Measuring the energy poverty premium in Great Britain and identifying its main drivers based on longitudinal household survey data

Abstract

Following the consistent hike in energy prices in recent years, energy affordability by low-income households in Great Britain has become a significant concern. These concerns are further compounded by the disproportionate cost of energy that poor households are likely to pay, compared to the non-poor. In this study, we examine the exposure of poor households to energy premiums by measuring the additional costs incurred and identifying the main drivers. We merge household-level data from Understanding Society with energy consumption data from the National Energy Efficiency Data — Framework (NEED). Using the merged dataset and the Theory of Complaints, we propose a new approach to measuring the poverty premium based on the cost per unit of energy incurred by households. Based on a two-stage regression model, our results show that poorer households are likely to pay premiums for energy consumption. Furthermore, among households who incur these energy premiums, poor households pay higher premiums than non-poor households, incurring a cost of between 10%–20% more per unit for both gas and electricity premiums between 2011 and 2019. These relationships are still significant even after addressing the potential endogeneity of poverty, thereby confirming the relationship between energy premiums and poverty. The results also suggest that the other key drivers of electricity and gas premiums are payment methods used, and household characteristics such as the number of adults per household, presence of children, unemployed adults and pensioners.