What form might these incentives
take?
56. There has been a great deal of work undertaken
around the whole issue of fiscal incentives in the last few months.
In 2005, the Energy Saving Trust published its fiscal report,
Changing Climate, Changing Behaviour: Delivering Household
Energy Saving Through Fiscal Incentives,[72]
and in February 2006 the Policy Studies Institute (PSI) published
its report, A Green Living Initiative, Engaging households
to achieve environmental goals.[73]
Much of the detail to be found in these documents is repeated
in one way or another in the memoranda we have received and there
appear to be a number of possibilities which deserve much closer
scrutiny by the Government. These include: a Stamp Duty rebate
or a reduction in Council Tax payments for those whose homes are
built to higher environmental standards; a restriction of the
current zero VAT rate for new build properties to those that meet
a high energy performance standard; and, a reduced planning gain
supplement for housing developments meeting a high energy standard.[74]
57. Even without the compelling evidence from Crest
Nicholson and George Wimpey UK, there can be few people who do
not realise how very difficult and expensive it is to either get
on to or move up the housing ladder. Most people will have stretched,
or over-stretched their finances, and perhaps those of their parents
if they are first-time buyers, to afford their new property.
Their priority is then going to be getting through the next few
months. It could be argued that a reduction in Stamp Duty, although
it represents a one-off payment which would soon be forgotten,
could make a significant difference in the initial financial outlay
when the property is bought.
58. Similarly, a reduction in Council Tax payments
for those whose homes are built, or refurbished to higher
environmental standards, would offer a significant incentive to
those who are able to think in the longer term about efficiency
savings. In fact, something along these lines has already been
tried by Braintree District Council. In 2004, and in partnership
with British Gas, Braintree District Council launched what was
billed as the UK's first Green Council Tax rebate. This offered
residents in Braintree a £100 rebate on their Council Tax
if they installed cavity wall insulation. A £175 insulation
package included fully fitted cavity wall insulation, Home Energy
Audit and four free energy efficient light bulbs. The Council
and British Gas estimated that the package would produce an immediate
£90 saving and this, coupled with the £100 rebate, could
save the customer up to £35 in the first year. Savings over
a five year period could be as much as £395.[75]
59. Not all fiscal incentives have to be in the form
of a reward for good behaviour, of course. The Policy Studies
Institute (PSI) report, A Green Living Initiative, Engaging
households to achieve environmental goals, proposes "inefficiency
charges" on products that use large amounts of energy or
water, or generate greater amounts of waste. PSI suggest that
the money raised through these charges could be used to fund Council
Tax reductions, for example. We recommend that HM Treasury
should consider reducing both Stamp Duty and Council Tax for those
homes built to high environmental standards. Any necessary consultation
process these proposed reductions might prompt should be completed
in advance of the 2007 Spending Review so that cross-Government
discussions can be better informed.
60. Earlier in this report we discussed the issue
of demolition versus new build. We have received memoranda from
a number of organisations and local pressure groups deeply concerned
that demolition is taking precedence over refurbishment because
under the current VAT system it is far cheaper to knock a house
down and start again than it is to refit it. At the moment there
is no VAT on new homes but there is 17.5% VAT on the refurbishment
of existing homes. We believe, along with many others, that there
is a great deal of scope to make building new homes to high environmental
standards or, with existing homes, to encourage home owners to
complete any refurbishment of their homes to the same high standards,
a very attractive financial proposition. There are a number of
variations on a theme in the evidence we have seen. The Association
for the Conservation of Energy, for example, suggests that the
zero VAT rate which currently applies to all new builds should,
in future, apply only to those that meet a high energy efficiency
standard. New homes which cannot meet that standard will attract
the 17.5% VAT rate. Indeed, consideration could also be given
to increasing the VAT rate to above the current 17.5% rate in
homes which do not comply with high energy efficiency standards.
The Green Alliance also advocates a revision of the existing VAT
rates, although its suggestion is based more on a levelling of
the playing field between new build and refurbishment. It recommends
that,
To reduce the perverse incentive encouraging
new build over high-quality refurbishment, the rate of VAT for
new homes to be increased from zero to 5% and VAT on major refurbishments
creating homes that meet at least the three-star standard under
the Code for Sustainable Homes be reduced to 5%. Refurbishments
that do not involve the insulation of the fabric of the building
to these high standards would continue to attract 17.5% VAT.[76]
61. Whilst we have grave reservations about the draft
Code for Sustainable Homes, and whether that is the standard which
should be applied here, we recommend that HM Treasury revises
the current VAT rules concerning both new build and refurbished
homes built to high environmental standards. Once again, any
consultation process should be completed in advance of the 2007
Spending Review so that cross-Government discussions can be better
informed.
62. The Planning Gains Supplement might also prove
to be fertile ground. The Government's Response to the Kate Barker
Review of Housing Supply, published in December 2005, proposes
consultation on a Planning Gain Supplement, which is described
as a "new levy to capture a portion of the land value uplift
created at the grant of planning permission. This will help finance
infrastructure and ensure that local communities better share
in the benefits of growth. The majority of the revenue will go
back into local strategic infrastructure projects." [77]
The suggestion made by the Association for the Conservation of
Energy is that the Planning Gain Supplement could be reduced for
those developers who build houses to a high energy performance
standard. We have been unable to get any detail on exactly what
" a portion" might be, or indeed, what constitutes "the
majority". These are all issues to be decided after the
consultation and by HM Treasury. Given that the intention, now
at least, is to use some of the monies raised by the supplement
to help grow local infrastructure to support the new communities
and those most likely to be affected by them, we would want to
see a good deal more detail about the Planning Gain Supplement
before taking a view about whether a reduction for developments
built to higher environmental standards would be wise. We recommend
that HM Treasury should examine the scope for a reduction of
the rate of Planning Gain Supplement to be offered to developers
who build homes to high environmental standards. This work should
be done in advance of the 2007 Spending Review so that cross-Government
discussions can be better informed.
The Government Response
63. Almost all of the evidence we have seen seems
to be in direct contradiction with the stance that the Government
is taking in this matter. We have tried to raise the issue of
fiscal incentives and to establish a dialogue with ODPM, Defra
and the Treasury. Both Yvette Cooper and Elliot Morley emphasised
that decisions about fiscal incentives were a matter for the Treasury
and clearly preferred to look for alternative means for encouraging
change, for example through publicity campaigns and education.
Yvette Cooper told us that she felt that in the same way that
people had woken up to the need to recycle their waste, the same
would happen with housing and the environmental options open to
people when they buy or renovate their homes.[78]
Whilst we acknowledge that there has been some movement towards
a greater awareness of the need for and desirability
of recycling, this does not mean that everyone now does it. Also,
this awakening awareness has been achieved through a relatively
slow and laboured process and is not compatible with the timescales
we are dealing with in this instance.
64. We wrote to Ivan Lewis MP, Economic Secretary
to the Treasury in October 2005, and asked whether there was any
work being conducted in response to the SBTG recommendations around
fiscal incentives. The response, from John Healey MP, Financial
Secretary to the Treasury, in January 2006, was disappointing
and even less helpful than the muted response given to the original
SBTG recommendation. The Treasury response said,
The Government continues to evaluate all ways
to stimulate the environmental efficiency of housing, including
the potential role of fiscal incentives. As you will readily
understand it would be unwise to commit public money to these
schemes unless they can be shown to deliver environmental goals
that could not be achieved in other ways, such as through regulation
and education. It is also necessary to take account of wider social
and economic factors when considering the use of fiscal schemes
and make sure that these schemes are proportionate from a regulatory
point of view and do not impose a high administrative burden on
Government agencies.[79]
According to the SBTG, the energy used in constructing,
occupying and operating buildings represents approximately 50%
of greenhouse gas emissions in the UK. The UK Government is committed
to reducing carbon emissions by 20% by 2010. When the Prime Minister
appeared before the Commons Liaison Committee, in February 2006,
he was asked if he could say at what point we might go past the
point of no return, the tipping point beyond which it does not
really matter what steps you take to alleviate the effects of
climate change. The Prime Minister said that he thought 2012
would be that point. We find the Treasury's desire to be
"proportionate" and its reluctance to impose "a
high administrative burden on Government agencies", not only
strategically short-sighted but woefully inadequate. It would
also appear to contradict the Prime Minister's views on tackling
climate change.
65. The HMT response would also seem to contradict
the Government's own Sustainable Development Strategy, Securing
the Future, which devotes a whole chapter to "Helping
People Make Better Choices". The Strategy acknowledges the
fact that "behaviour change is a complex subject" and
that "information alone does not lead to behaviour change
or close the so-called "attitude-behaviour gap"".[80]
The Strategy outlines an approach which focuses on the need to
"enable, encourage and engage" people and communities
to become more sustainable and recognises that Government should
lead by example. However, the Strategy also recognises that this
approach may not be sufficient to deliver the degree of change
needed and that Government may need to go further and develop
policies which "catalyse people to behave differently".
To illustrate this the Strategy uses the example of the congestion
charge in London, where a charging regime has resulted in a 30%
reduction in congestion as people moved to other forms of transport.
66. We referred earlier to the 20 year refurbishment
programme of pre-1978 housing stock announced by the German Chancellor
Angela Merkel. The German Government has said it intends to quadruple
the annual budget for encouraging energy efficiency from €360m
(£240m) a year to €1.5bn (£1bn) a year. Interestingly,
it has also switched from financing loans to funding direct subsidies
because it believes that direct fiscal incentives are more likely
to have an impact. The German approach to fiscal incentives
contrasts sharply with the lacklustre way in which ODPM, Defra
and the Treasury have responded to the question of fiscal incentives,
which not only speaks volumes about the real level of importance
and commitment afforded to this issue, but also paints a very
depressing picture of complacency and apathy which we believe
is all too evident in these departments.
67. When she spoke to us Yvette Cooper made it
very clear that the Chancellor was in the lead on fiscal matters
and Elliot Morley also told us that the responsibility sat squarely
with the Chancellor.[81]
We believe that all of these options are worthy of serious investigation
by ODPM and Defra, as the departments with the greatest responsibility
for delivering sustainable communities, who should then put their
case forcefully to HM Treasury. However, if it is the case
that the Treasury has the final decision on whether or not any
fiscal incentives should be introduced, then the response of the
Treasury to this inquiry, suggests to us that any roundtable discussions
that do take place are very unlikely to result in even a commitment
to consider seriously the suggestions we, and many others have
set out. We can only hope that the conclusions of the Stern Review,
when published, will result in a much needed change of attitude.
66 Q1 Back
67
Better Buildings - Better Lives, Sustainable Buildings Task Group
Report, Chapter 8 Back
68
www.odpm.gov.uk Government Response to Better Buildings - Better
Lives, Sustainable Buildings Task Group Report Back
69
EV124 Back
70
Q119 Back
71
EV163 Back
72
www.est.org.uk Back
73
www.green-alliance.org.uk Back
74
All of these suggestions are already well-known to the Government.
Between July and October 2002, HM Treasury and Defra ran a joint
consultation called, Economic Instruments to improve energy
efficiency. This consultation provoked a great deal of interest.
One contribution, from the Association for the Conservation of
Energy, proposed a list of twelve economic instruments and other
measures, known as the "Clean Dozen". Back
75
Typical energy saving calculated for a three-bedroom house. Back
76
www.green-alliance.org.uk, A Green Living Initiative, Engaging
households to achieve environmental goals. Back
77
The Government's Response to the Kate Barker Review of Housing
Supply. December 2005 Back
78
Q234, Q275 Back
79
EV143 Back
80
Securing the future, delivering UK sustainable development
strategy, www.defra.gov.uk Back
81
Q260, Q276, Q326 Back
