UK Energy Expenditure Shares – A Long Term View

David Deller, Centre for Competition Policy, University of East Anglia

This paper maps the percentage of household expenditure devoted to energy in the UK over the past 25 years and relates this to energy policymaking. Mapping energy expenditure shares provides a solid evidence base for discussing the distributional aspects of the UK’s retail energy market. Recent high expenditure shares are placed in context with low energy expenditure shares in the late 1990s and early 2000s appearing more exceptional. Compared to earlier papers a serious energy expenditure measurement issue in the Living Costs and Food Survey, affecting households with pre-payment meters i.e. low income households, is identified and corrected. The failure to correct for this issue affects a number of previous works looking at the distribution of energy expenditures, energy consumption and carbon dioxide emissions across households. Using the corrected dataset it is shown that statements that actual energy expenditures under-record fuel poverty relative to measures using required energy expenditures are overly simplistic: the relationship between the two expenditure metrics varies across groups and through time.

The large variations in energy expenditure shares across households, and through time, highlight the varying political saliency of energy. The welfare of those at the bottom of the income distribution is likely to have been affected far more by energy price increases after 2004 than households towards the top of the income distribution. While decreasing affordability over the past 10 years supports the political expediency of commitments to re-regulate energy prices, many affordability support policies were first introduced when energy was at its most affordable. In particular, the first fuel poverty strategy and significant increases in the generosity of Winter Fuel Payments occurred when energy expenditure shares were low rather than high. The increasing generosity of Winter Fuel Payments represents a notable shift in energy affordability support policies away from targeting those on low incomes towards older households.