Memorandum from the Association for the
Conservation of Energy
1. INTRODUCTION
The Association for the Conservation of Energy
is a lobbying, campaigning and policy research organisation, and
has worked in the field of energy efficiency since 1981. Our lobbying
and campaigning work represents the interests of our membership:
major manufacturers and distributors of energy saving equipment
in the United Kingdom. Our policy research is funded independently,
and is focused on four key themes: policies and programmes to
encourage increased energy efficiency; the environmental benefits
of increased energy efficiency; the social impacts of energy use
and of investment in energy efficiency measures; and organisational
roles in the process of implementing energy efficiency policy.
2. BACKGROUND
TO THIS
MEMORANDUM
As the Committee is aware, HM Treasury and DEFRA
launched a consultation on 16 July 2002 on economic instruments
to improve household energy efficiency. In response to that consultation,
the Association for the Conservation of Energy compiled a list
of the 12 economic instruments and other measures—the "Clean
Dozen"—that we considered would be most effective in
improving household energy efficiency [attached as Appendix 1].[1]
The "Clean Dozen" was supported by over 200 organisations
and individuals—including Members of Parliament, local authorities,
NGOs, energy efficiency practitioners and relevant trade associations.
We were pleased that the Summary of Responses
to the consultation referred in considerable detail to the "Clean
Dozen." It was appended to the Summary document as Annex
C.
We hoped that the Treasury would act swiftly
to implement in Budget 2003 some of the measures listed in the
"Clean Dozen", and we were most disappointed when this
did not happen. Instead, it was announced in the Budget 2003 report
"Building a Britain of Economic Strength and Social Justice"
that the Government would "shortly undertake further detailed
consultation on specific measures to encourage household energy
efficiency". In the event this consultation took a further
four months to materialise, finally being launched by HM Treasury
and DEFRA in August 2003—over a year after the first consultation
exercise.
Nevertheless, we were pleased that all of the
three measures shortlisted in the second consultation as being
"the most viable" were derived from the "Clean
Dozen". These were:
— a reduced rate of VAT to 5% for the
supply and installation of energy efficient products or materials
in non-grant schemes when householders employ contractors;
— capital allowances and 100% first
year enhanced capital allowances for companies, eg Energy Service
Providers, who invest in energy-saving equipment to lease to social
landlords and households; and
— a "domestic business tax allowance",
allowing private landlords to claim investment in energy-saving
materials against profits.
The Association compiled a highly detailed response
to this consultation, citing a wealth of expert opinion and evidence
as to the potential effectiveness of each of the above three measures.
In addition, we produced similar expert evidence in favour of
two further measures, which had been included in the "Clean
Dozen", but which we believed had been prematurely rejected
in the second consultation. We called upon the Government to give
serious further consideration to these measures, namely:
— a stamp duty rebate for house purchasers
who make energy efficiency improvements to their home within,
say, six months to a year; and
— a tax allowance for companies training
installers of energy-saving equipment.
Expert opinion and evidence to support our response
were provided by, inter alia, 108 local authorities, 47
Energy Efficiency Advice Centres, 17 miscellaneous energy advice/delivery
bodies and 18 HECA/Fuel Poverty Forums. A full list of the organisations
and individuals that supported our response is attached [Appendix
2].[2]
The second consultation concluded on 24 October
2003. As with the first consultation, we hoped that the Government
would move swiftly to put in place the three shortlisted measures
and to give an early indication of their intention to undertake
further detailed work on the two supplementary measures contained
in our response. We therefore looked to the Pre-Budget Report
to signal the Government's intention to implement the necessary
fiscal reforms.
3. STATEMENT
BY JOHN
HEALEY, ECONOMIC
SECRETARY TO
THE TREASURY,
AT MEETING
OF PARLIAMENTARY
GROUP FOR
ENERGY STUDIES,
4 NOVEMBER 2003
On 4 November Mr Healey addressed a meeting
in Parliament of the Parliamentary Group for Energy Studies. After
his presentation, he responded to a question from our Parliamentary
Co-ordinator Jenny Holland. She explained to him our frustration
and disappointment that the first consultation had not led to
the announcement of new economic instruments in Budget 2003 and
that, 16 months after the first consultation, the second consultation
had only just ended. She sought his assurances that the Government
would now be taking action to implement, at the very least, the
three measures shortlisted in the second consultation. Mr Healey
responded: "I can understand your frustrations. I can certainly
say that we are grateful for the consensus that you have built
around the shortlisted measures—and I can assure you that
there will be no third consultation. Now is the time for action."
We were heartened by the Minister's answer and, in light of it,
anticipated a substantive announcement in the Pre-Budget Report.
4. PRE-BUDGET
REPORT, 10 DECEMBER
2003
In spite of the Economic Secretary's positive
response at the meeting on 4 November, the Pre-Budget Report announced
no new economic instruments to improve household energy efficiency.
The relevant section of the Pre-Budget Report [Paragraph 7.25,
p 152] states merely that, "the Government will give further
detailed consideration to measures to promote energy efficiency,
including the case for a domestic business tax allowance."
This was extremely disappointing, particularly in light of the
Economic Secretary's statement quoted above.
While citing no reason for the delay in introducing
a domestic business tax allowance, the Pre-Budget Report claimed
[at Paragraph 7.24, p 152] that there were valid reasons for delaying
implementation of the other two shortlisted measures. In the case
of capital allowances for companies leasing energy-saving equipment,
the Report stated that any action would have to await the outcome
of the review of corporation tax. We are not convinced that this
is an adequate reason for delay. Much more worryingly, in the
case of a reduced rate of VAT to 5% (for the supply and installation
of energy efficient products or materials in non-grant schemes
when householders employ contractors), the Pre-Budget Report implied
that Government action to implement this measure is prevented
by the EU rules governing reduced VAT rates. This is simply
untrue.
While it is true that the relevant EU legislation
(the Sixth VAT Directive) currently prevents a reduced rate of
VAT on DIY energy-saving materials, there is nothing
whatsoever to prevent the Government from extending the existing
limited VAT reduction on energy-saving materials used in non-grant
schemes installed by contractors. The existing limited
VAT reduction covers insulation materials, draught stripping,
hot water and central heating controls. There is no reason
in law—or, indeed, on policy grounds—for not extending
the existing limited reduction to include energy efficient central
heating and hot water systems.
5. EARLY DAY
MOTION 208, 4 DECEMBER
2003
It is quite clear that this issue is one of
considerable concern to a large number of Members of Parliament.
On 4 December 2003 David Chaytor MP tabled Early Day Motion 208,
supporting the Association's response to the second Government
consultation and calling on the Treasury to support all five measures
contained therein in Budget 2004. At the time of writing, the
Motion has received 105 signatures from MPs of all political Parties.
6. CONCLUSION
The Association—and the energy efficiency
industry as a whole—is extremely disappointed by the painfully
slow progress towards introducing new economic instruments to
improve household energy efficiency. Frankly, we are beginning
to wonder whether it will ever happen.
As outlined above, we believe that in the Pre-Budget
Report the Treasury was being, at best, obfuscatory and, at worst,
deliberately misleading in suggesting that an extension of the
current limited VAT reduction on energy efficient products installed
by contractors is prevented by EU law. We have emphatically refuted
this in Paragraph 4 above.
For the sake of clarification, we therefore
believe that it would be extremely helpful if the Environmental
Audit Committee could ask the Economic Secretary the following
question:
"Does the Minister believe that he is allowed
under EU law to impose a reduced rate of VAT on the following,
stating his reasons in each case:
(d)
products that produce efficient space and water heating
and also generate power, eg solar thermal heating, micro-CHP,
micro-wind power, domestic heat pumps?"
January 2004
1 Not printed here, but please see the Committee's
eighth report, session 2002-03, Energy White Paper-Empowering
Change? HC 618, Ev. 48. Back
2
Not printed here-available on request. Back
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