Understanding wider economy implications and equity outcomes of different publicly-funded approaches to fuel poverty

This project examines different approaches to addressing fuel poverty whilst supporting wider economic and net zero objectives. Through economy-wide modelling and empirical analysis, it investigates two key policy pathways: direct bill support and energy efficiency improvements. The research specifically analyses how a £9 billion public funding pot could be utilised between 2025-2030, comparing the impacts of providing direct energy bill support versus funding basic energy efficiency measures for fuel-poor households. The work considers both immediate and long-term effects on household incomes, energy demand, employment, GDP, and cost-of-living pressures. This analysis aims to inform policy decisions that can effectively address fuel poverty whilst managing wider economic implications and supporting the transition to net zero. 

• Compare the economic and social impacts of direct bill support versus energy efficiency measures for fuel-poor households 

• Analyse the wider economic implications of different policy approaches, including effects on employment, GDP and consumer prices 

• Evaluate the timing and distribution of benefits across different household groups 

• Assess how public funding can be most effectively deployed to address fuel poverty whilst supporting economic and net zero objectives 

• Identify potential trade-offs and implementation challenges in different policy approaches

The UKENVI multi-sector computable general equilibrium, CGE, model of the UK economy is used as a scenario simulation framework to capture interactions between all the UK production sectors and types of final consumers in investigating economy-wide impacts. The model is currently calibrated on a 2018 social accounting matrix (SAM) featured with a more detailed breakdown of the two lowest income household quintiles, to identify and target households living in fuel poverty.

Direct energy bill support, costing £9 billion, offers immediate support to households in fuel poverty, peaking in 2030-31 with 6,000 additional jobs and over £600 million in annual GDP gains. However, these benefits quickly erode once the funding ends. Redirecting the funds to provide loft and cavity wall insulation offers more permanent energy bill reductions and modest lasting GDP/job gains (£100 million per annum/1,100 jobs). Yet, this approach only reaches 64% of households supported by direct bill aid and takes time before all beneficiaries are reached. Additionally, increased demand for construction services may exacerbate cost-of-living pressures by 2030.

Our immediate first step is to focus on the implications of how the approach used to raise the necessary funds to support households in fuel poverty might affect the potential economy-wide outcomes. We are considering the taxation of higher income households or energy industries, effectively passing the cost to all energy users. Regarding the latter, we are looking to test whether the common view that passing the costs of energy policies/actions to the users is regressive, or if it depends on whether the focus is on energy demand or energy supply.