Examination of Witnesses (Questions 86
- 99)
WEDNESDAY 4 FEBRUARY 2004
MR ANDREW
WARREN AND
MR RON
BAILEY
Q86 Chairman: Good afternoon, thank
you very much for joining us and thank you for your memoranda
which expressed a fair degree of dismay over the Pre-Budget Report
and we are here to ask you some questions and we look forward
to hearing what you have to say. Mr Bailey, your memorandum in
particular referred to a deafening silence on the part of the
Treasury over domestic energy efficiency. Why do you think they
have done so little?
Mr Bailey: Historically speaking
I have been involved in trying to influence the Treasury for some
eight years now, since the 1996 attempt to reduce VAT and at all
times. I do not think it is political will: it is bringing officials
on board. It is as though they were dragged screaming through
the hedge backwards on every occasion. There is a whole history
of each time you knock down one objection to some kind of tax
or fiscal incentive, they come up with another objection. There
is a history of that which I could go into, if you wished me to.
Q87 Chairman: You said you do not
think it is political will. Surely if the political will were
there, the officials might jump into the hedge with enthusiasm.
Mr Bailey: To that extent I have
to qualify what I said. Certainly there are warm feelings in government,
but not warm action. I would put it that way. The Economic Secretary
to the Treasury, Mr Healey, is on record as saying that he supports
in principle the extension of the five percent VAT rate. So in
that sense perhaps there is sympathy, but not enough action. That
is probably a better way of putting it.
Q88 Chairman: So you do think that
it is a failure of political will.
Mr Bailey: Yes.
Q89 Chairman: How about you, Mr Warren?
Mr Warren: First of all, as far
as we are concerned, what my members, who are the manufacturers
and installers of energy saving equipment, are anxious to do is
to get some firm signals to the marketplace, commitments which
we can build upon. As far as we can tell, we have had very warm
words, not just in recent months, but in recent years, always
seeking to encourage investment. In practice, had our members
believed those warm words, they would have suffered seriously
financially. I have to say: is there sufficient political will
to put into action those warm words? The conclusion has to be
no, because we have not seen the expansion in the marketplace
which we were told to anticipate. This goes back, not just over
the last 12 months, but indeed possibly over the last 12 years
or so. I can recall the last government producing a command paper
on climate change policy and within that there were projections.
I think it was called Homes 2000, which was an exercise
which could certainly have been interpreted as anticipating for
the domestic market an enormous growth in that marketplace. I
have to say that when we discussed this in the council of our
members, which is made up of the managing directors of these member
companies, the view was taken that we were uncertain that there
was the political will at that point to go ahead with this and
indeed that is what occurred. Subsequently there have been various
other examples which I can bring to mind on this.
Q90 Chairman: Spare us examples of
continuous failure. Is it fair to say that in your opinion the
Treasury just is not serious about energy efficiency?
Mr Warren: We have seen inklings
in which they certainly suggest that they recognise that there
are barriers in the marketplace. Indeed in the second of the consultation
exercises they set out a series of thoroughly rational and sensible
reasons why it was necessary for them to intervene. If you like,
they had done the intellectual exercise and cleared that point.
What actually has not followed is the commitment, whether it is
financial in terms of providing incentives or even the disincentives,
if you like, placing any taxes on less desirable actions; that
simply has not followed. Effectively all we have been asked to
build upon is a whole lot of promises going in the right direction,
but no firm steer, no firm commitment to the marketplace that
we can invest on the back of.
Q91 Chairman: Was anything gained
from this second consultation?
Mr Warren: I actually think it
was. What we learned from this was that on the various options
which were being put forward, the landlord's tax issues, the ECAs
and indeed relating to VAT, when people were asked to go back
to the Treasury, and there was a significant number of responses,
including from Members of this House, to that particular exercise,
they did learn that yes, it was perfectly possible to implement
those measures. The Treasury got the answers to the questions
they were seeking and they got them unequivocally. The real question
is whether they will respond to those in the marketplace who say
this is what we need.
Q92 Chairman: So the second consultation
was worthwhile.
Mr Warren: Inasmuch as it drew
out unequivocally the response from all those operating in the
marketplace that we needed a whole lot of new fiscal instruments.
Mr Bailey: My partnership covers
four wings: the industrial wing, which includes residential landlords,
the National Federation of Residential Landlords; the local government
wing; environment and fuel poverty wings. The second consultation
involved all those people who were active on the ground and asked
them what would work. Something like 47 of 51 energy advice centres
said that the five measures we propose will work; not "might"
work. That was their expert opinion. All the HECA forums and fuel
poverty forums all over the country said these measures would
work. All the residential landlords, the local federations all
over the country and the national federation said these were the
kinds of measures which would encourage their members to invest
in private property to upgrade energy efficiency. That exercise
was very, very good indeed, it got them involved and engaged.
You can then imagine their dismay when nothing happened in the
Pre-Budget Report.
Q93 Chairman: You, Mr Bailey in particular,
have been involved in lobbying activities. In the course of those
activities, for example in relation to Brian White's Sustainable
Energy Bill, did you find a difference of approach between the
Treasury and Defra?
Mr Bailey: On the issue of the
Brian White Bill and maybe indeed on these fiscal measures but
certainly on the Brian White Bill, it seemed to us that there
was a row going on in government about commitment to energy efficiency.
I use the word "commitment" as distinct from "warm
words". Everybody supports warm words in government, but
the impression we gained from the Brian White negotiations was
that there is a massive row going on in government between those
who want to commit to doing something and to targets, commitments,
objectives—I am not worried about the particular word you
use—and those who just want to make warm words. We thought
we had agreement to real commitments after many negotiations on
the Brian White Bill, only for it to be scotched at a later stage.
Indeed one of the members of your Committee, Mr Chaytor, put down
an amendment to the Brian White Bill which mirrored a commitment
we had, a clause in that Bill which would commit the government
to specific targets. That was an agreement we had with officials,
only for that to be suddenly unravelled a week later.
Q94 Chairman: Mr Warren, do you have
a sense of a difference of approach between the two departments
concerned?
Mr Warren: The two departments
you were instancing in this particular case were Treasury and
Defra. In fact I would take it wider. One of the things which
obviously does concern us is the fact that there is a myriad of
departments which are pertinent to our industry. The Office of
the Deputy Prime Minister is another, Department for Trade and
Industry. There are obviously different views and differing amounts
of enthusiasm about stimulating this marketplace, but bearing
in mind the fact that the Treasury is the one which effectively
decides how much money is put in to stimulate that, I have to
say we have seen limited amounts of enthusiasm. We have seen good
analysis; I do stress that point. They have done much of the necessary
intellectual work. What there is not, is the same commitment.
If I might say so, I had the opportunity to read the uncorrected
transcript of the Economic Secretary's evidence to you just recently,
indeed one of my colleagues attended the session, and it did strike
me from that, that you were talking on that particular occasion
about the use of stamp duty, and our members certainly believe
that differential amounts of stamp duty would make an enormous
amount of difference in the marketplace, particularly affecting
those who were moving into new homes. The argument which was given
by the Economic Secretary to you was a very different one from
the one which they brought forward before, which was essentially
that it was administratively difficult. It seems to have been
accepted that it is not that administratively difficult to do.
The suggestion was that deadweight costs would be the problem.
It was that when people move house, yes, they do do improvements
and the presumption therefore—and I am quoting directly
from him—is that they make improvements including some of
the sorts of measures which would improve the energy efficiency
of those homes "so the risk to government quite clearly is
that if you offer some sort of stamp duty incentive at that point,
that is the point of people moving into homes, you run the risk
of significant deadweight costs". I would argue that actually
this is trying to work with the marketplace. It is the obvious
time, when people move house, to encourage them to invest in energy
efficiency when they are improving their home. To be told that
because some people might theoretically do something, then automatically
we are going to get deadweight costs and it is not worth pursuing
this, is excessively dispiriting to our industry. Which is being
asked after all by the government to respond enormously to the
Energy White Paper, to double if not triple in size over the next
five or ten years. How can we do that when there are not the necessary
stimuli in the marketplace?
Q95 David Wright: I think I was the
one who asked the Minister that batch of questions. Would you
support the idea of putting within the proposed seller's pack,
which is within the Housing Bill, an efficiency rating on each
property, almost as you brand a fridge or a cooker in terms of
its energy efficiency, would you see that as a route forward which
would incentivise sellers to ensure that their house was in one
of the best bands in terms of information in the seller's pack?
Mr Warren: The answer to that
is unequivocally yes and indeed we do have to do that under the
Energy Performance of Buildings Directive and that needs to be
implemented within the next 24 months in this country. Having
said that, that provision of information alone, although it is
important, is unlikely to stimulate the marketplace satisfactorily.
Certainly those European countries which have had that facility
going for some while, have found it necessary to produce other
fiscal incentives on the back of it. Indeed, we have had that
for some while with new homes. All new homes for some while have
had to have an energy label put on them. Sadly it appears that
most house builders fail to put that label on. The research which
has been undertaken on that suggests that there is a 95% failure
rate, but those house builders are strictly breaking the law,
because they do need, under the law, to inform people about what
the energy rating is. In practice, if you want to do better than
that, one needs to have some sorts of sticks or carrots, and the
stamp duty package would be both a stick and a carrot in order
to encourage investment.
Q96 Chairman: May I bring you back
to the structure of government issue which I had not quite finished
exploring? There has been a lot of talk about the dysfunctionality
of having too many different departments involved. I take it though,
from what you said, that you would think there was not much point
in having an energy department if the Treasury remains so aloof
from the issue.
Mr Warren: I suspect that is going
to be true, but one could argue that relating to any point of
public policy in practice. If the Treasury retains such a strong
interventionist streak as our present Treasury appear to have
into all parts of government policy, one could make the same argument,
I fear, across a whole lot of other areas of policy. One recognises
that the Treasury obviously has a specific role to play on this.
What one hopes will not happen is that having asked for advice
twice over from those who understand how the marketplace works
and having been told unequivocally, and the Economic Secretary
did say to you that there were unequivocal responses on this,
what needed to be done, they have not yet sent any signals to
the marketplace saying that they intend to respond positively.
Q97 Chairman: Mr Bailey, do you see
any merit in the idea that this whole area should be shifted to
the DTI, for example, that Defra really is not the right place
and that part of the problem is the kind of failure to join up
between the various government departments involved?
Mr Bailey: Absolutely yes, there
is strong merit for joining up efficiency and generation as an
overall policy area. There is also an on-the-ground view of Defra
that Defra is still MAFF basically. I have no view, it is just
a perception. It is effectively the Ministry of Agriculture, Fisheries
and Food with a bit of Environment stuck on the end. That is a
very wide perception and yes, most people I have spoken to, from
all these sectors, see that if there is a joining up of energy
generation and energy efficiency it would be advantageous.
Q98 Mrs Clark: I remember our inquiry
back in 1999 quite clearly.[4]
We highlighted the need we felt to have an effective market in
real terms in energy services. We do not have one five years on.
Why do you think this is?
Mr Warren: Indeed do I remember
that particular inquiry and you came up with a whole series of
very important and well-researched recommendations, if I may say
so. You could argue that one of the reasons why we have not got
the market in energy services is because government did not take
up the recommendations which you made to bring this forward, and
a number of them would have been very pertinent
Q99 Mrs Clark: Probably for some
of the reasons you discussed previously with the Chairman.
Mr Warren: Indeed. There is no
doubt at all that even in the subsequent period whilst there have
been an enormous number of warm words culminating in the publication
of the Energy White Paper, which did require an enormous expansion
in the marketplace of energy efficiency in order to deliver the
carbon savings targets which were set in that, all of that is
a background against which my members are working. They are aware
of the fact that there are people within government and external
to government who wish to see the marketplace expand and who recognise
that there are barriers there. Those who are in a position to
move those barriers do not necessarily respond adequately.
Mr Bailey: The effect of that
on people in local government is very, very demoralising. There
are HECA officers out there day in, day out, at the coal face,
who feel abandoned and left to take the stick, but who are given
no encouragement whatsoever. This is what I get. The National
HECA Forum is on my partnership and repeatedly they are asking
what they have to do to get some kind of help and steer from government
when they are doing their best day after day and I believe they
are.
4 Seventh Report of Session 1998-99 on Energy Efficiency,
HC 159. Back
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