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Fuel poverty measure could assist policy making

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Friday 26 May 2023

Developing a reliable measure for tracking the impact of local energy costs on households could help to better target support where it is needed.

As part of the investigations commissioned by the States' Trading Supervisory Board, Frontier Economics were tasked with assessing the impact of increasing fuel costs on affordability. It noted different jurisdictions had adopted different methodologies for measuring 'fuel poverty', which made direct comparisons difficult. 

Frontier Economics report states: "It is important that tariffs are efficient and cost reflective to maintain affordability. However even efficient and cost reflective tariffs are subject to fluctuation as a result of fluctuations in external markets.

"Therefore in many countries, affordability-related interventions typically focus on targeted supports to those in need, such as income support, energy rebates, and specific vulnerable customer tariffs."

"There are several ways to measure fuel poverty (% of income spent on energy costs, surveys etc). We use an expenditure-based measure due to limited data availability. That is, households are considered fuel poor if they spend more than a given percentage of their disposable household income on energy. We identify this percentage [for Guernsey] as 6% for electricity consumption."

Based on local household expenditure and income data from 2019, Frontier Economics calculated that at 2022 tariff levels around 17% of local households currently spend more than 6% of their disposable income - after income tax, social security and housing costs - on electricity.

However Frontier Economics stressed that this estimate was not directly comparable to other jurisdictions "due to differences in approach, timing and data availability". 

In the UK, HM Government and the devolved administrations each set their own definition.

In Wales and Northern Ireland, households are classed as fuel poor if more than 10% of their income is spent on energy bills, including electricity. 

However in England and Scotland, the measure also takes account of a remaining income after energy costs, and whether these meets other poverty thresholds. In England, a home's energy efficiency is also taken into account. 

Based on the latest available estimates, 13% of households in England were considered to be in fuel poverty (2022), 25% in Scotland (2019), 14% in Wales (2021), 24% in Northern Ireland (2019), 29% in Ireland (2022).

The STSB's full decision notice and the findings of the Tariff and Efficiency Benchmark Review can be found at www.gov.gg/GELtariffdecision.

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