Select Committee on Environmental Audit Minutes of Evidence

Examination of witnesses (Questions 80 - 104)



  80. Yes.
  (Lord Whitty) There may be particular milestones where we can do that. As you will know, it is not always evident that we have reached the end of a particular discussion with the Commission. I should think in the autumn we will be able to give a clear up-date.

  81. I look forward to that. In respect of the £50 million energy efficiency fund, can I just ask two things; are you happy that if it is energy efficiency it is renewable as well? We only have an £18 million research project for renewables. Are you happy about £50 million being sufficient or are we likely to hear something in the Comprehensive Spending Review that that could be increased at this stage?
  (Mrs Liddell) Government departments are always making bids that fit in with their main priorities and we are some way away from saying what the conclusions of that will be.

  82. Is increasing the £50 million a main priority for the DTI?
  (Mrs Liddell) It is a major part of our programme. We wish to see part of that used to benefit renewables energy.

Mr Chaytor

  83. I would like to move onto the Utilities Bill, which I think is in consideration this afternoon, and ask about some aspects of it, particularly the question of the role of the regulator. The new energy regulator, as I understand it, is not terribly keen on taking social and environmental responsibilities into his brief, but nevertheless the Government will be issuing guidelines on social and environmental responsibilities for the regulator. Can you give the Committee some indication as to what will be in those social and environmental responsibilities?
  (Mrs Liddell) I firstly make the point that the new regulator is not an individual, the new regulator is an authority. In the past I think regulation of the utilities has tended to be associated with a specific personality with a specific point of view of how the world should operate, and in seeking to set up a regulatory authority we are seeking to give greater certainty of regulation and doing it in a way that fits with the parameters that the Government has established. The main priority of the new regulator is the consumer interest and we believe that that very much fits in with issues such as energy efficiency and fuel poverty. These are not issues that are of interest to the consumer. What is, other than the issue of price? In terms of the kind of guidelines that will be given by the Secretary of State for the social and environmental guidelines, it is right in principle, I believe, that the Government should set out its stall in terms of the priorities of the Government in relation to social and environmental matters, of course consulting on these matters, because it is much more important to bring people with you than to go into a situation of conflict, and that will guide the conclusions that the regulatory authority must come to. The authority does have duties in relation to the environment and to energy efficiency and will have to take account of the guidance that is issued by the Government.

  84. Will the consumer interest be defined purely in the short-term in terms of price cuts, or will it be defined in a slightly longer perspective?
  (Mrs Liddell) It has to be seen within the context of investing in the security of supply and the sustainable agenda that the Government sets. One of the reasons why a key part of the Utilities Bill is reform of electricity trading arrangements is to take the different settings into the future. It is not the short sharp hit. The regulatory authority, when they are looking at licence amendments, has to take into account the long-term opportunities for a company. For example, a licence condition that puts a company out of business might jeopardise security of supply. All of these have to be taken into account. It is not one particular point in time that the regulatory authority has to look at, but the overall picture for the industry. We do not want to be in a position of having to revisit gas and electricity utilities regulation again for quite some time, we want to see a period of bedding down.

  85. Moving on to the energy efficiency standards, the new EESoPs. There has been consultation on these new standards, I understand. Can you give us an idea as to what the response is to the consultation?
  (Mrs Liddell) We have been consulting on the new Energy Efficiency Standards of Performance (EESoPs), as they are called. It is a great area for acronyms and hopefully there are not too many fables in connection with them. I had to get that out because I used it in the Utilities Bill and it went down quite well there as well. At the moment the consultation is on £3.60.[3] We are aware that the Electricity Association has come forward with some questions about whether or not £3.60 will actually cover what is involved. We believe that we are trying to get apples and pears, so we are in discussion with the Electricity Association. They welcome the whole concept of EESoPs. EESoPs do lead to significant reductions in the individual electricity bill, which equates to a saving of £25 per year, which is not inconsiderable. It is much more Larry's field in terms of the end process than it is mine.
  (Lord Whitty) The main feedback is supported in principle from all parties. There will be some argument about costs and where they lie and what is taken into account in those costs, but we are now assessing that consultation and we have every confidence that we can reach agreement with all parties on this scheme. The £22 saving for those families within fuel poverty spills over so that you get an average benefit of about £11 if you take the consumers as a whole. So, therefore, there is an enormous benefit for everyone, and a particularly targeted benefit for those who the policy was designed to focus on.

  86. Has any consideration been given to using this benefit not as a cash benefit but as a sum of money to be reinvested within energy efficiency programmes through which the longer-term real benefits might have been greater than the short-term cash benefits?
  (Lord Whitty) The whole point of it is that the energy supply companies, in conjunction with the consumer, will be introducing measures to save energy themselves. That is the whole point of it. It is not at the end of it you will lose that money, the whole process is to reduce bills by introducing energy efficient household changes, insulation, lighting and heating.

Mrs Brinton

  87. My understanding of the whole idea behind the EESoPs means that actually 100 per cent of the EESoP funding will go to disadvantaged customers or socially disadvantaged customers.
  (Lord Whitty) The EESoPs, as with other programmes, will be targeted. The belief is that half of the EESoPs' costs, if you like, would benefit the targeted consumers, but there would be a spill over which would benefit virtually all consumers. That is why I was referring to the price benefit or the bill benefit of £22 for the target groups. For other groups it would be around £7 with an average of £11.

  88. There are very, very key environmental as well as social objectives behind the policy?
  (Lord Whitty) Indeed, yes.

  Mrs Brinton: That is for sure.


  89. The extra money which the ordinary consumer has to pay is in effect a tax with a very good end in view, namely being transferred to improve energy efficiency. In that sense it is rather like the Climate Change Levy, which is also increasing prices, and you hope to put some of the money to some good use. What strikes us is that there is a bit of a contradiction here between what you said in response to our report, namely that you did not regard high prices as an acceptable way of achieving energy efficiency, yet here in two other areas you are actually increasing the prices?
  (Lord Whitty) There is a time related issue here. If you take it in a 10 year period the cost will fall at the beginning of that period and obviously the degree to which the cost is passed on will depend on decisions by the energy companies, but beyond the first three years of the period the consumer will be in benefit. Even if the whole of that cost and more was added on they will actually be in benefit after the completion of that programme. I have just been passed this. I do not know if you can see that, Mr Chairman, but basically the cost falls in this period and the benefit, assuming the cost was entirely passed, will develop in that period. There is some argument as to exactly where that point comes between ourselves and the energy companies, that pattern is understood between all of us. In that sense it is not a tax, it is an investment to reduce bills in the medium-term.

  90. Yes. Nonetheless, there is a difficulty here in that you are reducing prices by 10 per cent and that will lead to an increase in the use of energy. Will everything not be swamped, this is our point in the report, by the course of energy prices? All the measures that you are trying to do quite well to improve energy efficiency are really totally subject to this broad movement.
  (Mrs Liddell) In relation to, for example, the fuel poor, which is one area of particular concern to us, yes, there will be an extent to which people will go for comfort rather than saving. They will put two bars of the fire on when they may only need one bar of the fire, but that soon settles down. You will always have that escalating demand.

  91. That is a bold statement, "I think it soon settles down".
  (Mrs Liddell) There is some evidence from the past that it does settle down and that people take a balance between comfort and what they are actually paying. You can see it from the people who have had the benefit of the HEES project at the moment. I come from a poor constituency so my constituents are very enthusiastic about energy saving activities. They do put the heating on maybe a little bit longer, but then it tails off. The key issue has to be spending to save. You spend to save in the longer term. If we can encourage people to do that I think there is a considerable benefit to all of us. It means also that when we look at the other aspects of government policy in relation to the Climate Change Levy, in ensuring that industry, who are the biggest users of energy are themselves, are encouraged to find the most efficient ways of utilising that energy, society at the end of the day is the gainer as a consequences of it.

  92. Have you any plans for taxing the fuel rich?
  (Mrs Liddell) I am not quite sure who the fuel rich are.

  93. All of us probably. Do we really consider energy efficiency when we are looking at our own homes?
  (Mrs Liddell) There is a growth in demand, for example, for energy saving light bulbs and the fact that the cost of energy saving light bulbs is coming down quite considerably. I may be Scottish, which might, to some extent, determine my reactions, but I now buy energy saving bulbs and energy saving equipment. Just because we have had some Parliamentary salaries does not mean to say we do not count the bawbees.

Mr Gerrard

  94. It is really that same point. If we are going to get people to do that sort of thing, how do we get that message across? You said earlier that you do not see much in the way of advertising, you do not see much in the way of publicity in this country, and we had some comments from the Deputy Prime Minister on this issue a few month ago which were a little bit sceptical about how possible it will be to persuade people to take energy efficiency measures.
  (Mrs Liddell) I think the whole issue of publicity and marketing is very, very important indeed. People need to bear in mind that energy is something that has to be paid for, not just in financial terms, but also in environmental terms as well, and I think the companies need to take that into account in their marketing strategies. It is much more effective if it is done in that way rather than public service announcements, "Switch off that light." Let us engage the companies in energy efficiency. There are some signs that they are responding to that.
  (Lord Whitty) We are engaged in fairly substantial public advertising as well. I do not know how many of you have seen the current run of advertisements, you are working far too long hours for that.


  95. It was that advert that the Deputy Prime Minister had in mind.
  (Lord Whitty) It needs up-grading.

  96. He was sceptical about the effect of it.
  (Lord Whitty) It has been fairly limited so far, which is why it needs to be followed through by other measures. It does raise awareness, are you doing your bit. The campaign has had some success, but it has a long way to go. Unless it is supported by the kind of measures that Helen is referring to, how you sell gadgets or your house or car, then it will not get reinforced.
  (Mrs Liddell) The other thing that we have been able to do is when you walk into a store and buy white goods, nine times out of ten now the energy efficiency of that white good will be quite plain to you, you will see what degree of energy efficiency is available from that product. I pay tribute to the Energy Saving Trust for the work that they do on that.

Mrs Brinton

  97. If I can turn to VAT installations, you have announced, and I really welcome this, that there is going to be a reduction on VAT for the installation of some individual energy saving measures. What I would like to ask you first of all is how this is chosen? Why, for example, have we got the humble energy efficient boiler and some low emission glass actually excluded when the rather exotic solar panel included?
  (Lord Whitty) That is probably a question you should really address to Treasury ministers.

  98. We will come on to that in a moment.
  (Lord Whitty) The issue is that the Treasury definition is that they were prepared to make cuts in VAT in relation to materials whose primary purpose was effectively energy saving. In relation to glass, that is not actually primary purpose. The primary purpose of glass is to see through it and stop draughts, which may have an energy saving benefit, but that is beside the point. Likewise, the primary purpose of the boiler. I think one can argue about exactly where the line in this slightly grey area is drawn, but there is a principle point that a line must be drawn somewhere and that is the line that they have taken in relation to installations.

  99. You have really answered my follow up question. We have talked a lot today, and it is really good to hear the DTI and the DETR both talking about the really essential need for this joined-up government. It seems that there is a lot going on between the DTI and the DETR in that respect, but how joined-up was it in the selection of this list? What you seem to have said is that choices and decisions on the list were not made jointly with the DETR but it was the Treasury up to its usual bit of freelance.
  (Lord Whitty) That is not fair to say and I would not wish to criticise the Treasury in this respect. Clearly the Chancellor took on board the point that both Helen and I, and our Departments, have been putting to you, that some preferential tax treatment should be introduced in relation to energy saving materials. It then comes to the point where you have to define it. The objective way they decided to define it was the primary purpose of it, rather than if it has a side effect. You can argue about a few different bits as to which side of the line they fall and maybe those arguments might be revisited at some point.


  100. It sounds rather theoretical, I must say.
  (Lord Whitty) Nevertheless, it is quite a logical approach for the Treasury to take, and in a joined-up response to us.

Joan Walley

  101. I want to come back on that, because when we went to Nottingham and we saw on the ground local new homes being built that were energy efficient and we were told that the glass that was being used was being imported because it could not be manufactured here, and it comes back to ways in which we can provide the tax incentive to get the energy efficiency standard which is going to drive the competitive agenda as far as British industry and manufacturing is concerned. What can you say to us to convince us that perhaps we need to look at ways of convincing the Treasury that they cannot be making these decisions on an arbitrary basis, that we really have to build in, perhaps with the Green Ministers' Committee or perhaps with the Cabinet ENV Committee, I do not know, but if we cannot persuade the Treasury to really incorporate soundly based energy efficiency measures in ways in which it is actually introducing new tax, we cannot really take the whole issue of competitiveness as far as British industry is concerned. What can you do and what can we do?
  (Mrs Liddell) Tempting though it is for any minister in the middle of a public spending round to have a go at the Treasury, I think I have to say in defence of the Treasury that the last budget was one of the most positive for energy saving that we have ever seen. Larry is right, at certain points lines do have to be drawn and agendas do change over time. One of the reasons why the energy saving glass is not produced in this country is because no-one has taken the initiative to produce that glass.

  102. That is because we do not have the standards, because we have not made it a priority.
  (Mrs Liddell) There are other aspects of industry where we do get ahead of the game, but to some extent government cannot say to any industry, "Go and make this", the industry has to see that there is a market, and within the European Union that industry can set up where it wants to.

  103. It is going elsewhere, that is the problem, it is actually going elsewhere and manufacturing it elsewhere and it is not being manufactured in areas where we could really use it as far as the whole economic regeneration is concerned.
  (Lord Whitty) I am not sure you are right to say that. There may have been very specific specifications in relation to this, but I am aware that much of this glass is actually manufactured by one of my old friend's building firms, so it is not true to say that there is no United Kingdom source for much of this glass. Can I also mention that although the tax may not have changed, such energy efficient glass is a potential candidate for benefit under the EESoP 4 Programme and we are certainly trying to promote it.


  104. Thank you very much indeed. We have had a very comprehensive session and a very useful one from our point of view. Thank you very much.
  (Mrs Liddell) Thank you very much.

3   £3.60 refers to the estimated average increase on a customer's bill that will arise from the obligation. Back

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