Examination of witnesses (Questions 20
- 39)
MONDAY 9 MARCH 1998
SIR JOHN
BOURN, KCB,
MR ANDREW
TURNBULL, CB,
CVO, MR
BRUCE SHARPE,
MR JOHN
CLOUGH, MBE
and MR FRANK
MARTIN
20. Am I right in saying that until recently
there was no measurement of the actual energy efficiency delivered
by the activity of your organisation? Until 1996 certainly?
(Mr Turnbull) It is true there was not a target.
21. But they were not actually measured,
were they?
(Mr Turnbull) The objective of the previous scheme
was to increase the take-up of measures and it was deemed that
almost anything was better than nothing. In the revised scheme
introduced in July 1997, there is a specific target for improvement
in energy efficiency—five SAP points.
22. Perhaps I am being a bit unfair. Correct
me if I am wrong, but would I be wrong to characterise the historical
activity of your organisation as being skewed towards providing
products which were not effectively delivering that much energy
efficiency, which were not targeted at those most in need, which
were not properly measuring the impact in terms of energy efficiency,
and, moreover, were arguably a sort of poodle of the market place
insofar as the jobs which were done were often jobs which the
small companies doing the work were used to doing—draught
insulation—and they would just sell that to the prospective
customer using public money as a subsidy to those people who were
going to do it anyway and the whole thing is a bit of a mess?
(Mr Turnbull) By the time you have added all those
things up, you have a pretty fair caricature of the situation.
23. I have?
(Mr Turnbull) We are not saying this is a scheme
which was not capable of improvement, still less that it is not
capable of improvement now. It was, we think, producing real benefits
to people and, what is more, saving significant amounts of CO2,
it was increasing comfort and getting very high satisfaction ratings
when you asked people about the nature of work done. So what you
end up with is that your characterisation goes too far.
24. What you would also say, hopefully,
is that all those areas you are aware of and you are working on
all of them to increase efficiency, targeting, product delivery,
product development, et cetera. You are actually on the ball and
approving all those things. Presumably you have measurable targets
on all these now?
(Mr Turnbull) We have a set target for the improvement
of the energy rating of houses. Can I deal with one point about
people who would have done it anyway? There is a statement in
the report which says that 20 or 30 per cent of people would have
done it anyway. The first question then is, "Well, why didn't
you?" I suspect that is the type of thing where you say,
"Would you not have done it anyway" and of course they
would give you the answer "Yes", but the interesting
thing is that they did not. Probably the more interesting question
which has not been asked, admittedly by us either, is, "How
many people who could have got this for free actually went out
and paid for it themselves?" That would be a much truer test
of how much deadweight there is in the system. The other feature,
of course, is that I suspect that was a question asked when the
over-60s not on benefit were fully eligible, and now the over-60s
not on benefit have to contribute and I suspect that deadweight
will have been quite substantially reduced.
Jane Griffiths
25. Looking at paragraph 3.42, which is
about the costs claimed by installers under the scheme, it seems
that costs have stayed high whereas when similar work is done
by electricity companies costs have been reducing. Why do you
think that is?
(Mr Turnbull) Can I give you a quick answer and
then ask Mr Clough to come in? We are not sure there is really
a fair comparison being made. The kind of schemes that electricity
companies are running are different, going for a different market
and are targeted differently.
(Mr Clough) Effectively the regional electricity
companies offer work on a much smaller scale than that offered
under HEES and as with any small business, any installer organisation,
they will tell us, as they will tell anyone, that they can afford
to price small fill-in work at the margins and offer very competitive
rates as opposed to that which is in effect their bread and butter
or 50 or 60 per cent of their work, which it often is with the
Home Energy Efficiency Scheme. That said, to pick up Mr Turnbull's
point, it is a very valid point in that the regional electricity
companies offer this subsidy under their standards of performance
agreement under the licence conditions with the regulator which
effectively means that they are using £1 per head of their
customers' money to promote the efficient use of energy. Much
of the marketing work, which is a very high cost element of this
type of work, is actually taken on by the regional electricity
companies rather than leaving that to the installer organisations.
Under the Home Energy Efficiency Scheme, the marketing is carried
out on a national and regional basis by Eaga and that is delivered
on a local basis by the installers. Clearly where a very expensive
element of the overhead costs is then supported by the regional
electricity companies, then they can demand, and indeed do demand,
very much lower costs for the delivery of measures.
26. Looking at paragraph 3.45, it seems
that Eaga does not believe that it has the legal power to control
the cost of claims. Is that fair?
(Mr Clough) No, it is not really a fair statement.
Eaga have always challenged the claims of installers which are
unreasonable. We continue always to challenge claims where we
consider them unreasonable. This is an issue which has been made
clearer in the current version of the Home Energy Efficiency Scheme
Regulations in that it allows us not to pay unless certain circumstances
are met and it gives us explicit powers as Eaga to establish procedures
for the control of installers. That is further backed up by some
very explicit clauses in our contract with the Department which
require us to do exactly that. We have always viewed ourselves
as having a duty of care for the proper expenditure of public
funds and we have always challenged such claims and always will
do. This is an issue which arises because we have never been challenged
by an installer when we have challenged them. This has never been
a point proven in the courts and until it is proven in the courts
that we have the power, clearly there is no definitive statement
to that effect, but that has never stopped us in the past and
we have always challenged such claims.
27. It is referred to in the Report that
approximately 1 per cent of claims may be found to be ineligible,
ie, the people are not receiving the benefit which it is declared
that they are receiving. We are not engaged in a fraud investigation
here, but clearly there is an opportunity for fraud.
(Mr Clough) Yes.
28. Installers may be unscrupulous.
(Mr Clough) Yes.
29. It was not clear to me from reading
the Report what systems Eaga has got in place to look at that.
(Mr Clough) Well, clearly the 1 per cent refers
to those homes where we have inspected. We have a team of 30 inspectors
who will inspect between 20,000 and 30,000 homes every year to
ensure that the quality and issues such as eligibility are fully
investigated. In 1 per cent of those we have found that the client,
who can quite often be vulnerable, elderly, confused in many instances,
cannot then produce to our inspectors the information which they
produced at the time to the installer. That does not mean of course
that they are not on benefit. In terms of fraud, you are absolutely
correct in saying that this is an opportunity for fraud. We have
detected on some occasions instances where installers have wrongly
claimed. Whilst the terminology "fraud" is a very specific
one in legal terms, I think we all know what we mean by that and
we have acted very swiftly. We have a deregistration procedure
in place and as soon as our inspectors identify prima facie
grounds for suspicion of fraud, that procedure immediately kicks
into being. That will inform the police if appropriate and clearly
if the police are involved, and that has been the case on one
occasion, then we are in effect frozen out of that while the police
investigation takes place. Once the police conclude their investigation,
we will then again take over if that is the case. In the event
that the police do not actually take forward the case after consultation
with the Crown Prosecution Service in one instance, for example,
we have subsequently taken further action under our deregistration
procedures, so I can assure the Committee that there are procedures
in place and we act very quickly and very effectively in that
regard.
30. Looking at the operating surpluses which
Eaga has had and now has in the form of reserves, if I have understood
correctly, the donations which are made to the Eaga Charitable
Trust are made from those reserves, yes? Is that right?
(Mr Turnbull) The reserves, the figure of £3
million which is quoted in figure 15 or 16 is after £500,000
was paid as a donation.
31. And who are the Board members of the
Eaga Charitable Trust? How are they appointed?
(Mr Clough) The Eaga Charitable Trust Board is
completely independent of Eaga in every regard. There is a separate
chairman and trustees. Those trustees are brought together because
of their experience in this field. The Eaga Charitable Trust's
aim is to promote a better understanding of fuel poverty, its
causes and effects and how best it can be alleviated and clearly,
as a result, the trustees who provide the governance for that
organisation are drawn from a field where their expertise is of
value. If it is of any help, I can furnish the Committee with
a note giving a list of the trustees[1].
32. Thank you. I would appreciate that.
One of the tasks of the Charitable Trust appears to be to increase
public awareness of the benefits of energy efficiency and you
did refer earlier to the relatively high costs involved in marketing
the Scheme to potential consumers of it, so can you clarify for
me the difference between increasing public awareness, which is
done by the Charitable Trust, and marketing the Scheme, which
is done by Eaga itself?
(Mr Clough) Yes, sure. That is probably best done
by some examples, I think. For example, in marketing the Home
Energy Efficiency Scheme to vulnerable and elderly clients, Eaga
promotes this through our network with benefits agencies, housing
benefit officers, doctors' surgeries, the Church Action Against
Poverty, this kind of thing, and we have posters and leaflets,
so they can then contact those whom they see in their day-to-day
work who realise that they would benefit from HEES, but that is
very much a marketing of the Scheme and its benefits. We provide
a Freefone facility and a free postal facility for clients to
contact us. They may also learn about the Scheme from local advertising
carried out by local installers. With regards to the Charitable
Trust, the Charitable Trust has hopes that its work can assist
in terms of policy development particularly and an example there
could be the impact of gas liberalisation in the south-west on
the fuel poor and some work was sponsored there exclusively by
the Eaga Charitable Trust to investigate those causes and effects
in that regard. A theme at the moment is to investigate the health
benefits of energy efficiency, qualifying and quantifying the
links between energy efficiency and health.
33. Mr Turnbull, there is still £1.7
million apparently in Eaga's reserves which is not allocated for
anything specific. What does your Department think should be done
with that?
(Mr Turnbull) Well, the first principle is to
ask whether Eaga is entitled to earn a margin and earn a surplus.
I think we take the view that it is, provided it is reasonable
and that they need an incentive to do work well. They are a company
limited by guarantee, there is no share capital, and this is the
working capital of the business, so provided the surplus is reasonable,
we think it is acceptable that they can earn a margin. You may
think that this is a risk-free business, but one of the biggest
risks they face is the fact that 80 per cent of their business
is with one customer, with us, and we may change the nature of
the Scheme and they may have to live with this. This is a surplus
which has built up at a rate of about £500,000 a year. They
have got £3 million after six years. We have taken a view
that that is reasonable. If it accelerated we would be concerned
and then there is an understanding between us that we would re-examine
the basis of the contract if that happened. As it stands at the
moment that rate of accumulation we think is fair. It is the case
that in the current year the unit cost of administering a grant
is just under £12, it was £11.30 six years ago, so in
real terms we are getting this work done for less than we were
six years ago.
Mr Love
34. I would like to go back to the question
about whether the scheme is helping the people who need it most.
You mentioned that indications are that you may not be reaching
the poorest who are covered by the scheme and that you may not
be reaching the private rented sector. I wonder why that sort
of study was never carried out before you were asked to review
the energy of the scheme, why it is only now you are coming to
that?
(Mr Turnbull) The prodigal son. I do not know
why it was not done earlier. What we know is that by definition
it is going to the people who are poor, it is going to people
on benefit. What we need to know more about is how many of those
are in a sense fuel poor, people who are spending an excessive
proportion of that modest income on fuel. That is the area that
we have to work on further.
35. I understand that but the report mentions
in several different parts, and I do not know have them immediately
to hand, that no work is being done right throughout the scheme
to find out whether you were reaching the different parts of the
client group.
(Mr Turnbull) We knew that we were reaching people
who by definition were poor. We knew that we were also——
36. The only reason you knew that was because
they come within the criteria?
(Mr Turnbull) Yes.
37. You did not know which of the different
groups within that.
(Mr Turnbull) We are beginning now to ask ourselves
whether we can differentiate further. In a sense we have not wasted
money by spending this on people who were not able to benefit
from it or who could reasonably have expected to have funded it
themselves. The issue is whether we can do even better and that
is the issue that we are now looking at.
38. I wonder would you accept that within
the client group which this scheme is targeted at there are those
who would benefit more from the provision of this service than
others and, if so, is it exactly those people that you have been
under targeting up to the present time?
(Mr Turnbull) We think there are people, particularly
in the private rented sector, who ought to be having access to
this scheme who are under represented in it. The figure I gave
you earlier was 60 per cent of the schemes go to people in local
authority housing, another 12 per cent or so in the housing associations,
so probably three quarters of the scheme go to registered social
landlords. Now they are poor people and they live in poor houses.
However, the issue now is whether we can find out more about the
stock and who is receiving this and target it even better.
39. That raises a number of issues in my
mind. The first is obviously if 60 per cent are in social housing
then you must be getting to reach a large proportion of those
in social housing who will be eligible and, therefore, the remainder
of the group that is targeted will mean that you have to move
from social housing into other areas. Would you accept that?
(Mr Turnbull) One of the difficulties of moving
into other areas is that we do not get the ready co-operation
of landlords.
1 Note: See Evidence, Appendix 1, p. 22 (PAC
221). Back
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