Household Energy Expenditure and Income Groups: Evidence from Great Britain

Household energy use is increasingly important in the context of fuel poverty and the equity debate as well as in relation to energy saving and efficiency policies. We first explore the link between household energy spending and income. We use a panel dataset from a comprehensive survey of UK households from 1991 to 2007 comprising over 77,000 observations to analyse electricity, gas, and overall energy spending for the whole sample and several income groups. We find an S-shaped Engel curve and inflection point at which the increase in household energy spending briefly stabilizes and interpret this as a point where the essential energy needs are likely to have been met. We then examine the effect of a set of socio-economic determinants and drivers such as income, energy price, housing types, and household size on household energy spending in different income groups using fixed effects econometric models. We find significant differences among the income groups and in particular their income and price elasticities. Households on low incomes are more sensitive to electricity price changes but are less responsive to gas price changes than higher income households. Moreover, higher gas prices lead to lower electricity expenditures, except for the highest incomes. In addition households with no access to gas spend more on electricity. The results underline the importance of designing differentiated policy measures to address energy, climate change, and fuel poverty objectives in the household segment.