Hill's Fuel Poverty Definition
Equivalisation is a standard technique used to compare incomes where the numbers or family composition are different. For instance, two people sharing a house will generally have lower living costs than if they lived separately (in reality two cannot live as cheaply as one!). In the Hill’s Definition both incomes and fuel costs are equivalised, although by different amounts.
In order to be in fuel poverty under the LIHC definition the household now has to be on a Low Income (below 60% of median income after housing cost, about £11,500 a year) and adjustment for any above median fuel bill) and also have a High Cost modelled fuel bill greater than the median. Those households which have a low income but are in energy efficient properties (higher SAP ratings) with lower bills are still classed as poor, but are not in fuel poverty. Both the income and the modelled fuel bill are adjusted (equivalised) for the number of people so for one person the modelled bill is divided by 0.82. For two people the modelled bill is the same as the equivalised bill.
A one adult one child family on benefit could have an annual income after housing costs of £7,091, and perhaps have a fuel bill of £1,200 a year.
In the Government’s “old” definition their housing benefit would be counted as income. In a low rent area their total income would still be less than £12,000 a year and therefore they would be in fuel poverty on the 10% definition (fuel bill more than 10% of income). In a high rent area such as London, their higher income (particularly in the private rented sector) would mean that they would not be in fuel poverty.
Their equivalised income figure is below the poverty line (60% of median income), so they are poor - however they would not be in fuel poverty since their equivalised fuel bill is below the median (around £1,220 a year).
The reasons for changing the definition have been published in the Hills review, but most people working in the fuel poverty area field are of the view that the main problem area is the definition of high cost as being the median fuel bill (as calculated using BREDEM).
Another is that rapidly increasing fuel prices have little effect on the numbers of households in fuel poverty, since the median bill is increased as well as the household bill. Hills sees this as an advantage as fuel poverty numbers don’t change much when prices increase. Since poverty is a relative concept and fuel prices increases affect us all, Hills sees no problem with this.
Other aspects such as equivalising and the use of income after housing costs are generally thought to be an improvement
The new definition moves the problem from being a combination of poverty and low energy efficiency to poverty generally if the fuel bill is not high cost. There is some merit in this – with very low incomes it would be very difficult to reduce the fuel bill to below 10% unless the home were super insulated and had renewables such as PV.
For those on low incomes the fuel poverty gap is the difference between the equivalised bill and the median bill. This is a measure of the depth of fuel poverty and will increase as fuel prices rise. The Coalition Government intend that this will be the main indicator for the effect of policy on reducing fuel poverty.
Over 65’s incomes on benefit (pension credit) when equivalised are above the low income definition by more than £1,000. In order to be in fuel poverty in a normal sized house the SAP would have to be lower than 40 (difference between the median fuel bill and the equivalised is deducted from the income)
We have incorporated the Hill’s definition into UNO in the current release but also retain the ability to carry out the 10% definition calculation for comparison.
Regional, local authority and output area fuel poverty figures
The English Housing Survey and the annual Fuel Poverty report come from a relatively small sample of the national housing stock. The sample size is not large enough to draw direct conclusions about individual local authority areas, although the figures produced by region such as North West or London contain enough households to be significant.
DECC do produce estimated figures for local authorities and also for LSOA and COA.
These figures are modelled by correlating characteristics that affect fuel poverty – dwelling age, numbers of economically active etc and then applying these to data obtained from census or other sources. It is important to remember that the figures are not affected by local activity – for instance if you had a very successful insulation scheme locally. However they do provide a very rough guide to the relative numbers in fuel poverty.
We normally incorporate these figures into UNO at LSOA level at the request of the local authority when UNO is first set up – please contact the helpline if you want to have the new figures put into your UNO database (at no charge)
The LIHC figures and the 10% figures are available from the DECC website (August 2013) for 2011 for LAs, Regions, and Parliamentary Constituencies and LSOA.
Many authorities have a similar position in both sets of results – for those who show a large difference on moving to the LIHC definition from the 10% there are several factors to be considered
As a result most London Boroughs have seen a relative increase in fuel poverty probably due to the income no longer being distorted by high rents.
Most rural authorities seem to have a significant improvement in their relative position. For example, Ryedale in North Yorkshire goes from 78% worse than average to about average. This may be due to the combination of medium income/high fuel cost in off gas areas no longer qualifying as fuel poor as incomes are above the median. For instance a couple with a pension income of £15,000 a year after paying housing costs, and fuel bill of £2,000 would not be in fuel poverty (not low income), but would have been on the old definition.