Definition of Fuel Poverty Explained

Blog by Fran Eatwell-Roberts, Analytical Manager.

The term ‘fuel poverty’ is used to describe a household’s struggle to afford the heat necessary for a warm home. Estimated rates of fuel poverty have risen steeply in recent years. However, definitions of fuel poverty vary across the UK. These differences make it hard to compare rates of fuel poverty across the different UK administrations.

In Scotland, the passing of the ‘Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act’ in 2019 introduced a new definition of fuel poverty. This new definition was based on advice from an independent panel of experts with scrutiny and amendment by the Scottish Parliament.

In Scotland, a household is in fuel poverty if both of the following things are true:

In order to maintain a satisfactory heating regime, total fuel costs necessary for the home are more than 10% of the household’s adjusted (i.e. after housing costs) net income;AND
If, after deducting fuel costs, housing costs, benefits received for a care need or disability, and childcare costs, the household’s remaining adjusted net income is insufficient to maintain an acceptable standard of living

In other words, households should be able to afford the heating and electricity needed for a decent quality of life. Once a household has paid for its housing, it is in fuel poverty if a) it needs more than 10% of its remaining income to pay for its energy needs, and b) if after paying for its energy the household is left in poverty (as defined by the Minimum Income Standard).

There is a lot to unpack in this definition. Here’s a visual representation of the definition followed by more detail about important aspects of the definition.

What does the definition mean by “Satisfactory Heating Regime”?

The Fuel Poverty (Enhanced Heating) (Scotland) Regulations 2020 sets out the four heating regimes used in Scotland and specifies the households for which enhanced heating temperatures and/or hours are appropriate. A household’s required heating regime is dependent on characteristics such as age, disability, and habitation habits. For example, for “vulnerable” households a satisfactory heating regime is 23°C in the living room and 20°C in other rooms, for 16 hours every day.

How does the definition calculate “Fuel Costs necessary for the home”?

This is modelled using the amount of energy needed to heat a home to a required standard, and not on the amount actually consumed by the household. It is worked out using the physical characteristics of the dwelling, the heating system, fuel used, local weather conditions, the households heating regime, and certain assumptions about household behaviour. The modelling requires data from:

The Scottish House Condition Survey’s (SHCS)’s physical inspection of dwelling and its household interviews;
‘The Building Research Establishment Domestic Energy Model’ (BREDEM) for a dwelling’s energy requirements
Sources for the price of fuel used in costing the energy requirement can be seen in table 1 here
The Fuel Poverty (Enhanced Heating) (Scotland) Regulations 2020 sets out the four heating regimes used in Scotland and specifies the households for which enhanced heating temperatures and/or hours are appropriate. A household’s required heating regime is dependent on characteristics such as age, disability, and habitation habits.

What does the definition mean by “Household’s adjusted (i.e. after housing costs) net income”?

Net income is a household’s income minus the household’s income tax and National Insurance contributions. Housing costs include rent or mortgage costs, council tax and charges for the provision of water services and sewerage. These costs are deducted from a households’ income before assessing a household’s fuel poverty status. This is because income after housing costs is the measure of income that has the closest association with the adverse health outcomes of fuel poverty.

Other reasons for removing housing costs from household incomes ahead of the fuel poverty calculations are that they:

are not easily modified by a household (i.e. in the short term, we’re stuck with them)
are heavily influenced by where a household is living
can vary quite a lot across age groups (for example, retirees are more likely to own their house without a mortgage; whilst those in full-time education are more likely to be living with parents or rent a room a house of multiple occupancy).

Because of these factors, deducting housing costs offers a more comparable measure of household income.

Why does the Act use “10% of remaining income”-to-energy spend ratio as its threshold for fuel poverty?

The Scottish Fuel Poverty Definition Review Panel advised that the relationships between income-to-energy spending ratios and adverse fuel poverty outcomes were strongest for those spending more than 10% of their income on home energy after housing costs. Accordingly, Scotland’s definition uses the 10% ratio as its fuel poverty threshold.

How does the definition measure “Acceptable standard of living”?

A household’s income is insufficient to maintain an acceptable standard of living if its remaining adjusted net income is below 90% of the Minimum income Standard (MIS). However, to reflect their higher living costs, the definition requires households in rural, remote or small town and island areas to earn a greater amount before they’re said to be free from fuel poverty.

What is the minimum income standard? The Minimum Income Standard (MIS) is a democratic and participatory metric. It specifies the level of disposable income different household types need in order to achieve an adequate standard of living. It draws on the experience and opinions of ordinary people who work together to identify a ‘basket of goods’ needed to live a dignified life. This basket of goods can be costed at any point in time to define a level of disposable income below which one can be considered poor. Different household sizes and compositions are given different MIS thresholds. This serves to equivalize incomes and allows for comparisons of poverty across households.
Why 90% of MIS? It has been observed that MIS often sets a threshold for poverty higher up the income scale than other measures of poverty. For example, the MIS threshold tends to be higher than the income levels applied to assess people’s eligibility for welfare benefits in the UK, particularly for working age households and single adults. Partly for that reason, the Minimum Income Standard is often lowered by 10% for use as a measure of poverty. It helps build confidence that below the 90% MIS line is likely to have a much greater risk of deprivation than anyone above it (Hirsch et al., 2016)
Why is the MIS modified for those living in rural, remote or small town and island areas? The MIS is designed for urban areas of the UK, outside London. Modification is needed to reflect the cost of living in rural areas. After all, the spending needs of households living in remote or rural Scotland can be different, especially for food and drink, clothing, household goods and services, transport, and social and cultural participation. Scotland’s definition therefore establishes rural uplifts for household types living in rural, remote, and island communities. This part of the definition takes account of the fact that meeting a basic standard of living requires different spending needs in different parts of the country.

Deducting benefits received for a care need or disability and childcare costs?

Scotland’s fuel poverty definition uses a measure of income equivalised according to household type, and in a manner which takes account of additional needs. For example, it recognises that certain benefits^[1] are intended to cover the additional costs associated with a disability. The provision of these benefits serves to boost income commensurate with someone’s extra expenditure needs. Therefore, the calculation deducts this income to ensure it does not artificially deny someone their fuel poverty status.

To round off, Scotland’s Fuel Definition is more complicated than those used by other UK Administrations. This is because Scotland’s definition marries a detailed technical approach to measuring fuel poverty – necessary for quantifying how many households are in fuel poverty, how serious a problem it is and who is most likely to be at risk of it – with the Minimum Income Standard’s consensual approach to defining poverty. In this way, Scotland has arrived at a definition of fuel poverty that also helps to shine a light on issues of justice, equality and the lived experience of being fuel poor.

[1] Benefits received for a care need or disability include: personal independence payment, attendance allowance, severe disablement allowance and disability living allowance received by members of the household