Juggling the basics: How much does an income increase affect energy spending of low-income households in England?

Abstract

European governments have deployed targeted and untargeted financial support to protect vulnerable households from the impacts of the recent energy crisis. However, there is little knowledge of income elasticity of energy expenditure among households experiencing energy poverty. We therefore examine the link between energy expenditure and household income levels, considering a spectrum of factors including energy poverty status, energy efficiency of homes, and socio-demographics. We use England's official energy poverty definition, ‘Low-income, low-energy-efficiency’, and analyse the government's ‘Fuel Poverty Dataset’ from 2019. We find that, for all income groups, by far the greatest impact on energy expenditure is the dwelling's energy-efficiency rating, followed by floor area. An increase in income has negligible effects on energy expenditure for all income groups, but greatest for those in energy poverty, suggesting that even though most of their energy-oriented financial support is used for other pressing needs, this still offers some relief from energy poverty. We conclude that energy-efficiency improvements in homes would yield the most substantial and enduring financial benefits for these households, highlighting the need for targeted retrofitting policies. Additionally, older homeowners in energy poverty may need help to move into smaller, energy-efficient homes that are less expensive to heat.