Meaning of fuel poverty
Section 3
10.Section 3 defines when a household is in fuel poverty. This is a multi-faceted definition which includes a lot of detail about how particular elements will be measured. However, the broad thrust of it is that a household will be in fuel poverty if:
after having paid its housing costs, it would need more than 10% of its remaining net income to pay for its reasonable fuel needs, and
having paid for its reasonable fuel needs, its childcare costs and its housing costs, and disregarding the value of specified benefits which are received for a care need or disability, this then leaves the household unable to maintain an acceptable standard of living.
11.Subsection (1) lays down the test that determines whether a household is in fuel poverty. It should be read in conjunction with subsection (10)(a) which explains that “adjusted” net income means the household’s net income after deduction of housing costs.
12.Paragraph (a) of subsection (1) sets out the first element of the test. It requires an examination of what fuel costs the household ought to have. It does not matter what fuel costs the household actually incurs, but rather the cost of its assessed fuel needs. The measurement is therefore a uniform one which is not influenced by whether, in practice, a household opts to save money by turning its heating off or whether it turns the heating up to a level which experts consider to be too warm. The calculation that must be carried out is whether the cost of meeting the household’s assessed fuel needs amounts to more than 10% of the net income that the household has after it has paid its housing costs. For a worked example of this, see paragraph 36 below.
13.Paragraph (b) of subsection (1) sets out the second element of the test. The question there is whether, after the assessed fuel costs discussed above, any childcare costs, housing costs and the value of specified benefits received for a care need or disability (where applicable) have all been deducted from the household’s net income, there is sufficient income remaining to allow members of the household to maintain an acceptable standard of living. The result of the inclusion of paragraph (b) is that the test is not just about what proportion of a household’s income is needed to meet its assessed fuel needs, but also about whether or not the household is then left unable to maintain an acceptable standard of living. For a worked example of this, see paragraph 37 below.
14.Subsections (2) to (4) provide more detail about the first element of the test and how a household’s fuel needs are to be assessed. This is to be measured by reference to both the cost of meeting specified heating levels within the home and also whether the household’s other reasonable fuel needs within the home are being met.
15.In relation to heating levels, different temperatures are specified for different rooms of the house. The number of hours that the rooms need to be heated to these temperatures is also set. The temperatures and number of hours that are specified differ based on whether or not the household is classified as being one for which enhanced heating temperatures and/or enhanced heating hours is appropriate.
16.The specified heating levels are:
For a household for which enhanced heating temperatures is appropriate, heating the living room(1) to 23° Celsius and any other room to 20° Celsius.
For any other household, heating the living room to 21° Celsius and any other room to 18° Celsius.
For a household for which enhanced heating hours is appropriate, heating the home to the requisite temperatures for 16 hours a day, every day.
For any other household, heating the home to the requisite temperatures for 9 hours a day on a weekday and 16 hours a day at the weekend.
17.Regulations made by the Scottish Ministers under subsection (4) will set out the types of household for which enhanced heating temperatures and/or enhanced heating hours is appropriate. This would allow assessed fuel needs to take account of households where, for example, a member of the household is elderly or has a condition or illness which makes that person especially at risk of suffering adverse effects from being in a cold home.
18.Measurement of the household’s other reasonable indoor fuel needs for the purpose of subsection (2)(b) would cover the cost of fuel-use for things such as heating water, cooking, lighting and using appliances such as kettles, phone chargers, etc. However, the costs are only factored in to the extent that they are reasonable: fuel use for an unreasonable purpose (e.g. an indoor swimming pool) or to a unreasonable extent (e.g. keeping all lights on at all hours) would not be factored in.
19.Subsection (5) provides more detail about the second element of the test and how the question of whether a household has sufficient income left to maintain an acceptable standard of living is to be assessed. How this is calculated depends on the location of the home in question.
20.For most households(2), it requires a comparison of:
the household’s net income, after deduction of—
the costs that would be incurred in meeting the specified heating levels and its other reasonable fuel needs (whether or not it actually spends that),
the housing costs actually incurred (which, as well as rent/mortgage costs, includes council tax and water and sewerage charges), and
any childcare costs actually incurred,
the value of specified benefits which are received for a care need or disability (where applicable),
with
90% of the UK minimum income standard which applies to the household, after deduction of the amount that the standard allocates to—
fuel costs,
rent, council tax and water rates, and
childcare costs.
21.If the amount of the household’s remaining net income is 90% or more of the relevant minimum income standard figure, subsection (5) provides that this is to be treated as determinative of the question as to whether or not the household has sufficient income left to maintain an acceptable standard of living. In such cases, the household is considered to have sufficient remaining income, meaning that the household will not be in fuel poverty.
22.The term “minimum income standard” refers to the UK minimum income standard that has been developed by the Centre for Research in Social Policy at Loughborough University(3). It sets out how much money it considers households to need depending on the composition of the household. It also breaks this headline sum down into different items of expenditure.
23.The standard covers the needs of over a hundred different family combinations(4). However, if there is no standard which applies to a particular type of household, subsection (5) will not be able to settle the question of whether the household has sufficient remaining income to maintain an acceptable standard of living. In those rare cases, the test as set out in subsection (1) would simply fall to be interpreted on its own terms, and an assessment would be made as to what constitutes an acceptable standard of living. Alternatively, Ministers would be able to set a standard for those cases by using the power in section 16(c).
24.Subsection (10)(f), which defines the term “minimum income standard”, also allows Ministers to determine that the minimum income standard for the purposes of subsection (5) is to be determined by a different body. This would allow Ministers to react quickly if the current UK minimum income standard ceases to be published, if the body which produces it changes, or if the basis on which it is calculated is changed. Through the use of the this power, subsection (5) will be able to continue to be used as the litmus test for whether a sufficient standard of living can be achieved for the majority of households.
25.However, subsection (5) is subject to subsection (6). Subsection (6) provides that where the home in which the members of a household live is in a remote rural area, remote small town or island area, the question of whether a household has sufficient income left to maintain an acceptable standard of living is to be assessed slightly differently from the comparison set out in paragraph 20. Instead of comparing the household’s remaining adjusted net income with the UK minimum income standard, it is compared with the UK minimum income standard added together with any additional amount that has been determined in relation to the household in accordance with regulations. This means that it requires a comparison of:
the household’s net income, after deduction of—
the costs that would be incurred in meeting the specified heating levels and its other reasonable fuel needs (whether or not it actually spends that),
the housing costs actually incurred (which, as well as rent/mortgage costs, includes council tax and water and sewerage charges), and
any childcare costs actually incurred,
the value of specified benefits which are received for a care need or disability (where applicable),
with
the total of—
90% of the UK minimum income standard which applies to the household, after deduction of the amount that the standard allocates to—
fuel costs,
rent, council tax and water rates, and
childcare costs,
and
such additional amount (if any) as is determined in relation to the household in accordance with regulations.
26.As set out in subsection (7), regulations under subsection (6)(b) providing for the determination of an additional amount must define “remote rural area”, “remote small town” and “island area”. They must also specify who is going to determine the additional amount (though the regulations themselves need not specify this amount; that can be done elsewhere, in a similar way to how the amounts under the UK minimum income standard are not set out in legislation).
27.The Scottish Government has stated(5) that the regulation-making power in subsection (6)(b) will be used to specify a definition of “remote rural area”, “remote small town” and “island area” which will cover categories 4 and 6 of the Scottish Government’s 6-fold urban rural classification(6). In addition, under subsection (9), the definition of “island area” is required to encompass all island areas.
28.The person who makes the determination of the additional amount will also be required, under subsection (8), to make a separate determination for island areas. This means that the appointed person will have to calculate the relevant figure for the islands separately, although there may be times when the underlying cost of living is such that the figure in question is the same as it is in other places.
29.The additional amount which is specified by a person appointed in the regulations can differ depending on the type of household in question. For example, the extra cost of remote living for a family of four may be very different to the extra cost of remote living for a single person. It is also possible that there may be times where the appointed person does not specify an additional amount if the cost of living is found, based on the research that person has carried out, not to be higher for a particular household type in a particular location. However, the household will never be measured against less than the relevant amount of the UK minimum income standard which is based on research conducted in the Midlands, selected to be representative of the UK overall. And where the cost of living is determined to be higher for a particular household type and location, an additional amount will have to be factored in in recognition of that when calculating whether the household has sufficient income left to maintain an acceptable standard of living.
30.Subsection (10) defines a number of terms which are used in the section: benefits received for a care need or disability, childcare costs, household, housing costs, and net income(7). It also explains that “adjusted” net income means net income after deduction of housing costs.
31.While a number of the words defined here are readily understood in everyday language, the section provides tests which can be used to clarify any less obvious cases. For example, the definition of a household captures those living together as a family or other unit, so a group of friends who rent a flat together would constitute a household. However, a lodger who lives with a family and is entitled to use shared living and cooking facilities need not necessarily count as part of that household. This test is derived from the Scottish Housing Condition Survey(8) and so represents an understood approach to determining what constitutes a household.
32.Childcare costs would include the cost of an after-school club which is used to provide care facilities for the child, but the cost of paying school fees or paying for an activity like piano lessons (where the primary objective is to allow the child the chance to learn an instrument) would not be covered. The definition is restricted to children of primary school age or below, in line with how childcare costs are assessed under the minimum income standard.
33.The section also provides that housing costs means not just rent or mortgage payments but also the associated council tax and water and sewerages charges relating to the house.
34.The term “benefits received for a care need or disability” is also defined. This covers disability assistance, personal independence payment, attendance allowance, severe disablement allowance, and disability living allowance. Although severe disablement allowance is no longer provided to new applicants, it continues to exist for those who were receiving it prior to its abolition(9). Taken together, this means that, in recognition of the fact that these sums are paid to cover particular costs which would not be incurred by others and are not reflected in the minimum income standard, all of these benefits are taken out of account when looking at whether a household has sufficient income left to maintain an acceptable standard of living.
A worked example
35.A worked example of the calculation required by section 3 follows, based on the entirely hypothetical figures set out in this paragraph. The 2017 minimum income standard figures are used, but with weekly sums being converted to monthly figures.
| Household type: single person of working age (living on the mainland in an urban area or accessible small town or in an accessible rural area) | ||
|---|---|---|
| Household costs (monthly): | £1,150 | net income |
| £350 | rent | |
| £50 | council tax, water & sewerage | |
| £0 | childcare | |
| £0 | relevant benefits | |
| £80 | assessed monthly fuel needs (taking into account the tariffs and fuel types available to the household in question) | |
| Minimum income standard figures: | £1,286.24 | total income |
| £388.70 | notional rent cost | |
| £68.28 | notional council tax cost | |
| £24.99 | notional water rates cost | |
| £71.41 | notional fuel costs | |
| £0.00 | notional childcare costs | |
36.The section 3(1)(a) test is as follows—
| Fuel costs necessary to satisfy section 3(2): | £80 | |
| Adjusted net income: | £1,150 | net income |
| (£350) | rent | |
| (£50) | council tax, water & sewerage | |
| -------- | ||
| £750 | ||
| Fuel costs as percentage: | (80 / 750) * 100 | |
| = 10.7% | ||
| As the percentage is above 10%, the first element of the fuel poverty test is met. | ||
37.The section 3(1)(b) test is as follows—
| Remaining adjusted net income: | £1,150 | net income |
| (£350) | rent | |
| (£50) | council tax, water & sewerage | |
| (£0) | childcare | |
| (£0) | relevant benefits | |
| (£80) | necessary fuel costs | |
| -------- | ||
| £670 | ||
| This figure then needs to be assessed in accordance with section 3(5) on the basis that the home in question is not located in a remote rural area, remote small town or island area. | ||
38.The section 3(5) comparison is as follows—
| Relevant minimum income standard: | £1,286.24 | minimum income |
| (£388.70) | notional rent | |
| (£68.28) | notional council tax | |
| (£24.99) | notional water rates | |
| (£0.00) | notional childcare | |
| (£71.41) | notional fuel | |
| -------- | ||
| £732.86 | ||
| 90% of that standard: | (£732.86 / 100) * 90 | |
| £659.57 | ||
| As the remaining adjusted income of £670 is greater than the relevant MIS figure of £659.57, the household is not in fuel poverty. | ||
| However, if the home in question had been located in a remote rural area, remote small town or island area, the result may have been different. If the additional amount calculated in relation to the household type for that area was £20, that sum would need to be added to the figure of £659.57 above, meaning that the total would instead be £679.57. As the remaining adjusted income of £670 would then be less than the minimum income standard which applies in that area, the household would be in fuel poverty. | ||
The expression “living room” bears its ordinary meaning in the Bill (that is, a room for everyday general use).
Where the home in question is in a remote rural area, remote small town or island area, subsection (6) applies and an additional amount can be added to the UK minimum income standard for the purpose of this calculation in recognition of the higher living costs which can apply in those areas.
For more information, see http://www.lboro.ac.uk/research/crsp/mis/ and https://www.jrf.org.uk/report/minimum-income-standard-uk-2017.
It also defines “minimum income standard”, as discussed at paragraphs 22 to 24 above.
See article 4 of the Welfare Reform and Pensions Act 1999 (Commencement No. 9, and Transitional Savings Provisions) Order 2000 (SI 2000 No. 2958).