Caroline Julian is the Head of Policy Programmes at ResPublica, and author of ‘Out of the Cold: An agenda for warm homes’.
City-based devolution should offer a ‘win-win’ for the Chancellor: the devolution of budgetary and tax-raising powers enables city regions to more cost effectively manage public spending, whilst also giving them the opportunity to deliver better outcomes for residents. Small steps along this path were announced in this year’s Budget, but there’s clearly a window of opportunity for much more to be done.
One particularly endemic problem which is crying out for such a response is fuel poverty. One in every ten households in England are currently in fuel poverty – which means 2.28 million homes are struggling to keep warm. Many of those on low incomes are choosing eating over heating their homes and most are paying up to £1000 more on their annual energy bills than the average household.
Energy suppliers spend nearly £1 billion a year installing insulation measures in hard-to-treat households and low income areas under their Energy Company Obligation (ECO). But despite this level of expenditure, the current policy framework has not been up to the task.
Part of the problem is that energy suppliers are not penalised for ineffectively targeting low income and vulnerable households. Only 5 per cent of insulation measures are being installed into low income or vulnerable households under ECO. Those living in rural areas and off the gas grid also continue to suffer from a lack of support, and are often neglected because their properties are hard-to-treat and geographically hard to reach.
ECO as it stands will also only create a small dent in the remaining number of uninsulated, cold homes. Even if the ECO programme is successful, it would only equate to topping up 4 per cent of the lofts that could benefit from further insulation, filling 16 per cent of the empty cavity walls and tackling an insignificant 1 per cent of solid walls that are without insulation.
Because of this, householders, businesses, local authorities and housing providers have completely lost trust in the market.
The standard ECO model delivered by the obliged energy suppliers is not working. We need new ways to respond to the existing barriers and to ensure energy efficiency improvements are delivered to those most in need.
We believe that the time has come to devolve services that tackle fuel poverty to cities, local authorities, local and community organisations and housing providers. We recommend, in a paper published today, that Government should pilot a new devolved delivery model for ECO within the next two years, with a view to rolling it out after April 2017. This should be managed by local administrators, which would facilitate an ECO competition for each locality, open to cities, local authorities and housing providers working with community and local organisations.
And how do we pay for it? We need to think seriously about whether the current way of funding the ECO programme – via a levy on energy companies, which adds to consumers’ bills – will be viable going forward. If this devolved model were to be implemented, the energy suppliers would in effect be playing the role of the tax man, and adding more costs to consumers’ bills simply can’t be the solution to the big funding gap needed to put an end to cold homes. In short, this way of funding such measures could both penalise the poor and be bad for business.
That’s why we’ve called for an independent review to explore whether the funding for ECO, currently levied on energy companies, should be transferred to general taxation. This review should be led by the Office of Budget Responsibility, and should more broadly assess all expenditure on fuel poverty policies and subsidies, and their impact and cost-effectiveness to date.
But adding to people’s taxes is not a viable option, either. We need to think more innovatively and more strategically about where additional investment for such measures could come from. Our proposed delivery model could identify and tackle a range of problems: not only poor levels of energy efficiency in housing stock, but also the high level of debt and illness experienced by those who reside there. We need not only a ‘whole house’ approach, but a ‘whole person’ approach too.
To get this ‘whole house’ and ‘whole person’ approach right, a number of different energy, emergency, health and community budgets should be integrated to deliver large-scale programmes street by street.
As a first step, we recommend that city regions, local authorities or NHS Commissioning Boards and Clinical Commissioning Groups, depending on who has the budgetary power, take a lead in ensuring that health and social care budgets are leveraged against ECO funding to fund local initiatives that tackle fuel poverty. Greater Manchester Combined Authority (GMCA) and its ten councils have recently negotiated budgetary power over its annual health and social care budgets, and could therefore pioneer this approach.
City-based devolution offers a huge opportunity to not only better manage our public money but also deliver to those who really need our support.