Fuel poverty is a growing concern in the United Kingdom. However, there is limited evidence on how different forms of public spending on fuel poverty mitigation affect fuel-poor households and the wider economy. This study uses a dynamic computable general equilibrium modelling approach to broadly compare two central fuel poverty approaches in the UK: providing time-limited direct energy bill support and funding basic home retrofits of loft and cavity wall insulation. The findings show that direct bill support provides immediate relief for all fuel-poor households and produces a short-lived economic stimulus driven by consumer spending. In contrast, public investment in delivering basic home retrofits initially triggers a construction-led stimulus that is replaced over time by a sustained boost supported by fuel-poor households saving on their energy bills. However, a given budget reaches fewer households, while the transitory increase in demand for constrained construction capacity leads to the displacement of other economic activities, particularly when producers demonstrate perfect foresight of the time-limited nature of public spending on retrofit programmes. The findings also show that the method used to raise public funds matters: taxing higher-income households reduces overall consumption and weakens economy-wide benefits, while taxing energy suppliers exacerbates regressive energy price pressures. Overall, the study highlights concrete trade-offs between immediate income support and longer-term efficiency gains, and shows how capacity constraints, expectations, and financing choices jointly shape the economic and distributional outcomes of fuel poverty mitigation policy.
Zhou et al. (Sun,) studied this question.
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