Examination of Witnesses (Questions 180-199)
12 MAY 2004
JOHN HEALEY
MP, MR PAUL
O'SULLIVAN AND
MS FIONA
JAMES
Q180 Mr Chaytor: My point is, without
a reasonable estimate of the potential CO2 emissions savings,
how does the Treasury know if this particular objective of influencing
the behaviour of private landlords is a more worthwhile investment
than the reduction of VAT on micro-CHP, for example? I accept
your point that you want to change the behaviour of landlords,
but changing the behaviour of landlords may not actually deliver
the volume of emissions that an alternative measure like, for
example, the relief on stamp duty for energy efficiency measures
may have done.
John Healey: It may not indeed
deliver the volume of emissions savings that we would like to
see or that we may in due course need to see, in which case that
would form an important part of our consideration about whether
we extend it in any way, either extend it, as it have indicated,
to different types of capital works, extend it perhaps in terms
of the generosity of incentives, extend it or build on it in other
ways. The factor at this point that makes us believe that this
is a measure that is worth introducing is that, unlike a reduced
rate of VAT on ground source heat pumps, here we have a measure
which is specifically designed and targeted towards the sector
that everybody with concerns in this area agrees is the hard-to-crack
sector, hard-to-influence sector, and also the sector that most
needs improving in terms of its general performance.
Q181 Chairman: The owner-occupier sector
is also important as a major contributor to the problem of climate
change and so on. The Energy Savings Trust and the Association
for the Conservation of Energy and other organisations have come
forward with a series of proposals, none of which, I think it
is right to say, you have actually accepted, to tackle domestic
energy use. To what extent are you planning to look at stamp duty
rebate, for example, in relation to owner-occupied properties?
John Healey: If I may say so,
the general point is not entirely correct because the Association
for the Conservation of Energy and the Energy Savings Trust welcomed,
for instance, the landlord's savings allowance that we have just
been discussing.
Q182 Chairman: They did express enormous
disappointment.
John Healey: Both made their views
known to us as part of the consultation we ran last year, that
they would like to see the use of stamp duty in order to encourage
the private home owner to do more. It is fair to say—and
the Committee may be aware of this—that when we published
the results of that consultation, almost half of the 105 that
responded to the consultation also mentioned this as a measure
they would like to see. The difficulties that led us to set that
to one side for the moment really revolve around, first of all,
the fact that at present stamp duty is relatively straightforward
to administer, it is straightforward to collect, and it does not
require much policing to ensure that it is not avoided and that
it is collected effectively. Secondly, we have, as the Committee
will know, introduced 100% relief from stamp duty for the purchase
of residential properties up to a level of £150,000 in the
2,000 most disadvantaged wards in the country, therefore any mechanism
that tried to use stamp duty for this purpose would have zero
effect in those wards, where in many areas we have many of the
properties that most need to be brought up to a more energy-efficient
standard. So there are concerns about the complexity and the cost
of policing if you tried to use stamp duty for these purposes.
There is a concern that it would have no effect in certainly the
2,000 wards in many of which we have properties where this would
arguably be most useful. The third reason, in a sense, is the
flipside of the reason for which I think the Energy Savings Trust
and ACE are interested, which is that the period of six months
or so after the purchase of a new property is often the period
during which people show the greatest interest in refurbishment,
upgrading, re-doing the property they have just bought. The logic
that leads them to say a tax incentive at that point might encourage
them to do more of this leads us, looked at from the other point
of view, to say the danger here, from the Treasury and Government
point of view, is that actually you might be incentivising activity
that many people would carry out anyway, in other words there
would be a danger of a significant deadweight cost.
Q183 Chairman: Yet there remains a serious
problem that is not being addressed. I accept the argument about
deadweight cost, but if people were doing it already, we would
not be having this conversation now.
John Healey: In terms of the areas
where in our judgment the need for new policy instruments was
most acute, it was the private rented sector. Those that own the
properties have very little incentive at the moment to improve
insulation and energy-efficiency. They do not generally at the
moment, without the sort of new allowance we are putting in place,
directly benefit from that.
Q184 Chairman: It will be interesting
to see if it works. Can we move on to new housing? Obviously,
there is a likelihood of significant new housing development,
and the PIU Energy Report recommended that we should move towards
zero space heating standards, which basically means hardly any
energy output at all because of good insulation. Do you have plans
to ensure that the whole standard of energy efficiency is levered
up in new house building?
John Healey: Yes. This was touched
on in the Barker Review. I think the main point of focus for the
Government here is the earlier review of the Building Regulations
that the Office of the Deputy Prime Minister is responsible for,
where by the end of 2005 we look to have upgraded the Building
Regulations, and as part of that there is the potential for ratcheting
up the level or the standard of those buildings as part and parcel
of that measure, and that is really the point at which we have
the greatest purchase and influence on the system, and that is
probably the most appropriate focus of attention.
Q185 Chairman: So you are not looking
at fiscal measures, for example, which will encourage greater
awareness of the benefits of energy efficiency and encouraging
the building of more energy-efficient homes?
John Healey: As the Budget document—as
this is a Budget inquiry—did indicate, we are interested
in the notion of a "green landlord" scheme. In a sense,
this is probably not a feasible proposition, at least until we
have the home condition surveys more regularly produced, with
the fuller range of information for purchasers and sellers, but
at that point, where it may be possible to get a more routine
assessment of the overall energy efficiency performance of a property,
we will be in the business of looking at whether or not that could
be underpinned by some of the fiscal measures that perhaps this
Committee and others might be interested in.
Q186 Chairman: Are you familiar with
the SAP rating system for the energy efficiency of homes?
John Healey: I am aware of it,
but I would not claim to be familiar with it.
Q187 Chairman: The Treasury does not
have a view, for example, on what would be an appropriate SAP
rating for newly built homes?
John Healey: As far as I am aware,
we have not taken a particular view about that. That would largely
fall to the more expert parts of government, in particular the
ODPM, I think.
Q188 Joan Walley: Just thinking about
the debate which did not take place in respect of the new clause
3 in yesterday's Housing Bill, I wonder if you are considering
having talks with the ODPM in the interests of joined-up government
as the Housing Bill goes to the other place.
John Healey: You have the advantage
over me, Ms Walley. You know what was in clause 3 of the Housing
Bill.
Q189 Joan Walley: It was in relation
to energy efficiency and energy efficiency standards.
John Healey: To the extent that
these things are discussed and examined across government, we
have dealings with the ODPM over this already. Officials are doing
that, and in particular, as we look at the sort of policy proposals
and programmes the ODPM might be interested in as part of the
Spending Review, that degree of discussion is more intense at
this stage of the cycle than it is at other stages, but that is
not to detract from the general point I make, which is that the
lead policy responsibilities and decisions really fall to ODPM
rather than Treasury in this particular field.
Q190 Chairman: I do not sense we are
getting very far with this, but can I suggest that when you next
have discussions with ODPM about these issues, you do put on the
agenda a debate about whether or not it would be appropriate to
set a minimum SAP rating for newly built homes?
John Healey: I will certainly
do that, Mr Chairman.
Q191 Gregory Barker: Minister, combined
heat and power: a very, very sorry picture is emerging there.
Installed capacity has risen from just under 4,000 MW in 1997
to 4,700 on the latest figures I have. What is even more worrying
is that most of that growth was in the late Nineties and CHP capacity
has actually declined in the last two years, although the Government
has a target of 10,000 MW of electricity by 2010 generated by
CHP. Not only has capacity actually declined in the last two years,
but investment in further capacity has actually collapsed. Would
you agree that the Government is way off beam now with its CHP
target, and can you give us a clue as to what the Treasury is
actually doing to rectify the collapse in investment?
John Healey: Yes. Mr Barker, I
am not quite sure of the source of your data, but it may be helpful,
Mr Chairman, to make sure the Committee shares the analysis that
has recently been done by Cambridge Econometrics, which essentially
has analysed the CHP strategy that we have in place.
Q192 Gregory Barker: DTI 2003.
John Healey: In that case, I will,
if the Committee wishes, make sure that you have the details of
the recent study that has been done by Cambridge Econometrics.
This is an analysis of the CHP strategy that we have in place.
It suggests that, as things stand, it will deliver savings of
8,100 MW per year by 2010. That does not take into account the
introduction of the EU Emissions Trading Scheme in 2005, which
is likely to add another 400 MW. So the assessment of the capacity
to deliver of the strategy we have in place already is actually
around double the figures that you suggest there, Mr Barker.
Q193 Gregory Barker: You are saying you
will easily surpass the 10,000 MW?
John Healey: No. There is a difference
still between 10,000 and 8,500.
Q194 Gregory Barker: You are going to
reach 8,500, or an additional 8,500? We already have something
around 4,000.
John Healey: The target, as you
rightly say, that the Government has set is to see through CHP
a saving of 10,000 MW per year by 2010. In terms of what we already
have in place under the CHP strategy, if you take a mid point
of the range, because there is obviously a degree of uncertainty
in this sort of modelling, Cambridge Econometrics suggest that
we have already in place elements within the strategy that would
deliver just over 8,000 MW, 8,100 MW. If you add then something
just under 500, round about 400 MW, that they estimate will come
from the EU Emissions Trading Scheme, we still have a gap potentially
as we look towards 2010 in hitting that CHP target, but it is
not a gap of around 6,000 MW as your figures suggest.
Q195 Gregory Barker: So you are still
under-shooting. Just so we are clear on the figures, because my
figures only go to 2002, the current situation is that it has
not changed; we are still at around 4,700 MW of current capacity
in CHP. Is that correct?
John Healey: My principal concern
in this field is whether or not we have in place the full range
of what we need.
Q196 Gregory Barker: Strategies are possibilities.
John Healey: No, they are not,
because what has been assessed is what is already committed to
and is in place as part of the CHP strategy. This is not what
notionally we might achieve if we did other things, because it
does not take into account the introduction of new measures that
we could bring in, some of which we know will come in, such as
the EU ETS in 2005. All I am saying is that the picture may not
be as bleak as your figures suggest, and if I can share the latest
work with the Committee, the Committee can make a judgment based
on the full range of information.
Q197 Gregory Barker: My question was:
am I correct in assuming that the current capacity is 4,700?
Mr O'Sullivan: Can I just add
to that? My understanding is that it has increased slightly. Obviously,
when we provide the study, that gives the figures. Part of that
is to do with some of the fiscal incentives we already have in
place for combined heat and power that are starting to come through.
Q198 Gregory Barker: We are still less
than halfway to the target as things stand, with existing, in-situ
capacity.
Mr O'Sullivan: I think there has
been an improvement over 2002, but we can provide the figures
in the study.
Q199 Gregory Barker: But it is a small
increment, ie probably around 5,000.
John Healey: We will provide the
figures, but of course, your interest, like ours, is in 2010 and
whether we will hit the target. We are sitting here in the early
months of 2004.
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