Monday, 16 February 2009

Inflation Again

Following up on our previous post on inflation (see post), the question of fuel poverty seems to have worked its way into our thoughts for the medium term. In the UK, fuel poverty is defined as a situation where fuel costs take up more than 10% of total household disposable income.

It is estimated that 5.4 million people in the UK suffer from fuel poverty. To alleviate this situation, the government has funded a programme of initiatives to alleviate fuel poverty - mainly through grants distributed by Warm Front, a body set up specifically for this purpose. It is estimated that 3.1 million people in fuel poverty are eligible for a Warm Front grant, but only 1.8 million people have taken up that funding.

Why? Part of the problem seems to be the funding model. Warm Front will only fund the contractors it chooses to undertake the work. Leaving aside the question of value for money - which is a big question because there are allegations of contractors padding the cost of their work to inflate the price - there is also the issue of the householder being liable for the cost above the grant ceiling, which, in some cases, amounts to thousands of pounds. This seems like a scheme to exacerbate fuel poverty!

In a recent report (see report) the scheme has been charged with not being fit for purpose. This suggests that fuel poverty is likely to be with us for some time to come. An interesting point will come in the near future. The costing mechanism for domestic fuel is related to RPI. As RPI moves negative, will domestic fuel bills fall? If they don't, then this aspect of the Age of Scarcity will only become more acute in the recovery, when it comes.

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