Vulnerability to fuel price increases in the UK: A household level analysis

In highly motorised countries, some sectors of the population own and use cars despite struggling to afford their running costs, and so may be particularly vulnerable to motor fuel prices increases, whether market-led or policy-driven. This paper proposes a novel, disaggregated approach to investigating vulnerability to such increases at the household level. We propose a set of indicators of ‘car-related economic stress’ (CRES), based on individual household level expenditure data for the UK, to identify which low-income households spend disproportionately on running motor vehicles, and to assess the depth of their economic stress. By subsequently linking the dataset to local fuel price data, we are able to model the disaggregated price elasticities of car fuel demand. This provides us with an indicator of each household’s adaptive capacity to fuel price increases. The findings show that ‘Low Income, High Cost’ households (LIHC) account for 9% of UK households and have distinct socio-demographic characteristics. Interestingly, they are characterised by very low responses to fuel price increases, which may cause them to compromise on other important areas of their household expenditures. Simulations suggest that a 20% increase in fuel prices would substantially increase the depth, but not the incidence of CRES. Overall, the study sheds light on a sector of the population with high levels of vulnerability to fuel price increases, owing to high exposure, high sensitivity and low adaptive capacity. This raises challenges for social, environmental and resilience policy in the transport sector.