REVIEW OF FUEL POVERTY – CONCLUSIONS by raz34238

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									REVIEW OF FUEL POVERTY IN SCOTLAND

Scottish Government
May 2008




                                     1
Foreword


The Scottish Government is committed to creating a more successful country, with
opportunities for all of Scotland to flourish, through increasing sustainable economic
growth. There is no place for fuel poverty in such a society.

Fuel poverty is a real issue for thousands of Scottish households who are struggling
to pay their fuel bills and keep their homes warm. In the face of continuing high fuel
prices, more and more are falling into fuel poverty. The effects on people‟s quality of
life can be profound.

This review sets out what has been achieved so far in the pursuit of the target to end
fuel poverty in Scotland by 2016 as far as is reasonably practicable. It concludes
that there is much to do to get back on track and that the existing fuel poverty
programmes - the Warm Deal and the Central Heating Programmes - whilst well
intentioned, have lost their way and urgently need reform. The review highlights
how, under our current devolution settlement, we have direct control over measures
to improve the energy efficiency of the home. However, this is only one of the three
principal factors affecting the level of fuel poverty.         Through the National
Conversation, we are exploring what options there are for further devolved powers to
also be able to influence incomes and fuel prices in Scotland.

We can‟t do this alone. We want to work in partnership with others to reform the
programmes and set a clear direction for the future. That is why we are re-
establishing the Scottish Fuel Poverty Forum with an independent Chairperson. The
Forum will meet over the summer to reflect upon the review and consider options for
change, and will report to Ministers in the autumn. We will work with energy
companies, charities, local authorities and housing associations in Scotland, and we
will continue to urge Westminster to take more action.

It is clear that there are challenges ahead, but we are committed to doing what we
can to meet the target. In an energy-rich country like Scotland there is no room for
fuel poverty.




Nicola Sturgeon, MSP
Deputy First Minister and Cabinet Secretary for Health and Wellbeing




                                                                                     2
CONTENTS
Foreword                                                              2

EXECUTIVE SUMMARY                                                     5


1.      Introduction                                                  8

    The need for a review

2.      Fuel poverty – definitions, causes and extent                 10

    Definitions of fuel poverty across the UK
    Definitions in other countries
    Causes of fuel poverty
    Effects of fuel poverty
    Changes in the extent of fuel poverty
    Factors affecting fuel poverty in rural areas
    Improvements in housing energy efficiency
    Eliminating fuel poverty – the scale of the challenge
    Conclusion


3.      Measures to tackle fuel poverty – influence and delivery      24

    Scottish Government powers
    Influencing household incomes
    Influencing fuel prices and other action by fuel companies
    Delivering household central heating and insulation programmes

    Central Heating Programme
    Targeting of the CHP
    Impact on fuel poverty
    The shift from first-time installations to replacements
    Delivery of the programme
    Waiting times
    Value for money and controlling costs

 Warm Deal
 Interaction with EEC/CERT

    Conclusion




                                                                       3
4.      Fit with Scottish Government strategic objectives                        40

    Relationship to policy on a fairer Scotland
    Relationship to policy on housing repairs and improvements
    Relationship to policies on climate change and domestic energy efficiency
    Conclusion


5.      Conclusions of the review                                                45

    Despite the successes of our programmes, fuel poverty continues to grow
    Fuel poverty is more prevalent in Scotland
    The definition makes the target challenging
    Fuel poverty is likely to increase further with fuel price rises
    Causes and action on tackling fuel poverty
    Energy efficiency measures are not enough
    The Central Heating Programme now largely provides replacement systems
    Existing fuel poverty programmes are not focussed on the fuel poor
    Need for better fit with our strategic objectives
    A national programme may be less flexible
    The programmes may be displacing CERT spending in Scotland
    Need for collaborative working




                                                                                  4
EXECUTIVE SUMMARY

Purpose of the review

Fuel poverty, a situation in which a household cannot afford to heat the home to a
satisfactory standard, can reduce people‟s quality of life. In Scotland, the levels of
fuel poverty have been increasing since 2002. The most recent data available, for
2005-06, estimated that, in Scotland almost 1 in 4 households are fuel poor; more
than 3 times the proportion of English households. We expect these numbers to
have risen further with recent energy price increases.

The Scottish Government is committed to ensuring, so far as reasonably practicable,
that people are not living in fuel poverty in Scotland by November 2016. This reflects
the requirements of Section 88 of the Housing (Scotland) Act 2001, as elaborated by
the Scottish Fuel Poverty Statement published in August 2002.

The review recognises what has been achieved in pursuit of the target, assesses
why we are not making the progress that was intended and examines the potential to
improve and build upon current policies and programmes to ensure that we can get
back on track to end fuel poverty in Scotland.

Prognosis for eradicating fuel poverty by 2016

The number of households in fuel poverty in Scotland has been rising consistently
since 2002. In 2005/06, an estimated 543,000 households (23.5% of all households)
were classified as fuel poor. Fuel poverty is particularly high in rural areas due to a
combination of demographic factors (more older households), infrastructure
(properties off the gas grid) and matters relating to the housing stock (more detached
and hard to insulate homes).

There are three principal factors that determine the number of households that are
fuel poor: fuel prices, household incomes and the energy efficiency of housing. The
devolution settlement means that, whilst the Scottish Government can and does
seek to influence incomes and fuel prices, the powers to control these factors lie with
Westminster. Its response to fuel poverty has therefore focussed on schemes to
deal with the third factor – improving the energy efficiency of housing - through
provision of central heating and insulation.

Significant improvements continue to be achieved year on year in the energy
efficiency of the Scottish housing stock, partly as a result of these programmes. This
has made Scottish householders warmer and more comfortable, lowered fuel bills
and reduced carbon emissions, but has not been enough to stop the growth in fuel
poor households, largely because of the significant upward trend in fuel prices.

Though fuel poverty has been rising across the UK, it is proportionately higher in
Scotland than in England, despite the fact that Scotland‟s housing stock is more
energy efficient. This is partly because of structural factors such as Scotland‟s
climate, its rurality, income levels and the fact that it has a higher proportion of older
people. It is also partly because Scotland has chosen to use a higher temperature in
its definition of the satisfactory heating level for pensioner households.


                                                                                        5
With this definition and in the face of high and rising fuel prices, the prognosis for
achieving the commitment to end fuel poverty, as far as is reasonably practicable, by
2016, is not good. Analysis undertaken for the review indicates that, for those who
are most fuel poor, this could only be achieved by massive increases in income and
changes in its distribution (amounting to billions of pounds per annum), huge
reductions in fuel prices (almost a 100% reduction) or unrealistic improvements in
energy efficiency (even if all Scotland‟s home reached very high standards there
would still be a quarter of a million fuel poor households).

Further improvements to housing energy efficiency will continue to keep fuel bills
lower than they otherwise would be, make homes warmer and reduce carbon dioxide
emissions. However, unless fuel prices and/or incomes change favourably as well,
fuel poverty is unlikely to reduce significantly in the foreseeable future.

In a context of rising fuel prices, the extent of the increase in household incomes
required to abolish fuel poverty is daunting. The “multiplier effect” that is locked into
the current „10% of income‟ definition of fuel poverty means that the real incomes of
those on the margins of fuel poverty would need to rise by an amount ten times
greater than any increase in fuel prices assuming constant energy efficiency of the
housing stock. The indications are that fuel prices will continue to increase, in which
case, despite our best efforts, fuel poverty in Scotland is likely to rise still further in
future years.

Current fuel poverty programmes and their fit with the Government’s Purpose

Our fuel poverty programmes are broadly popular with the public and have provided
significant benefits to many Scottish householders – warmer homes, lower fuel bills
and reduced carbon emissions. In the face of rising fuel costs, they have not been
enough to stop fuel poverty levels increasing. However, without them, fuel poverty
would be even higher than it is now.

The bulk of Scottish Government investment in tackling fuel poverty is directed
through the Central Heating Programme (CHP). Pensioner households were
originally targeted as they have tended to be more prone to fuel poverty, but not
exclusively. Around half of pensioner households in private homes were estimated
to be fuel poor in 2005-06, and just over a tenth of non-pensioner households.
Amongst pensioner households, a larger proportion of households aged over 80
were fuel poor than those aged between 60 and 80. There appears to be a much
closer correlation between low incomes and fuel poverty than between age and fuel
poverty, with three-quarters of those in the bottom two deciles of income being fuel
poor.

The Central Heating Programme has been instrumental in bringing Scotland to the
position where a house lacking central heating is a rarity. However, while investment
in this programme is badged under “fuel poverty” it is now, in effect, a programme to
provide free central heating systems to pensioners, regardless of their fuel poverty
status. Only around half of the expenditure on the programme was directed to fuel
poor households in 2005-06.



                                                                                         6
The CHP has drifted from its original purpose of providing central heating to
pensioners without it, to being almost entirely a programme for central heating
replacement. Replacements offer less gain, in either fuel poverty or environmental
terms, than first time installations. Given demographic trends, and the fact that
systems have a finite life, the emphasis on replacements offers the prospect of a
self-perpetuating programme with growing waiting lists. Low income households
without central heating are, in effect, queuing behind fuel-rich households requesting
replacement systems that, in many cases, they could easily afford to install
themselves.

The Warm Deal (insulation) programme is better value-for-money in energy
efficiency/carbon terms than the CHP. There are also fewer delivery problems in this
partially locally managed scheme. However, the Warm Deal is not well integrated
with UK programmes, such as the Energy Efficiency Commitment, and its successor
(CERT), which may mean Scottish Government resources are displacing those that
could be taken up from the fuel companies. Similar concerns relate to the insulation
aspects of the CHP.

The Scottish Government‟s Purpose is to focus government and public services on
creating a more successful country, with opportunities for all of Scotland to flourish,
through increasing sustainable economic growth. This review considers how
tackling fuel poverty can contribute to this overall Purpose, through creating a
Scotland where growth reduces inequalities between individuals (solidarity) and
regions (cohesion), and contributes to reducing carbon emissions (sustainability).
The review examines the fit of the programmes with the new strategic objectives set
out by the Scottish Government. It finds that there is not a good fit between
definitions of “fuel poverty” and those of “income poverty” being used as part of our
strategy to tackle poverty and disadvantage under the Government Economic
Strategy. While current programmes contribute to greener objectives, the CHP is not
particularly cost-effective in this respect, and its poorly targeted grant-led approach
does not sit well alongside policies on housing repairs and improvements which
emphasise the responsibilities of the home owner.

Next Steps

This review may provide a useful starting point for a debate on the way forward for
tackling fuel poverty. The complex range of factors affecting fuel poverty means that
stakeholders at UK, national and local level all have a role to play – including energy
companies, charities and the insulation sector – as well as all parts of Government.
The Scottish Fuel Poverty Forum provides a platform for this and stakeholders have
requested that it be re-established with an independent chairperson, to provide the
opportunity to contribute to the debate and help shape the future direction of policy.

There is an opportunity to improve and build on current programmes to ensure that
they operate fairly across Scotland, and that available resources make the most
impact to end fuel poverty. There is an opportunity to strengthen links with related
policies such as tackling poverty and disadvantage, promoting energy efficiency and
addressing climate change, as part of progress towards a wealthier, fairer and
greener Scotland.



                                                                                     7
1.    INTRODUCTION

1.1 This report sets out the findings of an internal review of the Scottish
Government‟s approach to tackling fuel poverty. The review considers the extent of
fuel poverty in Scotland; and examines how effective current programmes have been
in making progress towards our target to end fuel poverty, as far as is reasonably
practicable, by 2016.

The need for a review

1.2 The Scottish Government is committed to ensuring, so far as reasonably
practicable, that people are not living in fuel poverty in Scotland by November 2016.
This reflects the requirements of Section 88 of the Housing (Scotland) Act 2001, as
elaborated by the Scottish Fuel Poverty Statement published in August 2002. The
next formal report on progress towards this objective is not required until 2010,
however, for a number of reasons this is an opportune time to take stock and
consider the way forward for this policy.

1.3    The Scottish Government‟s Economic Strategy sets out how we will support
businesses and individuals and how, together, we can deliver the following Purpose:
to focus the Government and public services on creating a more successful country,
with opportunities for all of Scotland to flourish, through increasing sustainable
economic growth. By sustainable economic growth we mean building a dynamic and
growing economy that will provide prosperity and opportunities for all, while ensuring
that future generations can enjoy a better quality of life too. Decisions on all
Government priorities and policies, including the fuel poverty programmes we have
inherited from previous administrations, need to be taken in the light of this Purpose.

1.4 The Scottish Budget Spending Review has identified significant resources -
£46m per annum for 2008-2011 – for programmes directly targeting fuel poverty. We
need to ensure that these resources, alongside other housing and energy efficiency
schemes, are marshalled effectively to ensure real progress is made over the
Spending Review period and beyond to 2016. The Scottish Government‟s main fuel
poverty programmes - the Central Heating and Warm Deal programmes - have been
in operation for 7 and 9 years respectively and we are now almost halfway, in terms
of time elapsed, to our ultimate 2016 target. Most significantly, data is now beginning
to show a consistent pattern which demonstrates that despite the successes of these
programmes in terms of making many Scottish homes warmer and more
comfortable, fuel poverty itself has, in fact, been increasing, rather than decreasing.
This means that the outcome milestones originally set by the previous administration
will not be achieved when the 2006-7 figures are published in late 2008. Given this
context, there is a clear need to examine and challenge current policies and
programmes.

1.5 The review recognises what has been achieved, assesses why we are not
making the progress previous administrations had planned for and examines the
potential to improve and build upon current policies and programmes to ensure that
we can get back on track to end fuel poverty in Scotland.         It recognises the
important role of fuel prices and household incomes, which are primarily the
responsibility of Westminster, in determining levels of fuel poverty. Action by the


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Scottish Government has focussed on the third primary determinant of fuel poverty –
household energy efficiency – with programmes to fit efficient central heating and
effective insulation. The review examines the current programmes to ensure that
they are operating fairly across Scotland and that available resources are going
where they can make the most impact on fuel poverty.

1.6    The review takes place in the context of the Government‟s Purpose and the
new set of strategic objectives that flow from this, including a new relationship with
local government, as outlined in our Concordat. As well as improving our approach
to tackling fuel poverty, the review therefore also considers how we can strengthen
links with related policies such as the need to address poverty and disadvantage,
and tackle climate change as part of our progress towards a wealthier, fairer and
greener Scotland within the over-arching aim of sustainable economic growth.

1.7    In taking forward our fuel poverty programmes we need to engage effectively
with stakeholders in Scotland. The Scottish Fuel Poverty Forum was set up in early
2003 with a remit "to work collectively towards .. eradicating fuel poverty so that from
2016 no person should have to live in Fuel Poverty in Scotland." The Forum was
chaired by a Scottish Government official and membership included a range of public
and voluntary bodies, as well as the three main energy supply companies. The
Forum contributed towards delivering the objectives in the Fuel Poverty Statement.
However, it had always been the intention to review its role after about three years to
ensure that it continued to meet current need and to contribute effectively towards
achieving the 2016 fuel poverty target. The Forum last met in July 2006, and
stakeholders have requested that it be re-established with an independent
chairperson, to provide the opportunity to contribute to the debate and help shape
the future direction of policy.




                                                                                      9
2.     FUEL POVERTY – DEFINITIONS, CAUSES AND EXTENT

2.1   This part of the review describes what fuel poverty is and how it has been
defined; examines why it is important to tackle it; and presents information on the
extent of fuel poverty across Scotland and how this has changed since the
commitment to tackle fuel poverty was introduced. It presents evidence that fuel
poverty has been growing at the same time that the energy efficiency of Scotland‟s
housing stock has been improving. Data modelling is used to illustrate the scale of
the challenge required to fully eliminate fuel poverty.

Definitions of fuel poverty across the UK

2.2      “Fuel poverty” can loosely be defined as a situation in which a household is
not able to heat a home to an acceptable standard at an acceptable cost, in relation
to its income. It can thus be defined more specifically in a variety of ways depending
on the judgements and assumptions made about what constitutes “poverty” (for
example, which elements of income are included or excluded; the proportion of
income considered acceptable to spend on heating) and the level of heating it is
reasonable for a household to enjoy (for example, what is an acceptable temperature
standard?). The nature of the definition chosen has a significant impact on the extent
of fuel poverty; its distribution, both geographically, and between population groups;
and the nature, extent and cost of the interventions required to address it.

2.3    The 2002 Scottish Fuel Poverty Statement used the following definition of fuel
poverty :

“A household is in fuel poverty if, in order to maintain a satisfactory heating regime, it
would be required to spend more than 10% of its income (including Housing Benefit
or Income Support for Mortgage Interest) on all household fuel use.”

The Statement also established that households needing to spend more than 20% of
their income on fuel use would be regarded as being in extreme fuel poverty.

2.4    In Scotland, a “satisfactory heating regime” for the main living area in the
home for all pensioners aged 60 upwards (and also those who are long-term sick
and disabled) is regarded as being that the room must reach a temperature of 23
degrees Celsius for 16 hours a day, 7 days a week. This is a more demanding
requirement than for non-pensioner households, where the requirement is 21
degrees Celsius for 9 hours per day weekdays and 16 hours per day weekends.

2.5     In 2001, Scotland chose to use a more demanding satisfactory heating regime
for pensioners, the long term sick and disabled people than in the rest of the UK. In
England, irrespective of whether or not they are headed by pensioners, all
households are judged to require a 21 degree Celsius temperature in their main
living area, and an adjustment is made for under-occupancy. Thus pensioners, the
sick and disabled people in Scotland are deemed to require warmer homes than
their counterparts in England. This is significant given that these groups together
make up more than one third of Scottish households.


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2.6     These standards relate to internal temperatures and therefore cannot be
justified on the basis of a longer heating season in Scotland which is already
factored into the calculations. The Scottish definition means that, for a given level of
fuel prices, the improvement in energy efficiency and/or increase in income required
to take a pensioner household out of fuel poverty in Scotland is significantly greater
than in the rest of the UK.

2.7    In 2005/06, 24% of the population in Scotland were classed as fuel poor
compared with only 7% of households in England. This is despite the fact that the
energy efficiency of Scottish homes is generally better than those in England 1.
However, this definitional difference is only one of the reasons why the rate of fuel
poverty is 3.4 times greater in Scotland than in England. Other reasons for the higher
rate in Scotland include demographic factors (a higher proportion of pensioners and
the long term sick living on essentially fixed incomes); Scotland‟s greater rurality
(which correlates to factors which increase fuel costs, such as lack of access to the
gas grid), and a colder climate and generally higher wind speeds (especially in
Northern-most regions) leading to a longer heating season.

Definitions of fuel poverty in other countries

2.8      Over the course of this review, we have been unable to find evidence which
indicates that countries outside the UK, have defined fuel poverty in anything like
similar terms to those applied in Scotland. Programmes do exist to assist low income
families with the costs of high fuel bills – in the USA, this is sometimes referred to as
“weatherisation payments”. For example, New England Farm Workers‟ Council
(NEFWC) has managed the Low Income Home Energy Assistance Program
(LIHEAP) for the City of Springfield since 1982. LIHEAP assists low-income
households, including owners and renters, in meeting the high cost of home heating.
LIHEAP pays benefits of fixed amounts based on household income. An additional
benefit is available to households having a high energy burden. The agency makes
utility payments to the primary heating vendor - oil, gas, electric or other. However,
while these programmes address similar issues to our fuel poverty programmes, the
trigger for action is low income rather than fuel poverty and the focus is on
subsidising consumption, rather than seeking to reduce it, through energy efficiency
measures.

Causes of fuel poverty

2.9  The three main factors that influence the level of fuel poverty, and which are
amenable to a greater or lesser extent, to Government influence2 are :

       fuel prices

1
  A direct comparison is not straightforward, but using the Standard Assessment Procedure (SAP
2005) scale, the mean rating for Scotland‟s housing stock in 2004-05 was between 55 and 59,
compared to a score of 48 for England‟s housing stock, in 2005.
2
  Under-occupation can also contribute to fuel poverty, which helps to explain the prevalence of fuel
poverty in single person households.



                                                                                                  11
       household incomes; and
       energy efficiency of the housing stock.

The relative importance of each factor varies depending on the period examined. For
example, analysis of the reduction in fuel poverty between 1996 and 2002 is shown
to be attributable mainly to increases in household income (50%); and decreasing
fuel prices (35%), with energy efficiency improvements playing a lesser role (15%).

2.10 The definition of fuel poverty and its inter-dependence with these factors
means that a household can move into, or out of fuel poverty at different times and
for a variety of different reasons. For example, a person who stops work temporarily
to undertake a course of study may move into fuel poverty and then move back out
of fuel poverty on their return to employment. A household may be brought into fuel
poverty when fuel prices rise, but leave fuel poverty when these fall.

Effects of fuel poverty

2.11 Fuel poverty can impact negatively on quality of life and health. For example,
households on low incomes that have to spend a high proportion of that income on
fuel have to compensate in other parts of their family budgets. This can lead to poor
diet, or reduced participation in social, leisure and educational activities.
Overcrowding, caused by families having to remain in limited heated areas of the
homes, can also adversely affect the education of young people.

2.12 However, it is important to note that the relationship between indoor
temperatures, fuel poverty and ill-health is a complex one. There is a widely held
opinion that installing central heating and ensuring warm homes will reduce excess
winter deaths3 (EWD). There is, however, no hard evidence for this. Indeed the
term "excess" winter deaths is in some ways misleading in suggesting extra or
avoidable deaths. There is no single common cause behind these deaths and very
few indeed are caused by hypothermia. Scotland has similar levels of excess winter
deaths to other UK countries, but lower levels than Southern European countries
such as Portugal. Low levels in the Scandinavian countries may well reflect not only
high standards of home heating and insulation but effective protection against
outdoor cold.

2.13 Various research projects over recent years have set out to consider the
possibility of a correlation between fuel poverty and excess winter deaths (EWDs).
However, while this research has served to highlight the complexities of the issue, it
did not conclusively establish such a link. Research by Howieson and Hogan
(2005)4 identified a link between deprivation and excess winter deaths highlighting
that the Scottish Index of Multiple Deprivation (SIMD) is positively correlated with
EWD by region. This relationship suggests that a range of issues are likely to be a
factor in EWDs - including health inequalities, income and lifestyle rather than
3
  Excess winter mortality is calculated as winter deaths (deaths occurring in December to March)
minus the average of non-winter deaths (April to July of the current year and August to November of
the previous year).
4
  Multiple deprivation and excess winter deaths in Scotland, Journal of the Royal Society for the
Promotion of Health, February 2005 pp18-22 ISN 1466 4240.



                                                                                                12
simply climatic variations, or having an energy efficient house. GROS 5 statistics
show that numbers of EWDs in Scotland are greatest in the area of Greater Glasgow
Health Board, however when compared against population statistics, there is very
little geographic variation across the country. If colder temperatures and energy
inefficient housing play a significant part in these deaths we would expect to see
greater levels in areas which are colder or have housing stock which is difficult to
make thermally efficient.

2.14 Research by Edinburgh University commissioned by the former Scottish
Executive in 2002 found that two years after installation the Central Heating
Programme had had no clear impact on recipients‟ current health or their use of
health services or medication. Recipients were actually more likely than the
comparison group to report receiving a first diagnosis of a nasal allergy (such as hay
fever) during the evaluation period. Receipt of central heating under the programme
was associated with a reduced probability of receiving a first diagnosis of heart
disease and of high blood pressure. This finding must be treated with much caution,
however, as it was based on self-reported data, rather than clinical records and was
not accompanied by any reduction in the use of medical services or medication
which might be expected as a consequence. The Programme did significantly reduce
condensation, dampness and cold in recipients‟ homes, long-term exposure to which
is associated with poor health. A further fourteen outcome measures representing
specific symptoms and health conditions exhibited no significant associations with
the receipt of heating under the Programme.

Changes in the extent of fuel poverty

2.15 The main source of information on fuel poverty in Scotland is the Scottish
House Condition Survey (SHCS). Prior to 2003, surveys were conducted in 1991,
1996 and 2002. Since then they were moved to a continuous format to allow more
flexibility in content and the ability to more closely monitor Ministerial targets. Figure
1 shows that from 1996 to 2002 the number of fuel poor households in Scotland fell
substantially from around 36% to 13%6. However, since 2002 fuel poverty levels
have increased every year with a particularly large increase to 2005/06. In 2002,
13% of households (286,000) were assessed as fuel poor, rising to 15.4% of
households (350,000) in 2003/4. This rose again to 18.2% of households (419,000)
in 2004/05 and then to 23.5% of households (543,000) in 2005/06. 7.5% of
households (173,000) in 2005/06 were estimated to be in “extreme fuel poverty” (i.e.
having to spend in excess of 20% of their income on fuel). This means that almost a
third of those in fuel poverty are in extreme fuel poverty.




5
 General Register Office for Scotland
6
 This comparison uses two different definitions of fuel poverty. A comparison using the same
definition results in a fall from 36% to 9%. See the 2002 fuel poverty report for further details:
http://www.scotland.gov.uk/Topics/Statistics/SHCS/FuelPoverty


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Figure 1: Households in Fuel Poverty 1996-2005/6 (%)
              40

              35

              30

              25
 Percentage




              20

              15

              10

              5

              0
                   1996                         2002     2003/4 2004/5 2005/6
                                  Survey year

2.16 Changes in fuel prices were an important factor in both the reduction in
numbers in fuel poverty between 1996 and 2002 and in the subsequent increase.
Because of the small sample sizes in the 2004/5 and 2005/6 surveys, the precision
of any estimates of the effect of improved energy efficiency measures will be poor as
will estimates of the offset of those improvements against the impact of fuel price
increases. However, in general terms, re-running the fuel poverty calculations on the
2005/6 sample using 2004/5 fuel prices up-rated for general inflation showed that
there would have been no statistically significant change in fuel poverty between
2004/5 and 2005/6 had fuel prices not increased in real terms over the period.

2.17 Figure 2 and Table 2 show that households living in dwellings with low levels
of energy efficiency (i.e. those with „poor‟ scores under the National Home Energy
Rating (NHER) system) are more likely than those with higher NHER scores to be
fuel poor. Not surprisingly, fuel poverty is also closely correlated with low incomes.
Almost all of those with a household income of less than £100 per week are fuel
poor. Fuel poverty is, however, lowest in social housing, particularly the housing
association sector (17% of households). This is likely to be due to the
preponderance of flats, younger stock age profile and Government refurbishment
targets affecting the socially rented sector. Fuel poverty is highest in owner-occupied
dwellings (25 % of households).




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Figure 2: Households in fuel poverty by tenure, NHER band, household type,
household income and urban/rural (%)


                          owner-occupier
     band Tenure



                          LA/other public
                                HA/co-op
                           private-rented
                                   Poor
     NHER




                                Moderate
                                   Good
                              single adult
                               small adult
     Household




                            single parent
                              small family
       type




                              large family
                               large adult
                            older smaller
                         single pensioner
                              < £100 p.w.
     ruralincome band




                        £100 -199.99 p.w.
     Urban Weekly




                        £200 -299.99 p.w.
                        £300 -399.99 p.w.
                        £400 -499.99 p.w.
                        £500 -699.99 p.w.
                                   £700+
                                    urban
                                     rural
                                             0   10   20    30 40 50 60 70 80           90 100
                                                           Percentage in Fuel Poverty

2.18 From Figure 2 and Table 2, it can be seen that just under half of single
pensioner households (181,000) and around two fifths of older smaller households 7
(143,000) were fuel poor, making them more likely than other household types to
experience fuel poverty. 24% of single adult households (81,000) were also in fuel
poverty. Family and non-pensioner couple households were least likely to be fuel
poor.

2.19 Table 2 shows that households with partial central heating or no central
heating (of which there are relatively few in Scotland) are around twice as likely to
suffer fuel poverty as those with full central heating. In terms of their main fuel
source, twenty per cent of gas users are fuel poor compared to 32% of electricity
users and 37% of oil users. Furthermore those who use oil or „other fuel types‟ (not
gas or electricity) are around three times more likely to experience extreme fuel
poverty than gas users.

7
    Mostly pensioner couples


                                                                                             15
 Table 2: Fuel poverty by dwellings and household characteristics (%)

                                                                        Extreme Fuel
                                  Not Fuel Poor        Fuel Poor                             Unweighted
                                                                            Poor8
                                                                                             sample size
                                         %                  %                %
Tenure
Owner-occupier                               75                 25                   9            2,092
LA/other public                              78                 22                   3              505
HA/co-op                                     83                 17                   2              296
Private-rented                               77                 23                   9              210
Private                                      75                 25                   9            2,302
Social                                       80                 20                   2              801
Central heating extent
Full                                         78                 22                   7            2,866
Partial                                      62                 38                  12              155
No central heating                           59                 41                  16               82
Primary heating fuel
Gas                                          80                 20                   6            2,261
Electricity                                  68                 32                   8              471
Oil                                          63                 37                  16              247
Other fuel type                              59                 41                  18              124
NHER band
Poor                                         42                 58                  25              167
Moderate                                     69                 31                  11            1,576
Good                                         88                 12                   2            1,360
Household type
Single adult                                  76                24                   5              407
Small adult                                   89                11                   4              531
Single parent                                 86                14                   2              165
Small family                                  92                 8                   1              445
Large family                                  88                12                   3              216
Large adult                                   86                14                   5              310
Older smaller                                 59                41                  18              503
Single pensioner                              53                47                  14              526
Weekly income band
< £100 p.w.                                    1                99                  78              130
£100 -199.99 p.w.                             42                58                  16              654
£200 -299.99 p.w.                             78                22                   3              638
£300 -399.99 p.w.                             89                11                   1              479
£400 -499.99 p.w.                             95                 5                   1              383
£500 -699.99 p.w.                             98                 2                                  449
£700+ p.w.                                    99                 1                                  370
Urban/rural
Urban                                        79               21                     6            2,411
Rural                                        66               34                    14              692
All Scotland                                 77               23                     7            3,103
Unweighted sample size                    2,318              785                   263

 8
   Extreme fuel poverty is a subset of fuel poverty i.e. those who are extreme fuel poor are included in
 the figures for fuel poverty.


                                                                                                      16
Factors affecting fuel poverty in rural areas

2.20 Table 2 shows that rural households are more susceptible to fuel poverty
(34% are fuel poor) than urban households (21%). 14% of rural households are in
extreme fuel poverty, making extreme fuel poverty more than twice as likely for a
rural household as for an urban household. The patterns revealed in the survey data,
taken together with the particular definition of fuel poverty adopted in Scotland, with
its differential heating regime for pensioner households, provide a clear indication of
the types of locations across Scotland that are more likely to be vulnerable to fuel
poverty. Most of these factors, as outlined below, are generally more prevalent in
rural areas.

2.21 In terms of social and demographic factors, fuel poverty will tend to be
higher in areas where there is a higher proportion of :

      pensioner households;
      long-term sick and disabled households;
      single person households.

In terms of the housing stock, there will be tendency for greater levels of fuel
poverty in areas where there is a higher proportion of :

      houses, especially detached houses;
      stock built using solid wall construction, for example, stone built or built using
       non-traditional construction methods;
      older housing.

In terms of the energy infrastructure, there will be tendency for greater levels of
fuel poverty in areas where there is limited access to the gas grid – again, this is
more likely in rural rather than urban areas. The chances of a household that is „off
the gas grid‟ being fuel poor are approximately double that of a household „on the
gas grid.‟ Many houses off the gas grid are in also the North of Scotland, where the
heating regime used for modelling is stricter to account for the longer heating season
and higher wind speed. Similarly, many of these houses are detached and/or have
stone walls making them harder to insulate using conventional means.

Improvements in housing energy efficiency

2.22 The SHCS also shows that energy efficiency has been consistently increasing
in recent years at the same time that fuel poverty has also been on the rise. Table 3
and Figure 3 show how the energy efficiency of the housing stock has improved. In
2002, an estimated 31% of dwellings achieved a “good” NHER rating of 7 or above.
By 2005/6 this proportion had risen to an estimated 47%. Correspondingly fewer
dwellings were given a poor rating in 2005/6 than in 2002.




                                                                                        17
          Table 3: Change in banded NHER by tenure 2002-2005/6 ( %)

                                    NHER Band                     Unweighted
                                                                  sample size
                       Poor     Moderate Good            All
                                 Row Percentages
      All tenures
           2002           8          60       31          100        14,965
         2003/4           6          54       40          100         3,088
         2004/5           5          51       44          100         3,085
         2005/6           4          48       47          100         3,146
      Private sector
           2002           9          65       27          100        10,107
         2003/4           8          58       35          100         2,220
         2004/5           6          57       38          100         2,305
         2005/6           5          55       40          100         2,340
      Social sector
           2002           6          51       43          100         4,858
         2003/4           2          43       56          100           868
         2004/5           2          35       63          100           780
         2005/6           1          32       67          100           806


2.23 Table 3 shows that improvements in energy efficiency of social rented
dwellings have been greater than those for the stock as a whole. This is likely to
reflect the impact of fuel poverty programmes on this sector, as well as housing
improvement programmes linked to the achievement of the Scottish Housing Quality
Standard. In 2005/6, about two thirds of social rented dwellings had a “good” NHER
rating, compared to 43% in 2002. Over the same period, the proportion of private
sector dwellings rated “good” increased from 27% to 40%. Only about 3% of the
housing stock has no central heating. A further 4% have only partial central heating.
Table 4 shows that, of those 3% without central heating, 60% have “poor” NHER
ratings, compared to just 2% of those with full central heating - with almost half of
those with full central heating having „good‟ ratings.




                                                                                  18
Figure 3: Mean NHER by tenure, type of dwelling, household income and
urban/rural indicator


                            owner-occupier
              Tenure


                            LA/other public
                                  HA/co-op
                             private-rented
                                Detached
    Dwelling




                            Semi-detached
     type




                                 Terraced
                                Tenement
                               Other Flats
                                < £100 p.w.
    Urban Weekly income




                          £100 -199.99 p.w.
                          £200 -299.99 p.w.
             band




                          £300 -399.99 p.w.
                          £400 -499.99 p.w.
                          £500 -699.99 p.w.
                                     £700+
                                     urban
     rural




                                      rural

                                              0   1   2   3      4     5      6       7       8
                                                          Mean NHER score

2.24 Despite these improvements, problems remain. Table 4 shows that 14% of
dwellings in the private rented sector are rated “poor”, compared to an average of
4% across all sectors. Those who use „other fuel types‟9 such as solid fuels are over
30 times more likely than those who use gas to have a „poor‟ NHER score. Urban
dwellings are around twice as likely to have a good NHER rating and around six
times less likely to be rated „poor‟ than those in rural areas. This may be partly
explained by factors such as rural dwellings being more likely than those in urban
areas to be off the gas grid, and so must use oil or solid fuels which are more costly.
Many of these homes are also stone built or of non-traditional construction and so
cannot benefit from energy efficiency measures such as cavity wall insulation.
Consequently, these types of houses and in particular detached houses have poorer
energy efficiency than flats.
9
 Other fuel types includes solid fuels such as coal, smokeless fuels, wood and peat, and community
heating. Community heating systems have been included in this category as their sample size in the
SHCS is too small to allow them to be a separate category but they would generally be expected to
have better energy efficiency ratings than solid fuel systems.


                                                                                                  19
       Table 4: NHER band by dwelling and household characteristics (%)

                                            NHER band
                                                                            Unweighted
                     Poor       Moderate           Good           Total     sample size
                      %            %                %              %
Tenure
Owner-occupier            4            56                 40          100          2,120
LA/other public           1            34                 65          100            506
HA/co-op                  2            28                 70          100            300
Private-rented           14            44                 41          100            220
Private                   5            55                 40          100          2,340
Social                    1            32                 67          100            806
Dwelling type
Detached                 10            61                 29          100           794
Semi-detached             3            65                 32          100           713
Terraced                  2            44                 53          100           734
Tenement                  3            32                 65          100           530
Other flats               3            35                 62          100           375
Age of dwelling
Pre-1919                 14            63                 23          100           525
1919-1944                 4            58                 38          100           411
1945-1964                 3            52                 45          100           784
1965-1982                 2            50                 48          100           820
Post-1982                 0            25                 75          100           606
Central heating extent
Full                      2            48                 49          100          2,900
Partial                  10            56                 34          100            159
No          central
                         60            38                 2           100            87
heating
Primary heating fuel
Gas                       1            44                 56          100          2,277
Electricity              12            63                 25          100            482
Oil                      15            79                  6          100            257
Other fuel type          33            43                 24          100            130
Household type
Single adult                5          45                 50          100           419
Small adult                 5          52                 43          100           539
Single parent               1          29                 70          100           168
Small family                4          49                 47          100           450
Large family                3          46                 51          100           218
Large adult                 2          55                 43          100           315
Older smaller               7          56                 37          100           508
Single pensioner            3          44                 52          100           529
Urban/rural Indicator
Urban                     2            46                 52          100          2,430
Rural                    13            61                 25          100            716
All Scotland              4            48                 47          100          3,146




                                                                              20
Eliminating fuel poverty – the scale of the challenge

2.25 The improvements in energy efficiency that have been achieved across all
housing tenures in recent years are significant and welcome. Further progress will be
more challenging as the focus shifts to properties that are harder, or to put this
another way, more expensive, to treat10. Nevertheless, improving household energy
efficiency must be an important component of any successful fuel poverty strategy.
However, in terms of our aim of eliminating fuel poverty, as far as practicable, this
positive progress needs to be set against the countervailing influence of significant
rises in fuel prices.

2.26 Figure 4 shows how fuel prices have risen markedly in 2005-6 with a 30%
real rise in gas prices and 20% real rise in electricity prices between May 2005 and
May 2006. Analysis undertaken for this review has revealed that fuel prices would
need to fall by almost to zero to eliminate fuel poverty entirely. Indeed, fuel prices
would have to fall by something like 80% even to eradicate only 80% of fuel
poverty.11. This is extremely unlikely in the medium or even the long term, and,
indeed, further significant fuel price increases have been announced in recent
weeks.

Figure 4: Fuel Price Indices adjusted for inflation, (1990 =100)


     150

     100
                                                                                                   Gas
                                                                                                   Electricity
      50

       0
             2002         2003         2004         2005        2006         2007



Source: BERR Quarterly Energy Price Tables.            May each year.

10
    Hard to treat houses are generally regarded as those that are either expensive or technically
difficult to insulate (such as those with solid walls that cannot receive cavity wall insulation; or with
roofs that are flat or have restricted loft space); or are remote from the supply of mains gas meaning
that it is difficult or expensive to install heating that uses cost effective fuel. Houses that are difficult to
insulate include pre-1930s stone built properties and system built post-war buildings using concrete or
metal construction for solid walls or with flat roofs. Multi storey blocks could also be regarded as hard
to treat.
11
   This is based on statistical modelling using SHCS data which can be used to fix the energy
efficiency of the stock and incomes at today‟s levels and then calculate the fuel price reduction
required to eliminate fuel poverty. The reason why the fuel price reduction is so large is because there
are groups of people in Scotland whose incomes are so low and/or their homes are so energy
efficient that the current level of fuel prices essentially places them at the far end of the fuel poverty
curve. These people require extremely large reductions in fuel prices to lift them out of fuel poverty –
as defined - i.e. to bring them below the 10% line.


                                                                                                             21
2.27 There are also limits to how far energy efficiency improvements can take us
towards meeting the ultimate goal of eliminating fuel poverty, in the context of high
and rising fuel prices. Statistical modelling has shown that, even if all houses were
rated as „good‟ under the NHER system (i.e. every house achieved a score of 7), or,
in fact, even if all households achieved the highest NHER rating (i.e. a score of 10
out of 10), then, given today‟s levels of fuel prices and incomes, fuel poverty in
Scotland would still be present in a large number of households (see Table 5). It
should be stressed that improving all Scotland‟s homes to an NHER level of 7 would
be extremely expensive. Improving the stock to an NHER level of 10, would probably
be impossible without significant amounts of demolition and new build to higher
environmental standards. Even if it were possible to achieve such high energy
efficiency standards, it is estimated that almost a quarter of a million fuel poor
households would remain in Scotland.12

Table 5: Number and rate of fuel poverty given theoretical energy efficiency
improvements

                                              Number                                 Rate
 Current            energy                    543,000                               23.5%
 efficiency levels
 All stock attains NHER 7                     422,000                               18.2%
 All stock attains NHER                       231,000                               10.0%
 10
Source: SHCS statistical modelling exercise based on 2005-6 data

2.28 Analysis has also shown that tackling fuel poverty - as defined - through
household incomes alone is not realistically achievable. The Scottish Government
has modelled the increases in income required to establish how far they would have
to rise to eliminate fuel poverty in Scotland. This involves „freezing‟ the energy
efficiency of the stock and also fuel prices at 2005-6 levels. The results suggest that
total personal incomes in Scotland would have to rise overall by somewhere
between £3-3.5 billion per annum13. Those around the margins of fuel poverty and in
lower income groups in particular would require substantial income increases14. To
eliminate fuel poverty at 2005-06 levels would have required this additional income
to be distributed across household groups in a particular way so as to compensate
the fuel poor as appropriate. If the additional income required to remove fuel poverty
was to come from the Scottish Government Budget, this would account for over 10%
of devolved expenditure every year. In simple percentage terms, the incomes of the
fuel poor would have to rise by an average of 60%, including increases of between

12
   Statistical modelling is used to fix fuel prices and incomes at current levels and estimate what fuel
poverty would be under two scenarios for energy efficiency in the stock, NHER 7 (all houses rated
„good‟) and NHER 10 (all houses reach the current highest standard for energy efficiency, for
example, equivalent to new build flats built to the latest building standards).
13
   Total household income in Scotland was in the region of £67 billion in 2005-06.
14
   This time the statistical model fixes the energy efficiency of the stock and fixes fuel prices and
calculates for each household group the increase in income required to take them out of fuel poverty.
This could be the required increase in wages for those who are employed, or the increase required in
benefits and pensions for those who are not in work or who are pensioners. The reason why the
increase is so large is because, again, fuel prices are so high relative to some very low incomes that
huge increases are required to bring some households below the 10% threshold.


                                                                                                      22
75% and 80% for pensioner groups. Again, such sums are prohibitively high and
suggest that to fix the problem with higher incomes (or effectively a redistribution of
income) alone is unlikely to be sustainable, and is not realistic under the current
devolution settlement.

2.29 Such a large extra income requirement highlights how the definition of fuel
poverty and its use of the „10% rule‟ (in which fuel poverty is deemed to affect those
paying more than 10% of their income on energy) dictates the scale of the problem.
Using the current definition of fuel poverty, a £100 increase in the annual fuel bills of
a particular household would require a compensating rise in income of at least
£1,000 if the household was to maintain its position, in fuel poverty terms, compared
to before the price increase. The nature of the fuel poverty definition means that the
level of income compensation required to keep the fuel cost/income ratio of a
household steady is 10 times greater than the fuel cost increase itself. This implies
that, to hold the numbers in fuel poverty static, Scottish or UK governments would
have to find resources that are 10 times greater than the value of the fuel price rise
every time fuel prices rise assuming that energy efficiency levels do not change.

Conclusion

2.30 This part of the report has made clear the importance of household income
and fuel prices, as well as energy efficiency, in determining levels of fuel poverty. It
has shown that a range of demographic, housing and infrastructural factors make
fuel poverty much more prevalent and harder to tackle in rural, as opposed to urban
areas. It notes that the there are particular aspects of the definition of fuel poverty
that has been adopted in the UK (in particular, the “10% rule”) that make it extremely
difficult to completely eliminate fuel poverty in an environment of high and rising fuel
prices. This has been compounded by the specific definition of pensioner fuel
poverty adopted in Scotland in 2001 which has added further to the challenge.

2.31 In the context of high or rising fuel prices, fuel poverty continues to increase,
despite significant ongoing improvements to household energy efficiency. This
means that current programmes – which focus on improving energy efficiency
through central heating and insulation measures – are not enough on their own to
turn around fuel poverty. Continuing to improve energy efficiency will be more
challenging in the future as we begin to address problems in hard-to-treat properties.
However, even if the energy efficiency of all the Scottish stock reached very high
standards across the board, fuel poverty would still be a significant factor in
Scotland. Fuel prices and/or incomes would need to change substantially, alongside
further major improvements to energy efficiency, in order to eliminate fuel poverty.




                                                                                      23
3.     MEASURES TO TACKLE FUEL POVERTY – INFLUENCE AND DELIVERY

3.1    This part of the review sets out the powers available to Scottish Ministers to
deliver schemes to tackle fuel poverty and those reserved to Westminster. Given this
context, it describes how we are seeking to work within the devolution settlement to
influence household incomes and fuel prices, which have such an important role to
play in determining the number of people in fuel poverty. It then considers in more
detail the delivery of the main fuel poverty schemes directly under Scottish
Government control – the Central Heating Programme and Warm Deal.

Scottish Government powers

3.2    The Scottish Government‟s powers to introduce measures to tackle fuel
poverty are limited by the devolution settlement. Our principal powers in relation to
fuel poverty are in regard to measures to improve the energy efficiency of the home,
which, as outlined in the previous chapter, is the least important of the three principal
factors influencing fuel poverty. The Social Security Act 1990 enables Scottish
Ministers to make arrangements for the payment of grants for the purposes of
improving thermal insulation or preventing wastage of energy. However, the
Scotland Act reserves to Westminster all matters relating to social security benefits
(which determine the incomes of many low income households) and to the regulation
of energy companies (including pricing). The Scottish Government cannot therefore
develop schemes of direct financial assistance for the fuel poor. Nor can it legislate
in such matters as social tariffs or smart meters, even if it wished to. However, while
the Scottish Government has no direct control over these matters, it is seeking to
influence them as far as it can.

Influencing household incomes

3.3    The Scottish Government Economic Strategy (GES) recognises that
sustainable economic growth must go hand in hand with a fairer sharing of the
wealth of the country and with an absolute commitment to tackling poverty and
disadvantage by improving the life chances of those who are most in need. Tackling
fuel poverty must sit within these broader objectives. This must, however, take into
account the complex relationship between “poverty” (essentially about incomes) and
“fuel poverty” (which depends on a complex of factors including incomes, fuel prices
and energy efficiency). The relationship is examined in more detail in chapter 4.

3.4     Changes to household income are a major factor contributing to fuel poverty.
The Scottish Government has an important role in enabling the growth pf the
Scottish economy and promoting employment which may offer a route out of fuel
poverty for some people. However, factors such as the level of pensions and welfare
benefits are reserved to Westminster. The significant reduction in fuel poverty
between 1996 and 2002 is associated with factors such as the introduction of the
Minimum Wage and tax credits, alongside reductions in fuel prices, with energy
efficiency gains taking only a minor role. In the absence of further redistributive
policies of this scale (with the notable exception of Pension Credit) the importance
of income related policies in determining the level of fuel poverty has waned in the
last few years.


                                                                                      24
3.5     The Scottish Government can and does, however, work with Westminster to
increase household income by promoting benefit take-up and this is an important
aspect of our fuel poverty programmes. The DWP estimates that up to 40% of
eligible pensioners may not be claiming Pension Credit15 - a third of which are
expected to be aged over 80. It estimates that as much as between £5,800 million
and £9,380 million in income related benefits including Income Support and Pension
Credit were left unclaimed in 2005-06; between 15 and 22% of the overall welfare
benefits budget.16 In an arrangement unique to Scotland, the Managing Agent for the
programmes has a cross-referral agreement in place with the Pension Service and a
face to face benefits entitlement check is offered to anyone of pensionable age who
applies to the Warm Deal or Central Heating Programme.

3.6    There is currently no similar scheme in place for Warm Deal applicants who
are not pensioners. These groups who are not eligible for central heating could also
benefit from income maximisation support. Statistics show that in particular, single
people need encouragement to claim all the benefits to which they are entitled. The
DWP estimates that in 2005/06 more than half of those entitled to, but not claiming,
Jobseeker‟s Allowance (Income-Based) were single people under the age of 25 and
the take-up of Income Support appeared to be lower amongst non-pensioners
without children17. Take-up for Housing Benefit is lowest amongst families with
children. A benefits health check provided to these householders, could complement
the package of insulation measures provided under Warm Deal.

3.7     In addition, the Scottish Government has done much to indirectly enhance the
disposable income available to potentially vulnerable households, as part of broader
anti-poverty initiatives. For example, the Scottish Parliament has introduced free
national bus travel for pensioners, as well as free dental checks and eye
examinations and the universal provision of free school meals is now being piloted.
While these initiatives will increase the disposable income of many households
vulnerable to fuel poverty, because of the specifics of how fuel poverty has been
defined, the impact of these measures will not be reflected in the fuel poverty figures.
However, the current definition does mean that the Scottish Government‟s proposals
to abolish the council tax in favour of a tax based on the ability to pay would be a
factor influencing fuel poverty levels.

Influencing fuel prices and other action by fuel companies

3.8    Government policies developed at Westminster to liberalise the energy
markets and promote competition may have initially contributed to significant
reductions in energy prices and this did play an important part in the fall in fuel
poverty from 1996 to 2002. However, in more recent years, fuel prices have
continued to rise and this is a major factor in the growth of fuel poverty.


15
     http://www.dwp.gov.uk/mediacentre/pressreleases/2007/mar/pce-29-03-07-1.pdf
16
     http://www.dwp.gov.uk/asd/income_analysis/sept_2007/0506_NSPR.pdf
17
     http://www.dwp.gov.uk/asd/income_analysis/sept_2007/0506_NSPR.pdf



                                                                                     25
3.9     Whilst fuel prices are a matter reserved to Westminster, Scottish officials
maintain good working relationships with the Department for Business, Enterprise
and Regulatory Reform (BERR) and the Department for Environment, Food and
Rural Affairs (DEFRA). This includes: regular informal meetings; participation in the
UK-wide Energy Efficiency Partnership for Homes and contributions to consultations
(a recent example being the future of the Energy Efficiency Commitment - EEC).
Officials also maintain regular contact with Ofgem and Energywatch. In addition to
the overall level of fuel prices, a number of other issues relating to the operations of
fuel companies and the obligations upon them have an affect on fuel poverty. These
include the use of pre-payment meters (PPM), social tariffs and the obligations of
fuel companies under EEC/CERT.

3.10 Many of the poorest households may be paying more for their energy
because they are unable to take advantage of competition in the energy market. This
may be because their circumstances prevent them from switching energy supplier or
because it would not be worthwhile for them to do so. For example, they may be
without the wherewithal to switch or may be in arrears with fuel bills. For those with
PPM there may not be a choice of competitive tariffs. PPMs are popular amongst
low income households as they provide greater control over payment and thus
prevent arrears accruing. A PPM allows small cash payments and so is an attractive
way of budgeting for fuel; particularly for those without a bank account.
Unfortunately, this method of payment can also be the most expensive; particularly
when compared to direct debit payment methods which offer a discounted tariff.

3.11 As fuel prices have been rising since 2003 in response to world energy
markets, the UK Government has exhorted suppliers to do more to protect
vulnerable energy customers including the provision of social tariffs. Social tariffs are
a low cost energy tariff designed to mitigate the impacts of high fuel prices on low-
income households. These vary across energy suppliers, as do their benefits, but
are normally offered to a specific group of energy customers (for example,
pensioners) and are often means tested. Perceptions of the success of social tariffs
vary across Government, energy suppliers and stakeholders and are often viewed as
a complementary measure to improved energy efficiency, rather than a contribution
to reducing fuel poverty.

3.12 The Energy White Paper set out the UK Government‟s commitment to instruct
Ofgem to evaluate the energy companies‟ Corporate Social Responsibility measures
including social tariffs to see how these compare in terms of supporting the fuel poor.
This review was to compare measures across the companies, highlight good
practice and draw attention to areas where improvements were needed. Ofgem
concluded from the review that each company had initiatives and approaches with
“worthwhile aims” providing assistance to some of their most vulnerable customers.
It further concluded that these initiatives should be “recognised as valuable steps
which go beyond suppliers‟ regulatory obligations.”

3.13 The White Paper also stated that the UK Government would introduce powers
within the Energy Bill to enable the Secretary of State to require companies to have
an adequate programme of support for their most vulnerable customers, and to
consider the role of mandated minimum standards for social tariffs. However, the
draft Energy Bill does not include such powers. We understand that this was deemed


                                                                                      26
unnecessary as the Ofgem review had concluded that the measures provided by the
companies were effective. On 21 February 2008, energy regulator Ofgem
announced an investigation into the markets in electricity and gas in response to
public concern about whether the market is working effectively and customers
getting a good deal. Their probe will focus on all energy customers, including those
with prepayment meters, or who do not pay by direct debit.

3.14 A Fuel Poverty Summit was held on 23 April 2008, chaired by Ofgem chair Sir
John Mogg, to discuss what further action can be taken to tackle fuel poverty. The
Minister for Communities and Sport attended and proposed further measures to
combat the impacts of high fuel prices in Scotland. He suggested actions should
include reconvening the UK-wide Ministerial Fuel Poverty Group, transparency
around Carbon Emissions Reduction Target spending by energy companies in
Scotland and sharing of Department for Work and Pensions data to help focus
resources on those most vulnerable to fuel poverty.

3.15 Action on pricing needs to be seen in the context of the legal obligations faced
by energy companies under the Energy Efficiency Commitment (EEC) and Carbon
Emissions Reduction Target (CERT) to deliver energy saving targets by improving
domestic energy efficiency. This energy saving target is met through provision to
householders of measures such as cavity wall and loft insulation, energy efficient
boilers, appliances and light bulbs. A significant proportion of these savings are
aimed at low-income consumers in order to alleviate fuel poverty. EEC/CERT is
funded through a levy on all domestic fuel bills and thus represents a redistribution
between fuel company customers, rather than direct investment by the UK
Government.

3.16 The UK Government began a new three year programme called CERT
(Carbon Emission Reduction Target), building on the previous EEC scheme, but with
a stronger emphasis on carbon saving. CERT doubles the level of activity compared
to EEC, and includes provision for full funding of measures for low income priority
groups and the offer of discounts to those who are “able to pay”. CERT could
potentially be equivalent to provision of investment in energy saving measures of
around £80m per annum in Scotland - significantly more than the amount currently
invested in Scottish Government fuel poverty programmes. There is anecdotal
evidence that Scotland‟s householders are not receiving a proportionate share of
EEC resources.

Delivering household central heating and insulation programmes

3.17 In the context of its limited powers to address the key contribution of
household income and fuel prices to fuel poverty, the Scottish Government has
instead focussed on seeking to improve household energy efficiency. These
measures consist of a mixture of programmes to improve housing and domestic
energy efficiency across the board and schemes focussed specifically on fuel
poverty.

3.18 Measures to improve energy efficiency in the housing stock as a whole,
include :




                                                                                  27
     -   provision of energy efficiency advice through the Energy Saving Trust and a
         Scotland-wide network of energy advice centres;
     -   setting the highest energy requirements in the UK in the building standards for
         new buildings, including housing. The Minister for Transport, Infrastructure
         and Climate Change commissioned an Expert Panel to advise the Scottish
         Government on a Low Carbon Building Standards Strategy aimed at moving
         the construction of new buildings, including housing, to the rigorous energy
         performance levels imposed in Scandinavia. The cost implications arising
         from its proposals are being considered;
     -   the introduction of Energy Performance Certificates (EPCs) - linked to the
         Home Report in the case of home sales - will mean that the energy
         performance of houses will be rated when they are constructed, sold or
         rented.
     -   introduction of minimum insulation standards through the Tolerable Standard.

3.19     Measures intended for fuel poor and/or low income households include :

     -   The Scottish Housing Quality Standard (SHQS) which includes a commitment
         to ensure all social rented houses (615,000 homes) have effective insulation
         and a full, efficient central heating system by 2015.
     -   The Central Heating and Warm Deal (insulation) programmes.

Our main programmes for tackling fuel poverty are therefore the Central Heating
Programme and Warm Deal, to which we now turn to assess in more detail.


CENTRAL HEATING PROGRAMME (CHP)

3.20 The Central Heating Programme (CHP) is a national Scottish Government
programme providing a package of measures to pensioner households (i.e. those
over 60). These are :
   - A full, efficient central heating system;
   - All suitable insulation measures18;
   - Cold alarm, smoke and carbon monoxide detectors;
   - Energy efficiency advice;
   - Optional benefits health check provided by the Pension Service.

3.21 The first phase of the programme was aimed both at pensioners and also
households of all ages living in social housing. A major achievement of this phase
was the provision of free central heating to all public sector tenants where they had
not previously had central heating, and wanted it installed - 25,000 households in
social housing received the package. This part of the programme is complete and
attention is now focussed on pensioner households in the private sector.

3.22   The original intention of the programme was to tackle the energy efficiency
aspect of fuel poverty by installing energy efficient heating and insulation in the
homes of pensioners without central heating. Over time, eligibility for the scheme has

18
  That is, depending on the nature of the property : loft, cavity wall, tank and pipe insulation and
draught proofing.


                                                                                                       28
gradually expanded with a mix of universal and means-tested entitlements and the
programme now effectively has three sets of eligibility rules19. Any householder or
their spouse living in private sector housing who conform to the following age/income
requirements are currently eligible for the central heating package :
   - Aged over 60 and have no central heating or a system broken beyond repair;
   - (Introduced from May 2004) Aged over 80 who have a partial or inefficient
       system;
   - (From January 2007) Aged 60-79, who receive the guarantee element of
       Pension Credit and have a partial or inefficient system.

3.23 In 2006/07, 5,847 homes (57% of the overall central heating programme)
benefited from the main (over 60s) programme; 3,982 homes (39%) received
replacements under the over 80s programme; and 409 dwellings received
replacements under the more recently introduced programme for 60-79 year olds in
receipt of pension credit. Since the beginning of the programme in 2001, up to March
2008, nearly £300 m was spent by the Scottish Government installing central heating
systems in nearly 100,000 homes in the private and public sector.

Targeting of the CHP

3.24 The Scottish Government‟s commitment to tackle fuel poverty covers all
household types in fuel poverty, however, our programmes are not specifically
targeted on the fuel poor. Instead, the Central Heating Programme is targeted at the
household type that is statistically most likely to be fuel poor – that is, pensioners.
Table 2, which uses 2005/06 data from the SHCS, has shown that fuel poverty is
much more prevalent in pensioner groups than in other household types. Nearly half
(47%) of single pensioners and 41% of “older, smaller” households are fuel poor.
The household type with the next highest incidence of fuel poverty is single adults,
with the much lower rate of 24%20. It is clear that if resources are to be targeted on
any particular household type, then pensioners are the most effective group to
target, and it avoids issues around “means-testing” that could follow from alternative
methods of targeting. However, the end result is that it would be expected that more
than half of the household group primarily benefiting from public expenditure on fuel
poverty programmes is not actually fuel poor. At the same time, many household
types that include significant numbers of fuel poor – such as single adults and lone
parents - are not eligible for the CHP (although such households do qualify for Warm
Deal (insulation) measures, if in receipt of certain benefits).

3.25 Figure 5 shows the proportion of those living in private sector homes (i.e. the
sector targeted by the CHP) that are fuel poor, according to age. This indicates that
pensioner households are more prone to fuel poverty, but not exclusively. Around
half of pensioner households in private homes were estimated to be fuel poor in
2005-06, and just over a tenth of non-pensioner households. It also shows that
amongst pensioner households, a larger proportion of over 80s are fuel poor (62%),
compared to those between 60 and 80 (48%).


19
   The element of the programme dealing with central heating in Glasgow Housing Association
dwellings is now complete.
20
   Source : SHCS, 2005-06


                                                                                              29
Figure 5: Relationship between Fuel Poverty and Age – Proportion of
Households in Group that is Fuel Poor

                                  70
                                                                                 62
   of Private Sector Households


                                  60
                                                    51
                                                                         48
                                  50
            Percentage




                                  40

                                  30   25

                                  20
                                                                 11
                                  10

                                  0
                                       All ages   All over 60s    < 60   60-79    80+

Source: Scottish Housing Condition Survey, 2005-06, Private households only

3.26 Figure 6 takes this a stage further and breaks down each group into those
that are on a low income, defined here as the bottom two deciles, and those that are
not. This indicates that there is a much closer correlation between low incomes and
fuel poverty than between age and fuel poverty. Three-quarters of those in the
bottom two deciles of income are fuel poor, whereas only half of the over 60s are
fuel poor.




                                                                                        30
Figure 6: Relationship between Fuel Poverty and Household Income –
Proportion of Households in Group that is Fuel Poor
      of Private Sector Households                                                         94
                                                  100                            88
                                                   90         77
                                                   80
                                                   70
                                                                        57
               Percentage




                                                   60
                                                                                                47
                                                   50
                                                   40                                 32
                                                   30
                                                   20              15
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Source: Scottish Housing Condition Survey, 2005-06, Private households only. Low
income defined as bottom two deciles.

3.27 Pensioners in Scotland are gradually becoming better off as measured by the
official poverty statistics. In 1996-7, there were around 270,000 officially poor21
pensioners in Scotland (31% of all pensioners). This had fallen to 220,000 (25%) by
2002-3 and has fallen further to about 160,000 (18% of all pensioners) by 2005-6.
This means that over the 9 years to 2005-6, the number of pensioners in poverty in
Scotland fell by around 40% due to such factors as the introduction of Pension
Credit.22 Therefore, if such trends continue, the expectation would be that there
would be downward pressure on the level of fuel poverty among pensioners as
incomes increase making the targeting of pensioners as a group even less effective
than at present.

Impact on fuel poverty

3.28 Table 6 provides illustrative comparative data on the effectiveness of the CHP
and Warm Deal programmes in terms of energy efficiency, carbon saving and fuel
poverty reduction. The impact of the schemes will vary according to the particular
property and household affected. The data for this modelling exercise is based on a
3 bedroom semi-detached house in Edinburgh, which in many ways is typical for
Central Scotland. This shows that, in this example, first time installations under the
CHP have greater impact on energy efficiency and fuel poverty than replacements;

21
     Poverty is defined as below 60% of median income after housing costs.
22
     From Households Below Average Income Dataset (Department for Work and Pensions).


                                                                                                     31
and that boiler-only replacement is more cost-effective than whole system
replacements. While this example is illustrative only, it is based on contemporary
data. Other more detailed, academic studies have also been undertaken to assess
the impact of previous phases of the CHP.

Table 6: Comparison of effectiveness of different types of central heating
provision

 First time fitting of efficient central heating (house with no insulation, no central heating)
                                            Without                With                   Change
 Thermal comfort (NHER scale 0-10)            2.2                   5.8                     3.6
 Annual fuel bill (£)                        1,562                 1,004                   -558
    2
 CO emissions (tonnes)                        8.5                   5.6                    -2.9
 Percentage of income spent on fuel           13.6                  8.7                    -4.9

 Replacement of inefficient central heating with efficient central heating
 (house with no insulation, inefficient central heating)
                                           Inefficient            Efficient               Change
 Thermal comfort (NHER scale 0-10)             3.9                   5.8                    1.9
 Annual fuel bill (£)                        1,327                 1,004                   -323
    2
 CO emissions (tonnes)                         7.9                   5.6                   -2.3
 Percentage of income spent on fuel           11.5                   8.7                   -2.8

 Replacement of inefficient central heating with efficient central heating boiler only
 (house with no insulation, inefficient central heating)
                                           Inefficient            Efficient               Change
 Thermal comfort (NHER scale 0-10)             3.9                   5.8                    1.9
 Annual fuel bill (£)                        1,327                 1,004                   -323
    2
 CO emissions (tonnes)                         7.9                   5.6                   -2.3
 Percentage of income spent on fuel           11.5                   8.7                   -2.8

Source: Scottish House Condition Survey, using National Energy Services Software

3.29 A study was carried out by Alembic Research in the early years of the Central
Heating Programme (2001-04) to assess its effectiveness. It found that just over half
(54.3%) of the households surveyed were found to be in fuel poverty prior to
participating in the programme.23 The rest were not fuel poor, but qualified because
of their circumstances. Seventy-six percent of households that were previously fuel
poor were removed from fuel poverty after having the central heating and other
measures installed. This essentially means that the rate at which the programme
actually removed households from fuel poverty was in the region of 41%. Thus, in
the remaining 59% of cases the programme did not remove the household from fuel
poverty - either because they were not in fuel poverty in the first place, or because
they were so fuel poor (as defined) that even free central heating and insulation
could not get them out of fuel poverty.

3.30 Fuel prices in Scotland started to rise substantially in 2003 and continued to
do so until dropping back slightly in 2006 (though still above previous levels). In
23
 This is a little above what would have expected to see given that even today only some 42% of
CHP-eligible households are actually fuel poor.


                                                                                                 32
order to assess the impact of this on the efficacy of the programme, further analysis
was undertaken. This showed that taking account of 2006 fuel prices, 78.4% of
participants would have started out fuel poor. Half of these initially fuel poor
participants would have been lifted out of fuel poverty by the programme. (That is,
39.3% of all participants would have been lifted out of fuel poverty by the scheme.)

3.31 It should be noted, however, that any increases in incomes were not taken
into account in the up-rating of the figures. It should also be borne in mind that the
sample included social sector participants eligible at that time as well as pensioners.
The sample of households surveyed and price and income factors at the time of the
research are not therefore directly comparable to the situation today. This is because
much has changed – i.e. incomes, prices and the groups targeted by the
programme. The progress of this research itself illustrated how difficult it is to
actually measure fuel poverty and to assess the inter-related impact of the different
and dynamic determining factors. It must also be borne in mind that the percentage
of replacement systems would have been smaller over 2001-04 compared to what it
is today (approximately 93%). Such a high rate of replacements will most likely
mean the percentage of households currently being lifted out of fuel poverty by the
CHP is considerably lower than the 39% indicated by the recalibrated Alembic
research.


The shift from first-time installations to replacements

3.32 As noted above, in recent years, the programme has progressively shifted
from a focus on installing first-time systems to being a programme to replace
broken/worn out, partial or inefficient systems. Figure 7 indicates the changing
numbers of systems under the different parts of the Programme over the years, and
Figure 8 illustrates how this has led to the proportion of first-time systems steadily
falling from 91% in 2001-02 to only 7% in 2007-08. Installing central heating for the
first time – perhaps replacing gas or electric fires in each room – is likely to have a
much bigger impact on fuel poverty than replacing an inefficient central heating
system with a more efficient one. This trend is therefore likely to have further
reduced the impact of the programme on fuel poverty.




                                                                                    33
Figure 7: Numbers of Installations under the Different Elements of the
Programme24
     Prviate Sector Households



                                 16000
                                 14000                                                             Pension Credit
                                                                                                   Replacements
                                 12000
                                 10000                                                             Over 80s
                                                                                                   Replacements
                                  8000
                                                                                                   Main Programme
                                  6000
                                                                                                   Replacements
                                  4000
                                                                                                   First Time Systems
                                  2000
                                     0
                                            2

                                                    3

                                                             4

                                                                     5

                                                                              6

                                                                                      7

                                                                                               8
                                         /0

                                                 /0

                                                          /0

                                                                  /0

                                                                           /0

                                                                                   /0

                                                                                            /0
                                     01

                                              02

                                                         03

                                                                 04

                                                                          05

                                                                                   06

                                                                                            07
                                   20

                                            20

                                                       20

                                                               20

                                                                        20

                                                                                 20

                                                                                          20



Figure 8: Switch from First Time Systems to Replacements


                            100%
                             90%                                                                   Pension Credit
                             80%                                                                   Replacements
                             70%                                                                   Over 80s
                             60%                                                                   Replacements
                             50%
                             40%                                                                   Main Programme
                             30%                                                                   Replacements
                             20%                                                                   First Time Systems
                             10%
                              0%
                                       2

                                                   3

                                                           4

                                                                    5

                                                                             6

                                                                                      7

                                                                                               8
                                    /0

                                                /0

                                                        /0

                                                                 /0

                                                                          /0

                                                                                   /0

                                                                                            /0
                                   01

                                            02

                                                     03

                                                                04

                                                                        05

                                                                                 06

                                                                                          07
                                 20

                                          20

                                                   20

                                                              20

                                                                      20

                                                                               20

                                                                                        20




3.33 Table 7 below shows that the presence of full efficient central heating is now
extremely common in Scottish households. This is largely because of investment by
individual home owners themselves seeking to improve their quality of life and
improve the asset value of their home. However, the scale and duration of the
central heating programme means that it has also made a considerable contribution
to the position where central heating is now commonplace in Scotland and the lack

24
   The Over 80s part of the Programme started in May 2004 and the guaranteed element of Pension Credit
started in January 2007



                                                                                                                    34
of it a rarity. It is also the case that some households do not want central heating -
either because of concerns about upheaval or fear that it will lead to higher fuel bills.


Table 7: Central heating status of fuel poor pensioner households
                                     Number of % of all fuel poor pensioner
                                     households           households
                                        (000s)
  Full efficient central heating          315                86%
     Full but inefficient          central         11                          3%
     heating
     Partial central heating`                      25                          7%
     No central heating                            14                          4%

Source: Scottish House Condition Survey, 2005-06

3.34 Even in fuel poor pensioner households, 96% have some form of central
heating and only 14,000 such households remain with it25. Thus, on the face of it, the
scope for making gains in terms of reduced fuel poverty through provision of
additional central heating is limited. However, while the number of homes without
central heating at all is now relatively small, demographic factors, together with the
wide access to systems that the scheme provides (i.e. second or even third-time
replacement is possible), means that the potential for replacement systems is
enormous. In 2005-06, there were around 603,000 pensioner households in the
private sector eligible for the CHP all of whom at some point in the next 5-15 years
might be seeking a replacement system26. Demographic trends mean that the
numbers of elderly households will increase year on year, with as many as 535,000
people expected to reach age 60 between 2008 and 201527. There is a real
prospect that the programme becomes self-perpetuating with replacement systems,
and waiting times grow longer as demand increases.

Delivery of the programme
3.35 The CHP was administered by EAGA from its launch up to September 2006.
Following a competitive tender exercise this programme is now managed by Scottish
Gas. As noted above, the programme has been successful in delivering large
numbers of free central heating systems. An initial target to install central heating
systems in 40,000 private sector homes up to March 2006 was exceeded - with
46,335 systems installed. In 2007/08, 14,377 central heating systems were installed,
the highest level ever installed in private homes.




25
   In 2005-06, 96% of all Scottish households and 98% of all fuel poor households had some form of
central heating.
26
   A further 276,000 pensioner households in the social sector are currently not eligible under the
Programme, as these are catered for through investment by Local Authorities and Housing
Associations.
27
   Source : GROS estimates of Scottish population (June 2005). Total number reaching key pension
ages


                                                                                                  35
Waiting lists

3.36 Demand for the central heating programme has, however, increased since its
inception. This is due to a combination of factors, probably the most important of
which are growing public awareness, the extension of eligibility for the programme to
other groups and an increasing rate of failure in existing installations mirroring the
surge in new central heating installations by private householders 20 or 30 years
ago. One area of dissatisfaction with the programme has been the existence of a
waiting period between application to the programme and installation.

3.37 As an installation programme (and not an emergency repair service) there is a
necessary lead-in period for the assessment and preparatory processes for each
installation, which varies according to the type of fuel and the particular
circumstances (for example, whether the house is on the gas grid or whether it has
an electrical supply capable of handling the demand from an electrical central
heating system). In addition, there need to be sufficient applications in the system to
be able to manage the flow of installations throughout the country in a cost-effective
way.

3.38 Average waiting times have been between 5 and 6 months for a number of
years under the present and previous managing agent. There may be scope to
make some reduction in that average by improving delivery, for example, by
increasing installer capacity. However, whilst we continue to provide replacement
heating systems on an ongoing basis we cannot expect to see a significant decrease
in demand and consequently waiting times within existing budgets. This is
problematic in itself as managing this growing demand (much of it from fuel rich
households) prevents activity to seek out the remaining small number of fuel poor
pensioners who have no central heating (about 14,000) and could benefit most from
the programme in fuel poverty terms.

3.39 Individual waiting times naturally vary around the average. Much recent effort
has been concentrated on improving the managing agent‟s processes to minimise
the number of individual cases where waiting time is substantially longer than
average. Changes in eligibility, such as targeting replacement systems at the poorest
pensioners, could be expected to put a downward pressure on waiting times as it will
naturally reduce the numbers of applicants. However, it must be acknowledged that
cost-effective delivery would continue to require an in-built waiting time which might
not be substantially less than the current average.

3.40 An ongoing issue for the central heating programme is how to deal with those
pensioners who are eligible under the programme and whose need for a central
heating installation is urgent. The reason for urgency is likely to be failure of an
existing central heating system or medical or social problems exacerbated by having
no system or a partial or ineffective system. Except in the few cases where there is
no existing system, such reasons usually have little bearing upon fuel poverty. They
nonetheless need to be considered, and the result is a programme that accepts
applications on the basis of a poor surrogate for fuel poverty, and then manages the
queue on the basis of valid considerations of urgency, but which in the main are
even less related to fuel poverty. Extending the number of priority cases in this way



                                                                                    36
often therefore takes us further from our fuel poverty objectives and, rather than
addressing waiting times directly, merely shuffles the queue.

Value for money and controlling costs

3.41 To achieve better value for money and control programme costs, the previous
administration introduced a financial cap from 2007. The cap is set at a level under
which the lowest cost central heating system, together with all the other measures in
the programme, can be installed. It is currently set at £3,500 with an upper cap of
£5,500 if the lowest cost system cannot be installed under the lower cap.

3.42 The cap is working in the respect of ensuring that the maximum number of
people can benefit from the programme, however a negative aspect of its
implementation is that a number of people in non-gas areas are given an electric
heating system which can (in present price terms) be more expensive to run than oil
(both are more expensive than gas). This, along with the fact that many of these
homes can be hard-to-treat (given that they cannot take the insulation measures
allowed under the CHP such as cavity wall insulation), means that the benefits of the
programme in reducing fuel bills or carbon emissions are not being fully realised.
There are a range of insulation solutions which such homes may benefit from such
as internal wall, under-floor insulation, or over-cladding, however these solutions can
prove cost prohibitive and so are not included in the programmes. Consequently, the
impact of the central heating programme as currently designed is reduced in these
homes; many of which are in rural areas where fuel poverty is most prevalent. An
alternative fuel option for these homes may be microgeneration technologies. The
Scottish Government is running a two year pilot to test this option.

WARM DEAL

3.43 The Warm Deal Programme was introduced on 1 July 1999 to tackle fuel
poverty in low-income homes. It provides energy related advice and funding for the
installation of a package of measures (up to £500) for insulation, draught proofing
and energy efficient lighting. The Warm Deal comes in two parts – one part is now
managed by Scottish Gas and is for all private housing; the other part is
administered by local authorities and is for social housing. To be eligible for support,
the applicant must receive income or disability-related benefits28. Individuals over 60
who do not receive any of these benefits can still receive support of up to £125 29.
Currently benefit health checks are not offered for applicants to the Warm Deal
Programme, in the same way as is offered under the Central Heating Programme.



28
   Despite being targeted on households that are, by definition, on low incomes (ie, benefit recipients),
the nature of the complex definition given to fuel poverty means that it is not necessarily well-targeted
in terms of “fuel poverty”. It is estimated that around a third of those eligible for the Warm Deal are
actually fuel poor.
29
    While the Warm Deal is available to a wider range of potential applicants (if in receipt of certain
benefits) than the Central Heating Programme, certain groups which, according to Scottish
Government research, are known to be at risk of fuel poverty, such as residents of mobile homes, are,
in effect, unable to access the programme. This relates to issues around the legal definition of mobile
homes and practical issues around the use of effective insulation for such dwellings.


                                                                                                      37
3.44    A total of £80 m was spent on the Warm Deal in the private and social sector
from 1999-00 until 2007-08. Over that period, the programme has resulted in:
     Nearly 280,000 improved dwellings;
    the average NHER (National Home Energy Rating) of homes treated had
      improved from 5.3 to 6.0; and
    in 2006-07, under the managing agent programme, it is estimated that annual
      fuel bills were reduced by £120 for owners and £31 for tenants of housing
      associations.

Interaction with EEC/CERT

3.45 As outlined earlier in this report, in April this year the UK Government began
the Carbon Emissions Reduction Target (CERT) which is the main vehicle for
delivering energy efficiency into homes across Great Britain. Previously known as
the Energy Efficiency Commitment (EEC), this three year programme places an
obligation on energy supply companies to achieve targets for assisting households to
take up energy efficiency measures. CERT will build upon the previous EEC
scheme, but will have a stronger emphasis on carbon saving, and will double the
level of activity compared to the last phase of EEC.

3.46 This means that CERT could potentially be equivalent to provision of
investment in energy saving measures of around £80m per annum in Scotland. This
is significantly more than the £45m per annum to be invested in Scottish
Government fuel poverty programmes over the next three years. While only a
proportion of CERT investment will be targeted at fuel poor households, given the
scale of these resources it is important to consider their potential contribution. It is
suggested that Scotland has not seen a proportionate share of EEC measures in the
past and the Scottish Government is keen to remedy this with CERT. It is currently
funding a dedicated CERT Strategy Manager for Scotland within the Energy Savings
Trust (EST) to consider this issue. This work includes development of a CERT
Strategy for Scotland and its implementation. This will include facilitating discussions
between the Scottish Government, the managing agents for our fuel poverty
programmes and CERT providers (i.e. fuel companies) to ensure that barriers are
removed to allow the best deal to be struck for Scottish householders, including
those in fuel poverty. To this end we are establishing a Scottish CERT Strategy
Steering Group, in partnership with the energy supply companies and chaired by the
Minister for Communities and Sport, that will help make Scotland a more attractive
place for delivering CERT.

3.47 The measures available under CERT are generally the same as those
available through the Warm Deal (and also under the insulation aspects of the
central heating programme), i.e. loft and cavity insulation, pipe and tank lagging, low
energy light-bulbs and draught proofing. However, in practice, EEC providers have
tended to focus on cavity wall insulation and first time loft insulation. This may
disadvantage rural areas which have a higher proportion of stone built properties
without cavities. It is important to seek to ensure that Scottish Government schemes
are complementary to, and not in competition with, resources available under CERT
and work is already underway to try and avoid duplication and maximise the
contribution of CERT in Scotland.



                                                                                     38
3.48 Options for dealing with this issue range, on the one hand, from seeking to
ensure much better integration and complementarity between the schemes, through
to the abolition of Warm Deal. The managing agent is contracting with a CERT
provider for delivery of the measures alongside the Scottish fuel poverty
programmes, and it is expected this will bring in additional resources to the
programmes.

3.49 In regard to the public sector part of the programme, local authorities and
housing associations are also encouraged to enter partnership arrangements with
EEC/CERT providers to deliver the Warm Deal Programme. This appears to have
been very successful with over 90% of participating local authorities and housing
associations indicating they have undertaken all reasonable measures to
supplement their Warm Deal funding with EEC.


Conclusion

3.50 The Scottish Government‟s fuel poverty programmes have achieved a great
deal. To date, more than 90,000 central heating systems have been installed and
energy efficiency measures (primarily insulation) put in place in a further 256,500
homes30. This has made many Scottish households warmer and more comfortable
and reduced their fuel bills compared to what they otherwise would have been, as
well as contributing to lower carbon emissions. However, the central heating
programme is not well-targeted, either according to definitions of fuel poverty, or
income poverty. There is also a fierce set of delivery problems facing the CHP, in
particular, relating to the public‟s expectation of an emergency replacement service
and its perception of waiting times. The shift to replacements has diverted attention
and resources away from the relatively small number of households still requiring
first time installations. This has further reduced the potential impact of the scheme on
fuel poverty and, given demographic factors, is creating a self-perpetuating
programme. While the Warm Deal is targeted on those on low incomes (i.e. benefit
recipients) the complexities of the fuel poverty definition mean that it is not
necessarily well-targeted in terms of fuel poverty. The Warm Deal (which focuses on
insulation) is more cost-effective than the provision of central heating through the
CHP, however, it is likely that the Warm Deal duplicates activity that could be
undertaken through fuel companies under the CERT scheme.




30
     Source : Communities Scotland – figures up to end January 2008.


                                                                                     39
4.     FIT WITH SCOTTISH GOVERNMENT STRATEGIC OBJECTIVES

4.1    The Scottish Government‟s long-standing commitment to tackle fuel poverty
now sits within a new set of strategic objectives. This part of the report examines the
connections, synergies and, in some cases, tensions, that exist between the current
approach to tackling fuel poverty and other Scottish Government policy objectives in
relation to tackling poverty, repairing and improving housing and tackling climate
change.

Relationship to policy on a fairer Scotland

4.2     The Government Economic Strategy (GES) makes clear that the Scottish
Government‟s overarching purpose is to create a more successful country, with
opportunities for all of Scotland to flourish, through increasing sustainable economic
growth. It recognises that such growth must be accompanied by a fairer sharing of
the wealth of the country and should go hand in hand with the Government‟s three
“Golden Rules” of solidarity, cohesion and sustainability. There is an absolute
commitment to tackling poverty and disadvantage by improving the life chances of
those who are most in need. The Solidarity golden rule is to increase overall income
and the proportion of income earned by the three lowest income deciles as a group
by 2017. The Cohesion golden rule focuses on reducing the significant levels of
economic inactivity in Scotland – 600,000 of the adult population are economically
inactive, and 285,000 are on Incapacity Benefit – and narrowing the gap in economic
activity between Scotland‟s best and worst performing regions. The Sustainability
golden rule aims to improve Scotland's environment today and for future
generations, while significantly reducing Scotland's negative impact on the global
environment through emissions.

4.3     For these purposes, poverty is technically defined as when a person‟s
household income (adjusted for the size and composition of the household) is less
than 60% of the UK median income. This differs from the definition used to assess
fuel poverty which is based not only on income but also on fuel prices and the
energy efficiency of homes. This means that a household can be “fuel poor” even if it
is in receipt of a relatively high income, depending on the price of fuel and the energy
efficiency characteristics of their home. These different definitions produce a different
distribution of poverty and disadvantage (see Table 8). It would appear that rather
than being a sub-set of poverty, “fuel poverty” is actually more common in Scotland
than “income poverty”. For example, while income poverty rates in Scotland are
similar to those for the UK, fuel poverty in Scotland is three times the rate in
England. Another contrast is that income poverty is far less prevalent among
pensioners than is fuel poverty, reflecting amongst other things the different
definition of fuel poverty in Scotland.

4.4     It is clear that the approaches to these issues have not developed in ways
that take account of each other. This has produced an anomalous and counter-
intuitive outcome. From the point of view of seeking to target resources more
effectively, there is likely to be greater synergies in impact if common definitions
were to be applied. However, this would significantly change the pattern of resource
distribution. For example, if resources to make housing more energy efficient were


                                                                                      40
focused on the income poor, rather than the fuel poor, this would shift resources
away from single pensioners in particular towards other household types on lower
“equivalised” incomes (i.e. adjusted for household size) such as single parents.


                          Table 8: A comparison of income poverty and fuel poverty
                                   Income poverty                                   Fuel poverty
Definition           Equivalised net income below 60% of UK         >10% of income (at whatever level
                     median income                                  of income) spent on fuel
                     In 2005/06, a two-adult two-child family was   Fuel poverty occurs at virtually all income
                     poor if household income below £17,000 per     levels to various degrees. More common in
                     annum                                          poorer households but not restricted to them
                     In 2005/06, a two-adult two-child family was   Extreme fuel poverty >20% of income
                     in severe poverty if they had an income        (of whatever level) spent on fuel
                     below £12,000 per annum
Relative/absolut     Relative – depends on the median income of     Relative - does not depend on what is spent
e concept            all families in the UK                         on fuel but what proportion of income is
                                                                    (theoretically) spent on fuel
Factors in the       Net income, household composition              Incomes, fuel prices, energy efficiency of the
definition                                                          housing stock
Numbers              670,000 adults                                 N/A
affected
                     of which 470,000 working age adults            220,000 working age households
                     and 190,000 pensioners                         324,000 pensioner households
                     210,000 children                               N/A
                     880,000 people (total)                         959,000 people (total)

                                                                    543,000 households (total)
Rate                 1 in 6 people, 1 in 20 (severe poverty)        1 in 4 households, 1 in 15 (extreme fuel
                                                                    poverty)
Trend                Down 8% 2001-02 to 2005-06                     Up 73% 2002 to 2005-6

Scotland v UK:       Similar to UK (18%)                            Rate in Scotland (23.5%) is more than
proportion      of                                                  three times higher than England (7%)
households
affected
Scotland v UK:       Scotland/UK falling at very similar rate       Scotland rising at much faster rate
trend over time
Other        ‘arc’   UK/Scotland 18%, Ireland 20%, Scandinavia      Not formally measured outside UK
countries            (9%-12%)
Reserved                 Overall fiscal/monetary policy and             Overall fiscal/monetary policy
policies                    social security and tax systems.            and the social security
                         Minimum wage, employment                      and tax system.
                            legislation.                                 Minimum wage, employment
                                                                            legislation.
                                                                         Energy policy.
Targets              UK target to eradicate child poverty by 2020   Eradicate by 2016 (as far as reasonably
                                                                    practicable)

Sources : Scottish House Condition Survey; Households Below Average Income.




                                                                                                    41
Relationship to policy on housing repairs and improvements

4.5     The CHP and the Warm Deal seek to improve the energy efficiency of the
house as a way of addressing the householder‟s potential fuel poverty. These
programmes are therefore in the overlap between housing policy (improving the
physical fabric of dwellings) and social policy (tackling poverty). This is reflected in
the migration of the powers underpinning the policy from housing to social security
legislation31. This suggests that a development in the policy rationale has taken
place to focus on the impact of the energy efficiency of the house on the needs of
the occupant.

4.6     There are parallels between this policy background and current policy
developments in relation to other works to private sector housing. The Housing
(Scotland) Act 2006 embodies a range of recommendations by the Housing
Improvement Task Force that reflect the underlying principle that the owner of a
house has primary responsibility for its condition. Any help should be geared to what
the owner needs to overcome genuine barriers to action. In many cases that will be
non-financial assistance and where funding is a problem, will often be in the form of
access to suitable lending. Grant should normally be the last option, where the local
authority regard the work as a priority and the owner cannot arrange to fund the work
without grant. Low income in itself would not necessarily lead to grant because a
number of home owners on low incomes have significant free equity in the house
and it is reasonable to tap into that equity in order to improve or repair the house.

4.7     Applying these principles to central heating installations would generally mean
that first-time installations were treated as optional improvements to the owner‟s
house. Repairs would be the owner‟s responsibility, in the same way as repairs to
the roof. In either case assistance could be in the form of information, advice and
possibly access to borrowing, with grant as the last option, probably tied to actual
fuel poverty as the test of priority.

4.8    However, the implementation of the 2006 Act also involves a distinct
approach to helping owners adapt what might otherwise be a perfectly sound house
to suit the needs of a disabled occupant. Proposals, which will be subject to
consultation, would require grant to be paid for most adaptations, reflecting the fact
that the need for work does not arise from a failure to carry out the responsibilities of
ownership, but from the impact of a person‟s disability.

4.9     If central heating were dealt with in a similar way, it is possible that grant
could be made available automatically in those cases where central heating was
being installed for the first time for a person who needed it for reasons of disability or
frailty. Under this approach, central heating replacement would either not be
available at all, or be subject to a test of resources.

4.10 The powers in the 2006 Act are given to local authorities. They will require to
take a strategic view of local needs and priorities for action on private sector housing
condition. They will need to personalise the delivery of assistance so that it is
31
  The powers under which the programmes operate were originally established in the Homes
Insulation Act 1978, re-enacted in the Housing (Scotland) Act 1987 and then replaced with similar
powers in the Social Security Act 1990, which remain in force.


                                                                                                    42
attuned to individuals‟ needs and circumstances. Handling central heating on the
same principles would also need a delivery mechanism that could provide a more
personalised service.

Relationship to policy on climate change and energy efficiency

4.11 Housing must play a major role in achieving the Scottish Government‟s target
to reduce CO2 emissions by 80% by 2050 given that it is a significant energy end-
user and producer of emissions. All sectors of the economy must play a part,
however, there is potential for lower carbon emissions to be achieved through
improved housing energy efficiency, while offering householders additional benefits,
including warmer homes and lower energy bills. The Scottish Government is already
addressing this issue through much tougher regulations on new buildings. We
already have the highest building standards in the UK in terms of their requirements
on energy efficiency and the Sullivan Report, produced by the panel of experts
commissioned by the Minister for Transport, Infrastructure and Climate Change, sets
out challenging recommendations for progressively enhancing building standards.
Improvements to existing homes are, however, key given that they will form the
majority of the housing stock well into the future.

4.12 The Scottish Government is already taking action to improve housing energy
efficiency. In addition to the provision of efficient central heating and insulation
measures through its fuel poverty programmes, the Scottish Government also
provides support for microgeneration installations; has plans to introduce Energy
Performance Certificates; and is upgrading the delivery of energy efficiency advice
through the Energy Saving Scotland Advice network managed by the Energy Saving
Trust. There is potential to do more to encourage home-owners who can afford it to
carry out energy efficiency improvements and/or enhance the provision of
microgeneration to their homes. Lenders might have a potentially significant role to
play through energy efficiency loans or green mortgages.

4.13 While our fuel poverty programmes are not aimed at carbon reduction, given
that poor household energy efficiency is an important contributor to both CO2
emissions and fuel poverty, there are obvious potential synergies between these
policies. There are also potential tensions, however, in that carbon saving may be
achieved more cost-efficiently by seeking to influence fuel-rich households, with the
potential to save relatively large amounts of carbon per property and less need to
rely on grants. Measures which subsidise the cost of energy consumption for low
income households (e.g. supplementary payments as part of the benefit system) can
be seen to be counter to carbon saving objectives, as opposed to measures that
seek to lower fuel bills through reduced consumption (e.g., energy efficiency
measures).

4.14 Recent analysis by Halcrow (due to be published in the summer) for the
Scottish Government analysed the cost-effectiveness, in terms of carbon
displacement, of a range of different programmes. This found that the most cost-
effective schemes were those based on the provision of market infrastructure
through online and telephone advice. The least cost-effective, in terms of carbon
displacement, related to the provision of direct subsidy for resource acquisition of
non-insulation measures, such as those provided under the Central Heating


                                                                                  43
Programmes. Direct grants, as in the case of the CHP, were less cost-effective than
loans, because in the latter case, some of the costs are met by the end users. The
cost per tonne of lifetime carbon saved under the CHP was estimated at £207. This
compared to £64/lifetime tonne carbon for insulation measures under the Warm
Deal. This suggests that while carbon saving is an important ancillary benefit of our
fuel poverty programmes, the CHP is not a cost-effective way of saving carbon.
Replacement of existing systems will also be less significant, in terms of energy- and
carbon-saving than the installation of new systems (see Figure 8).

4.15 The Home Energy Conservation Act (HECA), introduced into Scotland in
1996, designates Scottish councils as energy conservation authorities with a duty to
devise strategies to achieve significant improvements in energy efficiency across all
housing tenures over the ensuing 10 to 15 years. HECA has been in place for ten
years, and now sits alongside a range of other related reporting requirements,
including local housing strategies and standard delivery plans for the improvement of
social housing. The biennial progress reports produced by local authorities have
identified significant progress towards local energy efficiency targets. As part of our
fuel poverty and carbon reduction strategies, and given the new relationship with
local authorities set out in the Concordat, it is important that improvements in the
energy efficiency of our housing stock continue, but we need to consider the best
way of achieving this and think through what role HECA should play in this.

Conclusion

4.16 Our policies on tackling poverty, housing repair and addressing climate
change do not currently dove-tail effectively with our approach to fuel poverty. For
example, our definition of fuel poverty bears no clear relationship to the income-
based definition of poverty that informs our commitment to tackle poverty and
disadvantage. The poor targeting of current programmes, with more than half of the
target group for the CHP not being fuel poor, does not fit well with our commitment to
tackle fuel poverty “as far as reasonably practicable”. It also conflicts with the
principles underlying programmes to deal with housing disrepair, which emphasise
the responsibility of home owners, with grants as a last resort. While our insulation
programmes contribute to carbon saving and energy efficiency objectives, as well as
fuel poverty, our central heating programmes are less cost-effective in this respect
than our insulation programmes. This means that it is open to question whether or
not public resources are being allocated in a way that is consistent with the Scottish
Government‟s Purpose, or indeed our greener and fairer objectives. These
differences in approach reflect the fact that these policies have developed in a
variety of different ways. A more streamlined and logical approach, which seeks to
integrate our inherited fuel poverty programmes with the strategic objectives set by
this Government is required.




                                                                                    44
5.     CONCLUSIONS OF THE REVIEW

5.1   This chapter summarises the main issues arising from the review. It
concludes that a continued emphasis on energy efficiency measures alone will not
be enough to tackle fuel poverty and makes the case for reform of current
programmes.

Despite the successes of our programmes, fuel poverty continues to grow

5.2   Whilst these programmes are broadly popular, have provided benefits to
many Scottish householders (warmer homes, lower fuel bills and reduced carbon
emissions) and have helped to keep fuel poverty levels lower than they would
otherwise be, the statistics now show a pattern of consistent annual increases in fuel
poverty since 2002.

Fuel poverty is more prevalent in Scotland

5.3    Whilst fuel poverty has been rising across the UK, the incidence is much
higher in Scotland than in England, despite the fact that Scotland‟s housing stock is
more energy efficient. This is partly because of structural factors such as Scotland‟s
climate, its rurality, income levels and the fact that it has a higher proportion of older
people. Part of the explanation is also that Scotland has chosen to use a more
demanding definition of fuel poverty for pensioner households than in England.

The definition makes the target challenging

5.4    In a context of rising fuel prices, the extent of the increase in household
incomes required to abolish fuel poverty is daunting. The “multiplier effect” that is
locked into the current „10% of income‟ definition of fuel poverty means that the real
incomes of those on the margins of fuel poverty would need to rise by an amount ten
times greater than any increase in fuel prices assuming constant energy efficiency of
the housing stock.

Fuel poverty is likely to increase further with fuel price rises

5.5    The review makes clear the importance of household income and fuel prices,
as well as energy efficiency, in determining levels of fuel poverty. The indications
are that fuel prices will continue to increase, in which case, despite our best efforts,
fuel poverty in Scotland is likely to rise still further in future years.

Causes and action on tackling fuel poverty

5.6    There are three principal factors that determine the number of households
that are fuel poor: fuel prices, household incomes and the energy efficiency of
housing. The devolution settlement means that, whilst the Scottish Government can
and does seek to influence incomes and fuel prices, the powers to control these
factors lie with Westminster. Its response to fuel poverty has therefore focussed on
schemes to deal with the third factor – improving the energy efficiency of housing -
through provision of central heating and insulation.


                                                                                       45
Energy efficiency measures are not enough

5.7     Significant improvements have been made to the energy efficiency of
Scotland‟s housing stock, and further improvements will continue to help make fuel
bills lower than they would otherwise have been, make homes warmer and reduce
carbon dioxide emissions. However, further improvements will become more difficult
to achieve as the focus shifts to tackling hard-to-treat homes, and, even if the energy
efficiency of all the Scottish stock reached the highest levels, fuel poverty would still
exist in Scotland to a significant degree. Unless fuel prices and/or incomes change
favourably as well, fuel poverty is unlikely to significantly reduce in the foreseeable
future.

The Central Heating Programme now largely provides replacement systems

5.8     While the CHP and Warm Deal are popular programmes the CHP in particular
has been subject to policy drift. Rather than its initial focus on the delivery of first-
time central heating systems to households without such systems, it has increasingly
become a scheme for central heating replacement. Installing a replacement system
that is somewhat more fuel efficient than its predecessor will have significantly less
impact on fuel poverty than installing a new system for the first time. While there are
only around 14,000 fuel poor pensioner households who now lack any form of
central heating, a further half million people will reach age 60 between 2008 and
2015, adding to the households that could potentially apply for replacement systems
at some stage.

Existing fuel poverty programmes are not focussed on the fuel poor

5.9    Half of those who are eligible for the Central Heating Programme are not
actually fuel poor, and non-pensioner fuel poor households are excluded from the
Programme. The Programme has attracted large numbers of applicants, and created
substantial waiting lists. The existence of a waiting list of some kind is inevitable, but
during the winter months, there can be an expectation that the Programme provides
an emergency replacement service for when old systems break down. This means
that some people in fuel poverty must queue behind those who, in many cases,
could afford to replace their own system, so that the people most in need of help –
such as older / poorer pensioners and those with no central heating installed - are
required to wait longer for assistance.

Need for better fit with our strategic objectives

5.10 Our definition of fuel poverty is inconsistent with the income-based definition
of poverty being used to underpin the Scottish Government‟s emerging response to
poverty and disadvantage. One approach to fuel poverty would be to help people on
low incomes use fuel efficiently, given that the Scottish Government has few powers
to influence incomes and fuel prices. The CHP offers a benefits “health check”
delivered by a reciprocal agreement with the Pension Service in Scotland. This has
been a successful part of the programme with almost 8,000 pensioners being
referred for a benefits check last year. Applicants to the Warm Deal who are not of
pension age might also benefit from such advice.


                                                                                       46
A national programme may be less flexible

5.11 A combination of demographic, housing and infrastructural factors mean that
fuel poverty is much higher in rural than in urban areas and national programmes
may be too inflexible to respond effectively to the diversity of local circumstances
impacting on fuel poverty. We need to investigate more thoroughly the best way of
tackling fuel poverty in rural areas, and how to address the challenges posed by
hard-to-treat properties and those off the gas grid. This could take place as part of a
shift away from a single, national scheme enabling greater personalisation of service
and with more focus on delivery at local level which is flexible enough to consider
local circumstances.

The programmes may be displacing CERT spending in Scotland

5.12 It is not clear that the most effective use is being made of the substantial
resources potentially available under the UK Government‟s EEC scheme, and its
successor – the Carbon Emissions Reduction Target (CERT). It is important to
ensure that Scottish Government schemes are complementary to, and not in
competition with, resources available under CERT. Work is underway to try and
avoid duplication and maximise the contribution of CERT in Scotland.

Need for collaborative working

5.13 The complex range of factors affecting fuel poverty means that stakeholders
at UK, national and local level all have a role to play – including energy companies,
charities and the insulation sector – as well as all parts of Government. In taking
forward our fuel poverty programmes we need to engage effectively with
stakeholders in Scotland. The Scottish Fuel Poverty Forum provides a platform for
this, and stakeholders have requested that it be re-established with an independent
chairperson, to provide the opportunity to contribute to the debate and help shape
the future direction of policy.




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