Local Government and Communities Committee

Meeting date: Wednesday, February 2, 2011

Official Report 554KB pdf

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Fuel Poverty

Item 2 is evidence on fuel poverty, which is another issue that the committee has an on-going commitment to monitor as part of its work programme. I welcome the first panel of witnesses, who are all from the Office of the Gas and Electricity Markets. Charles Gallacher is director of Scotland, Wales and the regions; David Pimm is group finance director; and Maxine Frerk is a partner in the sustainable development division. In the interests of saving time, can we go straight to questions?

Absolutely.

Good morning, ladies and gents. What effect do you believe that the recently announced hike in fuel prices in Scotland will have on fuel poverty in the coming years?

It would be an understatement to say that we are concerned about the price rises; we are clearly seriously concerned about them. The price hikes before Christmas came on the back of the rise in the wholesale price, which had been going down for quite a time before then, and meant that there were substantial increases in consumers’ bills. We saw from our monitoring of the market that there was also a substantial increase in the retail companies’ margins to 47 per cent.

It is probably worth noting upfront that Ofgem does not regulate the retail price, as it is a commercial market and the companies set their own price. However, I am sure that members are aware that we have announced a review of the retail market, which is a substantial and serious piece of work. We are doing that on the back of another large piece of work that we did in 2008, which meant that we can now require the companies under licence to provide us with very detailed accounting information. That allows us to look into the granularity of their accounts and issues such as profits.

We are in the middle of that review, which is a huge piece of work. We have promised that we will announce the results at the end of March. If we detect that there has been any misbehaviour by the companies, we will act if we have the powers to do so; if we do not have the powers to act, we will seek further powers from the Government.

I appreciate that response.

You touched on the issue that I will address in my follow-up question, which is partly about the companies’ margins. If a company has big cost issues that have big implications for investment, we can understand that there might be a need for a slight above-inflation increase. However, as we are all well aware, the increases are significantly above inflation. Indeed, we are also well aware that the companies’ margins have increased. In the context of fuel poverty in particular, it seems to many people that the companies are profiting from the ills of those in our economy who can least afford to deal with the problem.

You referred to Ofgem’s powers. What powers should Ofgem have in addition to its existing powers to ensure that it can be more proactive in tackling the companies?

We have said that there are several possible results from the retail market review. We may find that the companies have a clean bill of health, that there is nothing to worry about and that, as you suggested, the rises are justified. We may find that we can deal with the matter under our existing powers; if not, we will approach Government for further powers to deal with it. In the end, it is possible that we will refer the market to the Competition Commission. We have substantial powers.

11:15

Just to follow up on that, the deregulation of the energy market and the introduction of competition appeared to be an enormous success until about 2002. Since then, we have gradually progressed to a position whereby some of us question whether competition is succeeding or whether we have true competition. Are you prepared to give an opinion on whether competition is continuing to work as successfully as it did initially and whether there is a need to consider regulation in order to get back to competitive pricing?

I am happy to comment on that. We still have some of the lowest prices in Europe, so one could contend that competition has served us well. However, we are minded to ask whether there are areas where more intervention is indeed required, as you suggest. It would be wrong to jump to a conclusion today, pending the outcome of the retail market review.

RIIO—revenues, innovation, incentives and outputs—is a new approach that we are adopting to the regulation of the monopoly sector, which is the lines and pipes part of the industry. The intention behind it is to provide incentives for more precise behaviours by the distribution network companies. You could see that as somewhat interventionist in a sense, because it seeks to drive particular behaviours in that sector. It would not be inconsistent to conclude that perhaps similar outcomes are required in the retail sector—again, pending the outcome of the retail market review.

Good morning. Ofgem clearly has a responsibility to look at the needs of vulnerable customers. How effective do you think that you are being in that regard at the moment?

We do an awful lot of work around vulnerable customers, particularly in areas such as debt and disconnection. We have undertaken a number of reviews with companies in which we look at their best practice and monitor their statistics. For example, the number of disconnections over the past 10 years has fallen from 25,000 per year to 5,000 per year, and the figure has been particularly low in Scotland. The last figures that I saw showed that there were only six disconnections in Scotland, which were of the electricity supply.

We work with companies to help them think about how to alleviate the worst impacts of fuel poverty. We are also looking at an area that is of concern to us, which is how companies take account of customers’ ability to pay when they get into debt and must make repayments. We issued a set of principles that companies ought to take into account in setting repayment rates. We are now following up on that to ensure that they take account of those principles. We do quite a lot of work with the companies to promote best practice in a lot of areas.

I am happy to add to that. Clearly, the work that we do for all consumers should benefit vulnerable consumers. It is probably worth referencing the retail probe that we conducted about 18 months or two years ago, which involved certain measures that were designed for the market as a whole, some of which bore directly on the vulnerable consumer.

For example, we outlawed unjustified price differentials. There were unjustified price differentials on prepayment meters and off-gas grid. Of course, those two areas particularly impacted on the vulnerable consumer, especially in Scotland. We have taken some measures that appear to have been successful in addressing those issues. However, the retail market review will indicate whether there are other issues in how the market works.

It is probably also worth saying that we have established a sustainable development division, of which Maxine Frerk is part and which is intended to give a focus both to our environmental duties and to our duties in respect of vulnerable consumers. We have institutionalised, if you like, all the policies that we are looking at by asking the challenging question, “How does this policy impact on the vulnerable consumer and is it going to be regressive?”

Maxine Frerk referred to the progress made on disconnections. Are you able to tackle such issues now, or are there powers that could help you further?

We have the powers that we need. Through regulation, we can introduce new licence obligations on companies. We did that following the retail probe and in relation to some aspects of disconnection. We can also influence companies through naming and shaming—by publishing reports on their progress—and through our contributions to wider debates, in which we can work with Government and try to influence its thinking.

We have formal regulatory powers and are able to take enforcement action if companies do not comply. We can impose significant penalties—as we have done in relation to misselling, which is an issue of great concern to vulnerable customers.

Disconnections are what make the headlines, but it frequently seems that beneath the headlines are people who simply turn off their heat because they are in debt and know that they are in danger of getting further into debt. Many vulnerable people are in financial difficulties but are on high rates. Can we get information to such people to ensure that they are not turning off the heat and are on better rates?

A lot of help and information is available. All the suppliers now have to offer a range of social tariffs, discounts and rebates. One of the things that we do is monitor what they provide in that respect, to ensure that they are meeting the commitments that they have given to Government and are taking issues forward into a mandated social tariff. A lot of help is available through targeting the carbon emissions reduction target scheme at priority group customers who can get free help with insulation.

A big challenge is to ensure that customers are aware of the help that is available. To meet that challenge, we have worked with citizens advice bureaux, and now with Citizens Advice Scotland. We promote training for advisers within the bureaux—and, more widely, for other people who offer money advice—to help them get the message across about the help that is available. It remains a challenge.

In the past, we have provided reference lists for MSPs and others, so that they knew what help was available and were able to advise their constituents.

So, the moral of the story is that we do not want cuts in those services, because they are the services that are helping people.

At the minute, funding for the social tariffs is provided by the suppliers rather than by central Government. That may continue.

Maxine Frerk referred to the CERT scheme because one can tackle the concerns of vulnerable consumers through insulation or energy-saving measures, as well as through addressing the cost of energy. The CERT scheme has a major impact and is designed to target priority groups in particular, so that they can achieve better insulation of their homes.

We have been working with the Scotland CERT study group, which I think is led by Alex Neil, to ensure that Scotland gets its fair share of CERT money. Mechanisms such as the energy assistance package have been effective; the package addresses precisely the point that Mary Mulligan was making, which was about how we ensure that people are aware of what is available.

We want to draw people in. In the first year of the CERT scheme, Scotland had 6.5 per cent of the value of the measures for insulation in particular. One could therefore argue that the scheme was perhaps underrepresented in Scotland. However, in year 2, the figure has gone up to 8.9 per cent. Given that the population of Scotland is 8 per cent of the population of the UK, there has been progress, which is good to see. That progress could be attributed to the way in which the scheme is drawing people in.

Am I right in saying that CERT measures will change because of the green deal?

The CERT scheme is due to run until December 2012, when the green deal will apply across the piece. ECO—the energy company obligation—is expected to be the successor to CERT. We do not yet know the details of that.

That is always the frustration—when you start to make things happen, the system changes again. Thank you for your answers.

My question is linked to Mary Mulligan’s point about disconnections. In the past, much has been made of the ability of smart meters, once they have been rolled out, to address the issue. Rather than cutting off a vulnerable customer, you may limit the energy supply to the household to certain times of the day or certain amounts each day. The previous panel gave evidence on child poverty. With smart meters, we could ensure that households with children continued to get a core electricity supply, so that primary care issues were addressed. The reference to disconnections made me think about the opportunities that smart meters offer in relation to vulnerable customers. It would be helpful to the committee to find out what point we have reached with the roll-out of smart meters.

Ofgem has been working with Government on the overall plan to support the roll-out of smart meters. Back in July, we published a prospectus that set out all the detail of how that will happen, apart from the key dates. It is beginning to happen now, with some suppliers rolling out smart meters on a voluntary basis. Towards the end of March, there will be further announcements about timescales and the way in which the roll-out will work.

In the meantime, Ofgem has been thinking hard about the particular issues around disconnection from smart meters. We are due to issue a consultation in the next few days about both the opportunities that smart meters provide to allow different forms of disconnection so that, as you mentioned, a minimum level of power can be maintained at all times, and how to ensure that customers are protected against remote disconnection. Some additional protections may need to be put in place to ensure that customers are not disconnected inappropriately.

Can we anticipate that every household in the country will have a smart meter in five or 10 years’ time? Is that not a huge task?

The aspiration was that all households should have one by 2020. The current UK Government is looking to accelerate the programme, but it is a huge task. Progress will start to be evident in five years, but it will probably take until nearly 2020 for the full roll-out to be completed.

So it may be worth while for our successor committee to look at and to keep tabs on progress in the area, as part of its fuel poverty remit. Your comments have been helpful.

Although rural areas often have low-income populations, the size of those areas means that such populations are not sufficiently low income to show up in national statistics—there are isolated pockets. The fuels that are available for space heating are electricity—which is never a great option, I suspect—central heating oil and tank gas; natural gas is not available. I suspect that the proportion of detached houses is larger in rural areas; there is certainly a large number of solid-wall houses, which are more expensive to insulate.

In addition to those problems, competition is diminished by the lack of natural gas, while the central heating oil market is subject to huge spikes in price. Although different suppliers may appear to be available in rural areas, we find that they are all part of the same firm, which even owns the price comparison website. I know that the Office of Fair Trading has launched an investigation into the issue but, having seen some previous OFT investigations, I am not holding my breath. What will your input into the investigation be? What relationship do you have with the OFT in this area?

Maxine Frerk mentioned the energy supply market probe that we launched two years ago, which was a major investigation. As part of the probe, we carried out an in-depth study of rural off-gas-grid customers, in particular. We found that those customers faced unfair price differentials and successfully clawed back on their behalf £500 million, spread across the whole country, in prices over the period.

The home heating oil issue has been raised with us regularly over the years. We do not regulate the home heating oil market. I think that a parliamentary question was asked on the matter during the past few weeks and the answer was that the matter will not be regulated, because there is no monopoly. It is clear that there are issues, if the OFT is looking into the matter. The OFT might ask us for advice on regulation, but that is as far as the relationship would go.

11:30

The OFT talked to us before it announced its review and we agreed that there are issues that might touch on our role. However, for the most part, the issue is very much for the OFT to lead on.

Our chief executive gave evidence in Westminster a few weeks ago—that is always a dangerous thing to do. He was asked whether Ofgem would regulate the market, if it were asked to do so, and his answer was yes. That would require legislation, of course.

Let us take that a stage further. In relation to a different area, you said that if you needed more powers you would ask the Government for them. Why do you not just ask for power to regulate the heating oil market? It is clear that there is a monopoly, a duopoly or an oligopoly—there is a situation that means that people have nowhere else to go for their fuel and must pay a high price.

Whether there is a monopoly is a matter that would require to be investigated. We have not looked at the area at all. As far as I am aware, until now we have not been directly asked to regulate the market. That would be a matter for Government.

In your previous investigation you clearly identified a problem, because you clawed back money. Why do you not say to the Government that you think that you should have powers in the area?

The problems were solely to do with the electricity and gas markets, not the central heating oil market.

Okay, but do you agree that there is a problem in the area? If you do, are you prepared to ask for powers, rather than wait for Government to come to you?

That is a good question. It is not something that we have done before, to be frank. We have never asked to regulate another sector. That does not completely rule out the possibility, and the noises that our chief executive made at the Energy and Climate Change Committee in Westminster suggest that we would be prepared to regulate the sector if we were given the powers.

The matter is not something that I have heard being discussed, other than when the question was asked at Westminster. That does not mean that it should not be discussed. I hear Alasdair Morgan’s point, and it is an interesting question.

It occurs to me—I am coming to the issue fresh—that the oil industry is a much wider industry, and in relation to fuel oil there is potentially interplay with many other uses for a similar product. Therefore, one would not be dealing solely with home heating, which I think is the concern in this context. There would potentially be an impact in other areas, so we would hit a challenge. We would have to ask whether we should regulate the wider oil market or just the narrower market, and whether it is possible to differentiate between the two. I simply do not know the answer to those questions.

I suspect that there are many different uses of electricity, too. Never mind. I will move on.

A reason why heating oil is such a problem is that no natural gas is available in many rural areas. Where I live in Galloway there is a gas pipeline about 100yd from the front door, but the gas suppliers will not put in the necessary infrastructure to serve small villages, even when a village has a relatively substantial number of inhabitants. Do you have any control over that issue? The opportunity to use gas would create much more competition.

To try to address the problems that you have been talking about, for a number of years we have had an incentive scheme to encourage the gas transporters to extend the gas network. Scotia Gas Networks has added 4,000 homes to its network as a result of the scheme. However, that is probably a drop in the ocean—

How successful has the scheme been? Does the figure of 4,000 homes relate to Scotland?

The figure is for Scotia, but I do not know—

It is a figure for Great Britain.

So 4,000 consumers have been added across the whole of the United Kingdom.

In the context of the RIIO approach, which David Pimm talked about, we are considering whether gas is the fuel of the future, given the renewables agenda, and we are thinking about offering broader incentives to companies to consider other measures, including renewable technologies for off-gas-grid customers. The advantage of such an approach is that it can happen even further away from the gas pipelines. Currently, all that we can hope to do is extend the gas pipelines for a short distance. We want to look more broadly at how we can encourage the gas and electricity companies to do more for rural communities as part of their incentive schemes under RIIO.

With a bit of quick arithmetic, it strikes me that that number represents fewer than 10 households per UK parliamentary constituency. It does not even register, does it?

It would be wrong to say that that was the only outcome statistic that we have to hand. We have sought to structure gas distribution in a way that encourages that extension but, clearly, there is a long way to go.

There is 100 per cent of the way to go.

Scotia has plans for another 2,500, but it is still a drop in the ocean. We seek to put in incentives for extension, where it is reasonable to do so.

It is probably worth referencing the UK Government renewable heat incentive programme, which is due to be up and running in the summer. That will incentivise renewable heat options—that is, it will provide them with cash support. Those options are another alternative for those consumers.

I suspect that the problem is that people who are in deep or extreme fuel poverty do not have the balance, so an incentive will not help them.

Some companies, such as Eaga, are working with social housing providers in particular to find ways of financing such schemes up front. They take part of the incentive to provide the up-front financing. There are ways that it can work, but we recognise that it is a challenge.

Although the debate that Alasdair Morgan raised is interesting, I would like to get into it at some other time. It is interesting to consider not only the number of households that do not have a natural gas supply but the costs that they face when they apply to be connected, which are prohibitive. At a later date, I will discuss that with Ofgem in relation to the area where I live.

Maxine Frerk said that company disconnections had previously been 25,000 a year, but the latest figure is 5,000 a year. Does that take account of self-disconnections? I am aware that people who are on power cards have a tendency to self-disconnect. I mean that they either do not have money to put on the power card or they have used the reserve in the meter. Does Ofgem monitor the number of times that people have no power coming into their homes?

The figures that I quoted do not include self-disconnection. We are aware that it is a real problem for customers who are on prepayment meters. Consumer Focus recently did a good study that tried to quantify and understand the issue. We recognise that it is a significant problem.

When we talk to the companies about best practice, we encourage them to monitor the extent of self-disconnection; it is within their gift to do that. With smart meters, there is the potential to ensure that the arrangement is much more flexible so that customers do not ultimately get disconnected if they run out of supply.

I thank you for your response, but the issue is whether the companies with which you are dealing would want to monitor the level of self-disconnection, and how Ofgem would ensure that the monitoring took place.

You referred to the introduction of smart meters. As I understand it, a wide range of technologies could be incorporated into the smart-meter regime. I am not sure whether the UK Government has decided on the standard model that will be installed in each household. As my colleague Bob Doris indicated, we could get a smart meter that allows the energy company to disconnect the energy supply from a central base as well as monitor the power input to the individual household.

Has Ofgem had any discussions with the UK Government about an industry-standard smart meter? Will it be possible for the smart meters that are installed to be upgraded, and could the technology that is used be future proofed? As I understand it, the meters are to be installed over a 10-year period. The technology might change dramatically over those 10 years, so some customers might be at a disadvantage with regard to the smart-meter technology in their households.

That is an important part of the work that we have been doing with the Government since last year. We have been trying to confirm the functional specification for the meters—what they will have to be technically capable of doing. One requirement is that they must be able to be remotely upgraded with new software to allow new features to be added—to make them future proof, as John Wilson said. The meters will have the capability to handle different levels of load, to disconnect remotely and to reconnect remotely and to offer prepayment automatically, rather than people having to use a separate meter for prepayment.

Ofgem is considering what rules need to be in place to protect customers and ensure that they get the best benefit from their meters. In the consultation that we will be putting out shortly, we are considering rules for emergency credit and friendly disconnect periods, and we are assessing whether more should be done in that regard.

We are concerned about the functionality of prepayment meters in respect of recalibration when prices go up. Members will remember the issues that arose the winter before last, when lots of people got into debt without even knowing that they were in debt because engineers had not been able to gain access to their houses to recalibrate meters. We hope that part of the functionality of smart metering will be that recalibration can be done remotely, so that that problem would disappear—along with estimated bills.

There are a number of interesting debates around smart meters. One of my concerns is about the ability of energy companies to disconnect remotely. There are also the questions why and when they would reduce the input of energy into a particular household, who makes the decision and whether that decision can be made without prior consultation of the family in the house. I therefore have concerns about the possible uses of smart meters by energy companies. I hope that Ofgem will draw up guidelines for energy companies that will make it clear that no disconnection or reduction in the power supply to households should take place without prior consultation of the households.

I should add that there is a longer-term issue. There is a minimum technical specification in the prospectus, which will develop over time. There is also an important short-term issue, and it is precisely the one that you raise. It is to that end that we are about to issue the consultation to which Maxine Frerk referred. We know it as a “spring package” in our language, so it is due to come out shortly. It will consult on the protections that are required now, as some meters are going in early and there is therefore the potential for remote disconnection now. We will be consulting on Ofgem making regulations to restrict that, to ensure that consumers have at least the same level of protection as they have today. It is a reasonable-endeavours requirement on energy companies to understand the vulnerability of consumers before disconnection takes place. The danger is that, because disconnection is remote, that might not happen if we do not put such regulations in place. That is what we intend to do, however.

I look forward to those regulations being put in place to safeguard customers.

We have evidence from the Scottish house condition survey for 2009 that makes stark reading when we consider the percentage figures. According to the 1996 figures, 35.6 per cent of households were then living in fuel poverty in Scotland. In 2002, that had fallen to 13.4 per cent. In 2009, the figure had risen back to 30.9 per cent. I further note that

“8.6% of households were classified as being in ‘extreme fuel poverty’”

in 1996. That figure went up to 10.3 per cent in 2009.

As has been said, energy companies are not advising customers that the meter systems incorporate the recent price rises, which took place just before the severe weather. Given when the prices went up, and being the cynic that I am, I suggest that maybe the energy companies have better weather-forecasting systems than the BBC and the Met Office. Does Ofgem envisage the figures for fuel poverty and extreme fuel poverty reducing over the coming period or will we see further increases in those figures over the coming months and years?

11:45

The harsh answer is that we think that there will be increases, for a number of reasons. First, the wholesale price looks as if it is tracking upwards, and the other issue that is coming along, which has had a lot of media coverage, is the amount that will have to be spent over the next 10 or 15 years to upgrade infrastructure. The current figure for that is £200 billion, £32 billion of which is for pipes and wires, and the rest is for replacement power stations. That will all filter into consumers’ bills and will clearly cause an increase.

Fuel poverty has three drivers: the quality of the housing stock, incomes and prices. Charles Gallacher has talked about prices, but Ofgem has no control over the quality of the housing stock and incomes. However, our forecasts about what will happen within the areas that we are concerned with suggest that it is not going to be a rosy picture.

The current increases will obviously affect houses in fuel poverty and extreme fuel poverty. Like the previous Scottish Executive, the current Scottish Government is spending record amounts of money on measures to insulate properties and make them more energy efficient. The response that I just received from Ofgem is that energy costs are likely to rise for customers. As I understand it, one of Ofgem’s objectives in the regulatory framework is to protect vulnerable customers, so how are we protecting them if the figures for those in fuel poverty and extreme fuel poverty are continuing to increase? What has happened to Ofgem’s role of trying to regulate and ensure that those customers are protected? The answer that I had from Mr Gallacher was that all customers can expect increases. What happens to the most vulnerable people in our society when those increases take place? How do we tackle fuel poverty in Scotland in the 21st century and resolve the problem?

In a sentence, please.

It would be fair to say that Ofgem does not have all the levers to deal with fuel poverty. We have responsibilities to consumers, particularly the vulnerable ones, in relation to the effective operation of the market. A £200 billion investment is required to keep the lights on over the next 10 to 15 years. If we couple that with the likely increase in demand for energy globally that will increase the wholesale price of energy, which is about 50 per cent of the bill, our harsh assessment is that bills are likely to rise by between 13 and 26 per cent. In that context, it is clearly the right thing—we applaud the Scottish and UK Governments’ initiatives in this regard—to seek to address insulation, renewable heat and any other measures that can reduce energy consumption. However, it would be wrong to shy away from the fact that it is a tough problem when prices are going up in the way that has been described. The committee is rightly dealing with a very tricky issue.

The other measure that the UK Government is putting in place to tackle the problem of price increases is the warm homes discount, which we hope will begin this April. It is a mandated social tariff, and the current thinking is that it will be available to all pensioners of 70 and over on pension credit, which was the case for a previous scheme.

That type of discount is funded by all other customers, so there is a difficult decision to make about how much of that redistribution of costs other customers should bear. We view that very much as being a decision for the Government, but we have worked with it by drawing on our experience of monitoring the voluntary schemes that suppliers have had in place to date. Prices generally are rising: the question is how we cap them for those who are most vulnerable, which can be addressed through the warm homes discount scheme.

I will not go into the issue of the rise in profits, convener.

No. We need to move on now.

Good morning—it is still morning, but only just. Given the economic downturn, are you seeing a difference in the type of client groups that approach you for assistance, advice or help?

We do not have a front-line role in advising customers; that is currently the responsibility of Consumer Direct and Consumer Focus, and will probably be taken on in the future by the citizens advice bureaux and Citizens Advice Scotland. Our feedback on those groups is much more indirect, as it comes from talking to suppliers. There is a message that people who have not historically had problems with debt are suddenly finding that they are struggling to pay. Debt is becoming a much bigger concern for many groups. Citizens Advice Scotland reports that people who are struggling with energy-bill debts are one of its biggest growth areas in terms of who walks through its doors. We continue to focus on working with the suppliers on their approaches to managing customers who are struggling to pay, but we do not deal directly with customers.

Do you see from the information that you get from suppliers that there has been a change in either the volume or the type of clients who are coming forward with problems?

I want to add something. Maxine Frerk mentioned the energy best deal programme, which is a training programme for CABx and CAS money advisers that helps them to get through the morass of complicated energy issues.

We have been working with Consumer Focus Scotland and CAS. In the latest phase of that work, around 64,000 households—that is a Great Britain figure—have walked through CABx doors and been through the process. Anecdotally, CAS has told us recently that it has noticed a change, in that there are more single young people having problems with debt than was the case in the past.

That is very interesting. I am conscious that the Scottish fuel poverty forum made a number of recommendations in its 2008 report that were directed at your organisation. Those included things such as the need to ensure that fuel cards are not priced excessively. What progress has been made in trying to resolve the issues that the report raised?

We put in a formal response that the forum included when it reported back. We have picked up and examined many of the issues, although that is not to say that we have found a final solution to them all. They include issues such as the differentials for prepayment customers, which—as Charles Gallacher said—was an issue that we picked up anyway in our probe. We have now put in place new regulations to limit those differentials.

There are a number of recommendations, as Patricia Ferguson rightly points out, although some of them were aimed more at the UK Government than at Ofgem.

One recommendation that was aimed at us was that we measure the CERT installations in Scotland separately. We picked that up, and we have the data for insulation measures in Scotland, as I mentioned earlier. We are now able to track insulation, which is by far the largest part of the carbon reduction scheme. However, we cannot do that in respect of things such as low-energy light bulbs, because we do not know whether, or where, they will be installed.

There was quite a list of recommendations; I will not go through them all. Our next evidence session includes representatives of the fuel poverty forum, so it might be interesting for us to follow up by asking them whether they think that those areas have been addressed. I thank you for your answers anyway.

I think that that concludes the questions, although I have a final general one. You mentioned balance and how we protect the most vulnerable people by a redistribution of costs and prices: someone pays more and someone else pays less. However, we looked at child poverty in an earlier meeting and we have categorised it. I get confused with all the categories—there is absolute poverty, relative poverty, material deprivation, persistent poverty and so on. Are we going to have to categorise people in fuel poverty so that we target those who are in the greatest possible need, and then focus the significant amounts of money from Government, the industry and whatever at the right people? Are you confident that those who are in the greatest need are being supported appropriately or is the support being spread too thin?

There is certainly an attempt to do that. CERT has a priority group and 40 per cent of its measures are required to be focused on that group. The community energy saving programme is for a high priority group and the social tariffs that the companies are required to contribute are for priority groups. Prioritisation tends to relate to vulnerable people—the elderly, the disabled and so on.

That group is not necessarily a good indicator of fuel poverty. The group is still very broad—it would be too much to offer significantly discounted tariffs to 40 per cent of the market, so the help would need to be targeted better. However, the real problem is that finding those who are in fuel poverty is hard because it depends on the condition of their housing, their income, their lifestyle and how much energy they need to use depending on whether they are at home and how many children they have. The proxy measures are poor indicators. Once you start significant redistribution using tariffs, if that is where the Government is going to go, that difficulty will need to be addressed. If the redistribution is too broad, the cost to other consumers, who might well include people who are in fuel poverty but are not on the relevant benefits, will go up to cover that cost. It is a challenge.

We might explore that with the second panel. Thank you for your attendance. We appreciate it, and we appreciate the evidence that you have provided.

11:57 Meeting suspended.

12:00 On resuming—

In our second panel, I welcome the Rev Graham Blount, chair of the Scottish fuel poverty forum, and Alizeh Hussain, the social policy and parliamentary officer of Citizens Advice Scotland. With your permission, I will go directly to questions.

I will get in early. How effective has the energy assistance package been since its introduction?

As you know, the energy assistance package was essentially a recommendation that the forum made to the Scottish Government in 2008, which was substantially accepted and implemented from April 2009. Last summer, the forum reported on the package’s first year of operation. At that point, we said that we believed that it had substantially done what we expected and hoped it would do. It had implemented a more holistic approach to tackling fuel poverty in Scotland by looking at the three causes that the committee has heard about today. There had been one or two teething difficulties with implementation, but they had been dealt with progressively. We were content with the figures for the various measures at the different stages. We were disappointed at the lack of wider public interest in the achievements at stages 1 and 2 of the package; the focus had been almost exclusively on stage 4. Nonetheless, we felt that stage 4—the installation of central heating systems for people who needed them with the definition extended beyond pensioners to include families—had gone reasonably well.

I have to qualify that slightly in that, as the committee was made aware by the minister, some of the key figures for stage 4 of the package that were in our report that was published last July were based on erroneous information given by Scottish Gas to the Government at that time. The Government was finally able to reconcile all the figures and publish them at the end of last year. They are slightly lower than we thought but, nonetheless, we are reasonably content with the first year of operation.

We proposed one or two changes to the eligibility criteria at stage 4 to include houses with a slightly better standard assessment procedure rating than was originally intended to open up the package to more families than were originally within its scope and to clear out a wee difficulty whereby people who had measures taken under stage 3 were cut off from stage 4. That was a procedural issue that we dealt with.

More recently, we have made a recommendation to the Government about people with disabilities and people with terminal illnesses. We have been in discussion with Macmillan Cancer Support and the Scottish Disability Equality Forum about that. We made a recommendation and I understand that new regulations will be laid before Parliament this week to cover that further extension.

Beyond the first year, I have to say that the Scottish fuel poverty forum has a considerable frustration. The forum met on 11 January, which was our first opportunity to look at figures for the financial year that started in April 2010. We had a very incomplete set of figures and a lack of any usable figures for stage 4. I received the figures in slightly more complete form at the end of last week. I understand that they have now been published on the Energy Saving Trust’s website and are publicly available. They show the achievements of the energy assistance package up to the end of December.

The forum is frustrated, because our key task is monitoring the implementation of the programme. We have been unable to make any serious attempt at that due to a lack of figures coming to us in the current year. Having now got some figures, we are beginning to get our teeth into them, but we are only two months away from the end of the financial year.

Citizens Advice Scotland called for and welcomed the energy assistance package. Citizens Advice Direct, which provides assistance at stage 2 of the package, has informed us that, between April 2010 and yesterday, it crossed the £1 million client financial gain mark just from the energy assistance package in relation to the uptake of benefits. That is potential gain. Citizens Advice Direct follows up with clients after six weeks of providing advice on what benefits they can apply for. It has seen a significant increase in benefit take-up since the energy assistance package was introduced.

We are in favour of increasing the number of people in different groups who are helped by the package because, as the previous panel said, we have seen an increase in the number of single adults in fuel poverty. We would like more such people to be incorporated into the energy assistance package.

One of the things that we have seen in evidence from more than 260,000 clients in Scotland in 2009-10 is that a range of issues interact with fuel poverty, including benefits, employment, debt and utilities in general. Fuel poverty does not stand on its own. All those other factors add to it or make it a main cause of concern for a household.

We would like to see more interaction between the different Governments and the fuel suppliers to ensure that they are helping people on the ground. I understand that the two Governments have different remits, but it is about the people who are in fuel poverty.

Thank you for those two comprehensive answers—I can tick off most of the questions that I was going to ask. To what extent are the Scottish Government’s policies, principally the energy assistance package, succeeding in alleviating fuel poverty at a time when the figures are increasing rather than decreasing? Are you making ground in that context?

It is complex to measure. The forum specifically asked the Government for more detailed information about how many people are being lifted out of fuel poverty by the energy assistance package. Obviously, that is quite expensive information to collect, and one does not want somebody to be denied measures because we are busy measuring. There is a bit of a dilemma there.

Although I do not carry them in my head, there are figures for the substantial difference that has been made to people’s fuel bills, either by increasing benefits, helping their ability to pay the bills and moving them on to social tariffs, or by reducing the bills through insulation and the installation of heating systems. We believe that the holistic approach of the package is the most effective way to use the available money. Given the limitations and the worrying horizon of even greater limitations on the money available, we believe that we are targeting the money on the best proxies that we have for people in fuel poverty, and it has been to refine them that we have made one or two tweaks to the eligibility criteria. We believe that the current system is very close to as good as we are going to get for targeting the money at the people who are most likely to be in need and fuel poverty. We believe that, broadly speaking, the money is being spent in the most effective way.

We said from the beginning that, even at present spending levels, the energy assistance package would not get us to the 2016 target for the eradication of fuel poverty. The figures issued at the end of last year by the Scottish house condition survey on the scale of fuel poverty are alarming. As I heard someone say just a few minutes ago, the fact that more than 10 per cent of the population of Scotland is in extreme fuel poverty is perhaps the most worrying figure of all.

Every year since we set the target for eradication of fuel poverty, the figures have got worse. Despite the best efforts of Governments in Westminster and here, the figures continue to get worse. We need to find a way of turning that round.

To be fair to the energy assistance package, I note that the house condition survey that reported at the end of last year was based on interviews through 2009, so only a tiny number of the households could have been affected by the introduction of the energy assistance package. Perhaps next year we will see the effect of the package reflected more fully. However, I do not expect there to have been a dramatic turnaround in the figures. If fuel prices continue to go the way they are going, the poverty figures will continue too.

We called for the energy assistance package, and we support it whole-heartedly. However, as I mentioned, there are quite a few factors that affect fuel poverty, and the energy assistance package on its own cannot lift people out of fuel poverty. Debt is one of the biggest issues—of the 12,000 cases that we dealt with last year in which clients had issues with fuel suppliers, 4,000 involved fuel debt. Those cases instigate fuel poverty to some extent. Self-disconnection was mentioned by the last panel, and issues such as that cannot be taken up by the energy assistance package. There is more work to be done, but the energy assistance package is effective and Citizens Advice Scotland welcomes the holistic approach.

Good afternoon. The Scottish house condition survey tells us:

“Households without central heating are almost twice as likely to be in extreme fuel poverty”.

I suspect that that is why we frequently see a concentration on central heating, although I must say at the outset that I appreciate the benefits in tackling fuel poverty that have been gained through stages 1 and 2 in particular.

Let me move on to what the Rev Graham Blount said about the figures and the increasing numbers of people in fuel poverty. When you looked at the proposed budget figures and saw the substantial cut in the energy assistance package, what were your thoughts?

I suppose that the answer is fairly obvious. We originally called for a step change in investment; we did not expect the step change to be in the wrong direction. We appreciate the financial constraints under which Government is operating both here and in London, but we were deeply disappointed by what I understand to be a cut of more than 25 per cent in the budget for the energy assistance package and home insulation scheme. That is based on the figures that we have been given by the minister. Obviously, that cut means that substantially fewer people will be helped under the schemes. It means that people will remain in fuel poverty. It will take us further away from the statutory target for the eradication of fuel poverty by 2016. On the forum’s instructions, I have written to the minister saying that to him.

12:15

I agree with Graham Blount. CAS sits on the fuel poverty forum and we have mentioned our concerns about the budget cuts. They are understandable but will definitely hinder the process of eradicating fuel poverty by 2016.

We were all surprised at such a substantial reduction in funding. However, let us move on from being negative about it and consider where we can take the matter.

Graham Blount mentioned the HIS programme and we spoke with the previous panel of witnesses about the CERT programme. It is sometimes said that there are so many programmes that it is difficult for people to know what is applicable to them and how to get the most assistance possible. Would it be an option to pull some of those programmes together so that people can access more comprehensively the assistance to which they are entitled that will help them out of fuel poverty, or is it better to have a variety of programmes that address different issues?

Citizens Advice Scotland and I personally think that having one integrated programme would definitely be of benefit. The energy assistance package provides quite a few different initiatives in one package, including the benefits check, social tariffs and home insulation. However, it would be extremely important to have a more integrated package, especially one that the fuel poverty forum can have an overview of to ensure that we achieve the targets.

We can have different packages, but we do not want them to do the same thing or overlap. Especially now, when budgets are limited, we do not want duplication. We would like a package that really targets fuel poverty and helps people where they need help.

The forum certainly believes in a strategic approach. Whether that means having everything in the one package is a moot point, especially when some matters are the responsibility of the Westminster Government, some are for the energy companies and others are for the Scottish Government. We have repeatedly sought to get the different initiatives working together. That is partly about clarity at the consumer end. Whether there is one package or 20, the important thing is that the consumer can see clearly what is available and, therefore, what might be useful for their household.

Consumer clarity and getting the different schemes working together are our priority. We were keen to get the energy assistance package working along with the CERT scheme. As you heard, we got a substantial way down that road, but CERT is about to be replaced by a new energy company obligation, the details of which are as yet unclear. That new obligation will probably require further work to integrate it with what is going on in Scotland.

We are also concerned that, at the Westminster end, there seems to be an increasing tendency to move the responsibility for tackling fuel poverty from Government to the energy companies. At the end of the day, it may not seem to matter too much who is doing the work—who is running the jobs and so on—but one of the crucial questions is how the work is paid for. If, increasingly, payment comes through the energy companies and through consumers, that is regressive: energy efficiency is being improved but it is fuel-poor people who are paying for it. If the money is coming from Government, it is coming from the taxation system, which is a less regressive way of getting the same money. We are therefore concerned that an increasing cost burden will be moved on to consumers. That will have a disproportionate impact on fuel-poor consumers.

I thank you for your answers and assure you that my question on how things should be organised was genuine. You have experience in administering the schemes, and your answers were very helpful.

I thank the Rev Graham Blount for his answer to the question of who is responsible for delivering the measures to try to eradicate fuel poverty—whether it should be the Government or the energy companies. You heard our earlier discussion with representatives of Ofgem. Is Ofgem doing enough to alleviate fuel poverty in Britain, and in Scotland in particular? What is the view of the Scottish fuel poverty forum on the role of Ofgem as the regulatory body?

As was discussed in the previous session, we have made some recommendations. Since the publication of our report two years ago, we have had some conversations with Ofgem. I cannot say categorically that the following view is the view of the forum, but it is certainly my view. Ofgem and—I have to say—both Governments seem to have a stock answer on what they cannot do. It would be great if all the bodies concerned thought more instead about what they can do. The levers are shared. No one body will sort the problem on its own. I would like all the bodies to focus on what they can do and to maximise it.

The forum has made considerable progress with Ofgem. For example, we have gone a long way towards addressing price differentials for customers with prepayment meters. We are not quite there yet, but big steps have been taken. Also, we have substantially sorted the measurement of the different CERT spending in Scotland.

Significant progress has been made, but we would like both Governments and Ofgem to work together much more. If you ask something of Ofgem, it says that it cannot do it until the Government tells it to, but if you ask the Government, it says that it is for Ofgem. It is a very frustrating business.

Thank you for your answer.

I wanted to ask about fuel poverty measures. Mary Mulligan has quite rightly pointed out the reduction in the budget line related to such measures, and it may be that constructive amendments will be made to the budget to suggest that additional moneys be provided and to suggest where they should come from.

Measures are being taken on fuel poverty, and I would like to consider the measures on insulation. I apologise for not having the statistics with me—I really did mean to bring them—but, apparently, it has been quite difficult to make effective the commitment to universal insulation in certain parts of the country. If you put money into a universal insulation scheme, you first have to be sure that the person is in the house when you chap the door, and you then have to arrange a time when you can meet them to discuss what you will do to their house. You then have to get the person’s agreement to the work taking place, and you then have to gain access to the property. I appreciate the benefit of universal insulation schemes, and I welcome them, but are there sometimes better ways of spending the money?

The forum has welcomed any serious effort to tackle fuel poverty. However, the basic HIS and the universal HIS work quite separately, and that is a wee bit disturbing. Both schemes have generated referrals to the energy assistance package, because some people’s needs in relation to heating systems are beyond the scope of the schemes. That has been positive.

We have believed from the start that targeting areas in which there is likely to be a high incidence of fuel poverty and going around knocking on doors should be part of the strategy. Nevertheless, we are concerned about the proliferation of the schemes. The forum has been given responsibility for monitoring the on-going HIS, but the universal HIS has its own implementation group. Having expressed concern, the forum is now represented on that group, but it goes its own way and we have a wee concern there.

The budget figures that I have been given relate to the areas for which we are responsible and are, therefore, for the EAP and the basic HIS. I do not have a figure for the universal scheme and do not know whether it is going to continue.

That is interesting. When you were talking about what we can do rather than what we cannot do, I was trying to think of ways of maximising the benefit for the money that we spend. Perhaps that is something I need to follow through and take forward. I had heard about the issue in relation to the universal scheme.

A few weeks ago, Alex Neil announced that registered private sector landlords can bid for a subsidy to get central heating installed in some of their stock. Is that a progressive way of improving the quality of the private rented sector and tackling fuel poverty? Would you like that to continue?

I am fairly certain that, in its most recent annual report, the forum highlighted the increasingly large part that the private rented sector plays in fuel poverty. We are therefore keen to see some development in that area. I am not aware of the detail of what is about to be announced, and I hesitate only because I do not know exactly what is proposed. We believe that something is needed through working with private sector landlords to make a difference in the area, and what you suggest sounds good.

Thank you for saying that. My point is that the Government is on record as saying that it needs the private rented sector to play a bigger role in meeting social housing need and, clearly, if it is to do that, we must make sure that those properties are of an appropriate quality and proofed against fuel poverty. I just wanted to put that on the record.

Sorry if I misunderstood you.

I have a general question about your relationship with the Government. Given what we have heard today, it cannot be great at this point, although I am sure that you will get on with it.

You have described a 25 per cent cut and your disappointment at the level of information that you are getting and the amount of time that you have to carry out your monitoring function. Not on the 25 per cent cut, but on the issue on which you responded to Bob Doris, you mentioned the obvious need—our case loads show it locally—for measures to be taken for people in the private rented sector. There are going to be some announcements about that, but you have not been consulted on the detail of what is proposed—there will be an announcement, rather than the Government saying, “Look, we’ve achieved this. Do you think that would be a good idea?” or whatever. The relationship is not as good as it was 18 months ago, and not necessarily because of the 25 per cent cut.

The forum continues to be supported by the civil service fuel poverty team and we welcome that level of engagement. Obviously, the situation has changed in the light of the budgetary constraints and so on, and it became clear to me at our most recent meeting that there is a considerable amount of frustration within the forum.

The situation was not helped by the update on fuel poverty that the Government issued at the end of last year, which was realistic about where we are in terms of fuel poverty and what the Scottish Government cannot do to influence that. The forum had hoped for a wee bit more about what the Scottish Government, in partnership with others, can and will do to try at the very least to reverse the upward trend in the fuel poverty figures. The forum is ready to work closely with Government on that. We have had some frustration about the figures.

At least since 2008, we have been a broad stakeholder body in which the energy companies sit alongside many of the advice agencies, specialists in energy efficiency and poverty charities. We are a broadly based group with an independent chair. The relationship of any such body with Government will have its ups and downs.

12:30

Given the extent of the cuts, you have to cut your coat according to your cloth, which goes back to my earlier question about the definitions of fuel poverty and extreme fuel poverty. Other measures will claim sizeable chunks of the budget. What will be the impact of that? Who will lose out and who do you need to focus on to ensure that they are not hit disproportionately in difficult times?

We and the Westminster Government are at the early stages of embarking on work on the definition of fuel poverty. There is always a slight suspicion that when any official body starts changing a definition, the purpose of the exercise is to massage the figures. We hope that the fact that we are taking the lead on this in Scotland will reassure people that the purpose of the exercise as far as we are concerned is to target better the work that we do in Scotland and to understand better where fuel poverty really hurts.

Any definition has its flaws around the edge, as you know. The definition of fuel poverty is that people spend more than 10 per cent of their income keeping their house reasonably warm. One of the issues is that it costs more to keep your house reasonably warm in Scotland than in England, because of climate differences. It costs more in the north of Scotland and the islands than in the central belt. Should the definition take account of that? Should there be a cut-off point? Ten per cent of a millionaire’s income might represent a hang of a lot of money to spend heating their large house, but it might not be a hardship for which the word “poverty” is appropriate. We have looked at that, but the evidence is that there are not very many people in that category, although it is a theoretical anomaly in the system.

We want to ensure that we understand the situation better and, especially in constrained financial times, that we are better able to target the money that we spend so that it goes to the people who are most in need and so that we can lift more people out of fuel poverty.

As time goes on, it gets harder. The problems that people who are off the gas grid face were raised earlier. It is much harder to take people who are off the gas grid out of fuel poverty than it is to take people who are on the gas grid but who lack central heating out of fuel poverty. In the second instance, we know what the answer is.

Some of the low-hanging fruit has already been picked and we are getting into much more difficult areas where it is more expensive to lift people out of fuel poverty. That is why we need to focus hard on the most effective ways of doing that. The forum still has confidence in the energy assistance package as being at the core of that and a good way forward, but we are very much keeping that under review.

I assume that a variety of groups will be included in the review.

Initially, free central heating was available only to those who were 65 and over, but that has changed. We heard earlier that people who live on their own and younger people have problems in that area. Do you monitor that? The programme covers the elderly, families and people with disabilities but not those other groups.

It is clearly important in developing our understanding to get the kind of evidence that Alizeh Hussain and her colleagues get and to get feedback from MSPs and the different groups that sit around the forum table. The increase in the number of single people who are in difficulty is comparatively new, but it will obviously be part of our profile, which is under constant review. Of course, broadening eligibility for stage 4 of the programme at a time when we are spending 25 per cent less on the programme means that there is a danger that there will be a delay for a lot of eligible people—that is the logical outturn of the situation. We do not have unspent money in the programme at the moment, so broadening eligibility means that people may have to wait longer. We must ensure that we are getting to the right people.

On the question of certain people being disproportionately affected by the cuts, we should bear in mind the welfare reform that will affect people who are in fuel poverty. It is not just the Scottish Government’s cuts that will affect people in fuel poverty disproportionately; other factors, such as cuts in public sector employment, might even increase the number of people in fuel poverty. Many of our recent cases have involved people who have lost their jobs and suddenly found themselves with large amounts of debt because they had assumed that they would maintain a certain level of income. They now find, for example, that they must choose between fuel and food and other expenses.

Obviously, we do not want people to have to make such choices. However, our “Drowning in Debt” research report showed that 40 per cent of debt clients choose to self-disconnect from essential services, including heat; the figure for women is 50 per cent. I believe that the public sector employs more women than men. Quite a few factors in forthcoming legislation will disproportionately hurt people in fuel poverty and will increase fuel poverty in general.

I welcome that evidence for the record. We had similar evidence earlier from the cabinet secretary, but it is useful to have your evidence on the record as well.

The convener raised the question of the fuel poverty forum reassessing the definition of fuel poverty, and I think that he got a partial answer. I want to follow up on that. We base fuel poverty on the 10 per cent income threshold, or the 20 per cent income threshold for extreme fuel poverty. Has the forum looked at house type and condition as to whether or not people should qualify for insulation and energy grants? There is a debate about the millionaire who has a big house and spends 10 per cent of their income on heating their swimming pool. However, the reality is that a number of people in detached properties are having problems with fuel costs. A lot of those individuals are elderly people who are finding it difficult on their income to continue to meet their energy costs.

I am not 100 per cent sure that I got the question. However, at the moment, eligibility for stage 4 of the energy assistance package is dependent on people who are under 75 being in receipt of benefits. As a result, people at the richest end are not eligible, which seems to us to be an entirely sensible approach to targeting. The forum has no plans to change that. Have I missed the point?

My question was more about whether the forum had given any consideration to property type. As Bob Doris pointed out, private landlords will be able to apply for funding to install central heating systems in private rented accommodation. However, as I understand it, the current criterion is whether an individual tenant or resident in a house—not the landlord—spends 10 per cent of their income on heating. Does that not change the situation?

We are well aware of the differential impacts of fuel poverty on different property types. If we want substantially to improve the private rented sector, in which the tenancy turnover is fairly rapid, too much of a focus on the householder will not hold as an on-going criterion. Over the past 10 years, there has been a lot of effort to improve the social housing sector and bring it up to standard, and none of that has been based on differentiating between different people in that sector.

Does the forum think that our target to eradicate fuel poverty in Scotland by 2016 is still achievable?

Not without radical change. There are five years to go and no silver bullets in our ammunition. Anything that is done now will have an impact only two or three years down the line and, given the prognosis on fuel prices, things are going to be very difficult in that respect.

Certain prioritisation issues need to be considered. As you know, the target is to eradicate fuel poverty as far as is reasonably practicable, but I really do not know to what extent reasonable practicability includes policy decisions about the spending priorities of Governments either here or elsewhere. That is a matter for political argument.

My first objective, though, is to get the figures going in the right direction and to feel that we are at least heading towards that target. After all, there is a danger that if we begin to regard the target as impossible we will stop trying to meet it. As I have said, I am keen to focus on getting the figures moving in the right direction. I am led to believe that we might have slightly better news next year, mainly because of the wee dip a year ago in year-on-year fuel prices that will feed into the Scottish house condition survey, which will report at the end of this year. As a result, the figures might look a bit better. However, given the other changes that have been announced since then, that change will be very temporary and we should not rest too much on it. Nevertheless, we have to get things going in the right direction towards 2016.

We would like fuel poverty to be eradicated but, in light of the factors that have been mentioned, I am not sure that I can say whether it will be. It is not really up to the Scottish Government and any one programme that might be introduced at any one time; all Governments, fuel companies and others will have to work together to make it possible.

I thank the witnesses for their attendance and helpful evidence.