What is fuel poverty?

It's not about being poor

Traditionally, fuel poverty was most prevalent among vulnerable households, including those on low incomes but also people with disabilities or suffering from long-term illnesses, people with children under the age of 16 and older people. In the past decade, much has changed.

The UK English Housing Survey starts by sorting the private household population according to adjusted, after-tax family income, then dividing people into 10 equal groups, each containing 10% of the population. The survey shows that all fuel poor households are found in the bottom four income "decile" groups, a finding that is likely common to most of countries.

It's easy to get stuck on the idea of "the bottom" in that sentence, and overlook that the finding means fuel poverty is found among households that represent 40% of the population.

The survey also reveals a wealth of other information.

Since 2003, the highest rates of fuel poverty have been found in households living in privately rented accommodation, while the rates are lowest among people who live in homes they own. Unemployed households have the highest rates of fuel poverty across all economic groups, and single parent families are consistently more likely to be in fuel poverty than those with two parents.

But even if there is a degree of correlation between fuel poverty and general poverty, it has become clear that one should no longer assume fuel poverty is a result of low income or limited to those living in absolute poverty.

Today, there is much greater recognition that fuel poverty stems from the interplay of three factors: income, housing quality and energy prices. The underlying challenge is that poor quality housing and shifting energy prices can make a certain level of income inadequate to support household energy needs.

In many parts of the United Kingdom, and indeed across Europe, a large portion of the housing stock is of poor quality and thus a risk factor for fuel poverty. Many homes were constructed before governments began to implement building codes to ensure a certain level of standard. Such homes typically have low levels of insulation and single-paned windows, both of which mean warm air generated by the heating system escapes and cold, outdoor air seeps in.

These houses typically also have old, inefficient heating systems. Many houses still have old gas furnaces with low efficiency compared to state-of-the-art condensing boilers, which are easily 30% more efficient in transforming fuel or electricity into heat. Houses that use hot water radiators often don't have a thermostatic valve that makes it possible to control the temperature in each room. In addition, old systems often lack a central clock thermostat that can be set to decrease inside temperature when people are away or at night time. To make matters worse, in many homes pipes are not insulated and boilers not properly maintained.

All of these factors that undermine overall efficiency lead to high heat losses – which in turn means more fuel is needed to try to achieve a comfortable temperature.

Now add the price of fuel on top.

Over the period 2003 to 2014, in many countries around the world the energy price index increased much more rapidly than the overall Consumer Price Index (CPI) - a hypothetical 'basket of goods' that most families will purchase on a regular basis. When the cost of these good rises, but incomes don't people have may have to leave some items off the shopping list. The same can be true when the price of one item - in this case energy - rises more quickly than the others. This was the case in the United Kingdom, for example, where the energy prices index rose from 100 in 2003 to over 250 in 2014 while CPI also started at 100 but rose to only 130 in 2014. Energy prices became a dominant driver of fuel poverty.

The 2009 global financial crisis pushed up unemployment in the United Kingdom, reducing some dual-income families to a single paycheck, forcing some people to accept lower paying jobs or – in the worst-case scenarios - pushing a previously independent household onto social assistance programs.

With these two forces at play, the financial strain on UK families increased rapidly. As fuel prices almost tripled, so did the number of people living in fuel poverty.  

As the number of people facing fuel poverty escalated, it also spread to other segments of society. The incidence of fuel poverty can be particularly severe in rural areas where houses are not connected to the gas network and have to rely on more expensive forms of heating. One example is fuel oil, which must be delivered by truck and requires upfront payment for the full amount, rather than making a monthly payment on gas or electricity a person has actually used. Often, old houses in these areas are of particularly low quality; some are completely lacking wall insulation.

As time passes and their children leave home, many retired or elderly people find themselves in a situation known as "under-occupancy". The family home, which may have 3 or 4 bedrooms, a living room, a family recreation area and a basement becomes far too large for the parents. While all family members may have a strong attachment to the home, the parents who are now living off retirement pensions become overburdened by the heating bills. Alternatively, they might scale down their living quarters to just one or two rooms to keep costs down.

Some relatively simple solutions can improve the living conditions for people in such situations: changing the boiler, replacing leaking windows with ones that are tight double-paned, insulating the roof and walls. But with high energy bills month after month, it is difficult to find the money needed for the upfront investment that would deliver substantial long-term savings.

Perhaps it is helpful to think of fuel poverty not as people who are too poor to buy sufficient fuel, but rather as situations in which the need for fuel – for all household activities – drives people into financial hardship.