Examination of Witnesses (Questions 357-359)
19 MAY 2004
MR PHILIP
SELLWOOD AND
DR NICK
EYRE
Chairman: Good afternoon to you. You
are no strangers to this Committee. Welcome back, it is good to
see you.
Q357 Mr Francois: When you saw us in
February, you expressed considerable hope that the Budget would
include a raft of measures to promote energy efficiency. How far
short of your expectations, if at all, did the Budget fall?
Mr Sellwood: I think, broadly
speaking, we asked for three sorts of measures to be brought forward
in the Budget. One set were around VAT reductions. The second
set were around introducing inefficiency charges for inefficient
products. Thirdly, a bit more far-sightedly, we were looking for
something around linking a financial instrument with the Home
Condition Report, as and when it becomes available. I think it
is fair to say that we have a pretty mixed view of how we fared.
We were surprised, and pleasantly surprised, to discover that
actually a VAT reduction was brought forward on heat pumps, which
was not expected. We were disappointed that we did not get a clear
mandate, so to speak, on micro-CHP. We are concerned that the
Treasury still take the view on the imposition of inefficiency
charges as being retrogressive for the poorer members of society,
which is a view we do not take. We believe that the savings over
the lifetime of efficient products more than outweigh the upfront
cost, which, in fact, now, has virtually disappeared. We are still
a bit confused as to why we were not successful on that particular
measure. We have detected a thawing, I think would be the way
I would describe the Treasury's response to our suggestion of
linking fiscal instruments to the Home Condition Report. Certainly
that has been a theme, and one of the things that we are going
to be spending some time on in policy terms this coming year will
be trying to flesh out some of the detail that is necessary to
persuade Treasury of the merits of that particular approach. We
have pretty mixed feelings, frankly, about the Budget.
Q358 Mr Francois: Thank you. That was
a very detailed reply. We know you welcome the landlords' energy
saving allowance. How much impact do you think that particular
measure might have?
Mr Sellwood: When I thought about
it first, I thought actually it would be quite significant, but
then I talked to some landlords. What do I mean by that? I mean
that, a significant rebate, if you are implementing energy efficiency
measures, clearly this is a good thing. What I am concerned about
and what landlords are telling us is that it will not bring forward
investment, because if you can get 60% rebate on something that
is fine, but if you can get 100% rebate by doing nothing in the
first place that is even better. That is actually the response
of many of the landlords to this particular option. Having said
that, broadly we welcome it because we think there are quite a
lot of responsible landlords out there with whom we can work in
order to use this as a decent financial lever.
Q359 Mr Francois Can I bring you back
to the comments you made about the proposals to reduce VAT on
heat pumps and the related point about micro-CHP. Firstly, the
point about VAT and the domestic installation of ground-source
heat pumps. Can you tell us a little bit more about your perspective
on that particular measure and the significance of that?
Mr Sellwood: It is significant
but then you have to look at the upfront capital cost of putting
in heat pumps, which, typically, and these are pretty much averages
but none the less for that, for a new-build would be anywhere
upwards of £4,000, and for implementation in a refurb considerably
more than that. A reduction is significant, but in our view the
reduction on VAT, and hopefully the inclusion in the next Energy
Efficiency Commitment of micro-CHP, is much, much more significant,
and we say that for one reason. When somebody is looking already,
and unfortunately there is not much choice on the market at the
moment, to buy something that looks like a micro-CHP product,
they are comparing it with a boiler. Therefore, the comparison
is between spending perhaps £2,000 on a highly-efficient
condensing boiler or £3,000 on a micro-CHP plant, and broadly
that is where we are at the moment. A reduction in VAT compared
to that thousand pounds is quite significant, because there is
a direct comparison being made, but frankly we do not expect a
rush to the barricades for heat pumps on the basis of a reduction
in the VAT. Having said that, I would add one caveat. I was looking
at some figures today. We manage the small-scale renewable programme
in Scotland and in the last two years heat pumps, along with solar
heating, have been the number one choice, as it were, both of
small-scale householders and small businesses, which actually
we found quite surprising.[3]
3 Please see further information in memorandum on Ev.
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