Fuel poverty in the UK

What is fuel poverty?

In general, fuel poverty relates to households that must spend a high proportion of their household income to keep their home at a reasonable temperature. Fuel poverty is affected by three key factors: a household’s income, their fuel costs, and their energy consumption (which in turn is affected by the energy efficiency of the dwelling).

Fuel poverty is a devolved policy area and is defined and measured differently in different parts of the UK.

How does fuel poverty vary across the UK?

The rapid increases in energy prices from late 2021 onwards, along with wider cost of living pressures, reports of mounting energy debts, some households ‘self-disconnecting’ and having to drastically cut their energy usage have all led to heightened concerns about the extent and severity of fuel poverty and its impact on people.

To date none of the official estimates in any part of the UK reflect the rapid increase in fuel poverty in 2022 suggested by charities working in the sector. Estimates for Scotland, Wales and Northern Ireland have not yet been published for 2022, while those for England use a definition that is not at all sensitive to changes in enegry prices.

Fuel poverty rates vary across the nations of the UK and cannot be directly compared due to differences in methodology. In the latest estimates, around 13% of households in England were classed as fuel poor, 25% in Scotland, 14% in Wales, and 24% in Northern Ireland. In all nations, fuel poverty rates have either been relatively stable in recent years (though a lack of data in some areas makes identifying trends challenging).

Fuel poverty projections and non-official estimates

The Government projects that fuel poverty will increase only slightly in England 2023 to around 3.5 million households. In England only those households in band D-G (lower energy efficiency) homes who fall below the poverty line after energy costs are considered to be in fuel poverty. In 2022 2.8 million households in England were in the lowest two income deciles (10% groups), but were not deemed to be in fuel poverty because their property had a rating of C or better.

The definition in England also means that energy rebates, such as the Warm Home Discount, are treated as if they improved the energy efficiency of a dwelling. This reduces the numbers deemed to be in fuel poverty without the added benefits of actually improving energy efficiency such as reducing greenhouse gas emissions, cutting reliance on fossil fuel imports and providing green jobs.

The aggregate fuel poverty gap in England (the total reduction in energy costs needed to take all fuel poor households out of fuel poverty) is a measure that is more sensitive to fuel prices. It is projected to nearly double between 2021 and 2023 and 2022 despite very large increses in prices. The number of fuel poor households is not expected to increase substantially under the official definition, but the depth of their fuel poverty is.

The charity National Energy Action (NEA) has estimated that the total number of households across the UK in fuel poverty increased from around 4 million in summer 2020 to 6.7 million in October 2022 and they expect it to reach 7.5 million housholds April 2023. This is more than double the official estimate for England. The NEA define a houshold as fuel poor if it needs to spend more than 10% of its income on energy to provide a satisfctory heating regime.

The Government has estimated that 8.8 million households in England could be classed as fuel poor in 2023 using te 10% defintion. However, this did not factor in the delay to the increase in the Energy Price Guarantee or the reduction in fuel prices in the second half of 2023, both of which would cut this estimate.

What is being done to address fuel poverty?

There are both national and devolved policies for addressing the drivers of fuel poverty. Fuel poverty can be alleviated by improving a households income (and their ability to pay bills), reducing their fuel costs, and reducing their energy consumption by improving energy efficiency.

• To improve a households ability to pay, there are payments and discounts available to certain eligible customers known as the Winter Fuel Payment, Warm Homes Discount, and Cold Weather payments, designed to help potentially vulnerable customers more easily pay their bills.
• In February 2022 the Government announced a package of support to help households with rising energy bills, including a £200 upfront discount on bills in October 2022 (paid for by customers in £40 installments over the following five years), a £150 Council Tax rebate for around 80% of households in England, £144 million in discretionary funding for local authorities and £715 milion. for the devolved administrations  
• To help control fuel costs, the UK Government introduced an energy price cap which protects customers on variable tariffs from price rises for the six month duration that each cap lasts for. There can however be large changes when the cap is revised. The summer (April to October) 2022 price cap will be 54% or almost £700 a year higher than the previous cap and many commentators expect a further large incraese in October 2022 in the order of 30-50%.
• Energy efficiency is supported through the Energy Company Obligation, which requires energy suppliers to install energy effificiency measures in fuel poor, vulnerable or low income homes. Each nation also has its own schemes to alleviate fuel poverty.

The Library briefing paper Energy price rises and the Energy Bills Rebate looks at recent changes in the price cap and measures to help with bills. The paper Domestic energy prices looks at how and why energy prices have changed. 

Further measures

Several stakeholders have recommended that Governments do more on fuel povety, pointing to wider potential benefits such as for health from avoiding cold homes, and decarbonisation from more energy efficient homes.

New Fuel Poverty Strategies have been published in Wales and England in 2021. Scotland has published a draft new fuel poverty strategy with the final strategy expected, and Northern Ireland is also expected to update its strategy.

The Covid-19 pandemic has caused widespread financial hardship. Many consumer groups argue that the pandemic has worsened fuel poverty and more needs to be done. Various policies from the UK and devolved Government have intended to help households financially through the pandemic, including with specific support for energy bills.