Employment and Support Allowance (including a work-related activity or support component
• Low income elements of Universal Credit.

As well as:

• Disabled child element of Universal Credit.
• Disability or pensioner premium.
• Child element for children aged 5 or under.

You can find out more about eligibility here. Or Click Here to see a list of energy suppliers that offer the Warm Home Discount.

Cold Weather Payment

Finally, Cold Weather Payments are designed to help the financially vulnerable when the area where they live is affected by extreme cold. Under the scheme, applicants can get a payment of £25 for each 7 day period where the temperature in their area drops to zero degrees celsius or less between 1st November and 31st March.

The criteria is broader than that of the Winter Fuel Payment. You are eligible if your area meets the temperature criteria above and you are in receipt of the following benefits:

• Pension Credit
• Universal Credit
• Income Support
• Income-based Jobseeker’s Allowance
• Income-related Employment and Support Allowance
• Support for Mortgage Interest

You can find out more about Cold Weather Payments here.

Combat fuel poverty with better tariffs

The benefits above can be invaluable in helping vulnerable energy consumers to drive down their energy costs. But don’t forget that changing tariffs can also ensure that your energy costs are more reasonable so that you don’t imperil your finances in order to heat your home.

That’s where we come in!

We can help you to find the perfectly priced tariff for your needs and a supplier who’ll give you the support you deserve.

We’ll even manage the switch from end-to-end to make it as simple and hassle-free for you as possible.

Call us today on 0330 818 6223 to see how we can help.

We’re available from 8.30 am - 5.30 pm.

Would you like to know more about government energy grants? Great! Here are some related articles for you to check out

1. The Office of Gas and Electricity Markets (OFGEM)
2. Ombudsman energy
3. What is the Warm Home Discount?
4. Cold Weather Payment
5. Winter Fuel Payment
6. Student energy bills

FAQ

Can I get free electricity if I am in fuel poverty?

While there is no scheme in place to waive electricity bills for consumers in fuel poverty, they may be eligible for the Winter Fuel Payment, Cold Weather Payment, Warm Home Discount or all three. These can result in a substantial reduction in your energy bill.

If I apply for the Winter Fuel Payment, can I still apply for the other two benefits?

Yes, absolutely. Applying for the Winter Fuel Payment does not affect your entitlement to the Warm Home Discount or the Cold Weather Payment. You may be eligible for all three. Likewise, not being eligible for one doesn’t mean that your claim for the other two will necessarily be rejected.

Where can I go for further advice and guidance if I am in fuel poverty?

The energy charity National Energy Action provides advice and support for energy consumers in fuel poverty and can help you to identify your entitlements and guide you through the application progress. As well as advising on practical ways to reduce your energy bills.

Why are my energy bills so high?

You may be on a standard or default tariff your energy supplier. Or you may be on a "deemed contract" after moving into a new home. In both instances, you’re almost certainly overpaying for your energy. Changing suppliers and tariffs, combined with the benefits designed to combat fuel poverty, can ensure that you’re able to heat your home without needing to worry about your finances.