Examination of Witnesses (Questions 60-79
MR NICK
EYRE AND
MR BRIAN
SAMUEL
1 FEBRUARY 2006
Q60 Mr Hurd: In relation to the structure
of the EEC, do you see an argument for trying to widen that market
to bring in new brands which might conceivably carry more credibility
with the consumer around the proposition of reducing their energy
consumption?
Mr Samuel: Yes, I think there
is an issue of trust around energy suppliers and the perception
is that any suppliers are there in the market place to sell energy
and not sell energy efficiency. We believe that there are other
opportunities for other third parties to become involved in the
market place. However, it is a very supply-led activity at the
moment—supply-dominated activity. There is no transparency
around the market price of the Energy Efficiency Commitment, so
increased transparency might help with that. It may also help
third parties entering into the market to develop energy services
and also to engage better with the consumers with a higher degree
of trust.
Q61 Mr Hurd: Turning to other incentives
for households to install energy efficiency measures, you wrote
a very good report last year introducing the idea of council tax
rebates as an effective means. Could you summarise to the Committee
your conclusions in terms of how large rebates would have to be
in order to change behaviour, what conclusions you have reached
about what that might imply in terms of overall cost?
Mr Samuel: Yes. When we originally
started this piece of work our view was that Stamp Duty rebates
may have been the best way forward. However, we received very
strong feedback from market research which we undertook with consumers
that they favoured a council tax rebate, mainly because it was
extremely visible, they came into contact with it, it is not very
well liked and as a consequence a small rebate of between £50
and £100 was sufficient to attract consumers and for them
to go a long way to invest in energy efficiency measures. So we
feel that a rebate at that sort of level would certainly be helpful.
It would increase engagement. It is proven. There are already
four schemes operating at the moment, one of which is Braintree,
and that has proved so successful without any marketing that it
is being re-run in 2006. So there is a track record out there.
Consumers like it, they want it, and we feel that mechanisms should
be put in place to make it easier for local authorities to go
down that route.
Q62 Mr Hurd: If I remember the report,
you ran some assumptions there about what a national roll-out
of such a scheme could cost the Treasury and set that against
potential carbon savings. Could you summarise those findings for
us?
Mr Samuel: I have not got those
figures with me. However, I can feed them in to the Committee
as soon as I can, but it will not be this week.
Q63 Mr Hurd: You and others made strong
representations to the Treasury with this logic and this argument,
with the surveys which you have done, and got no response at all.
Why do you think the Government failed to introduce them in the
Pre-Budget Report?
Mr Eyre: I think that is the problem
I was referring to, the lack of transparency in Treasury decision-making
just before Pre-Budget Reports and before Budgets; in other words,
we do not know, I think because the Energy Efficiency Innovation
Review was going on. We certainly have not given up hope that
this will be looked at, though I think the issue of incentives
within council tax is probably made more complex by the bigger
review of council tax which is going on in the Lyons Review.
Q64 Mr Hurd: You mentioned the Braintree
example and you mentioned that in the last session with us. Could
you expand a little bit on the success of that scheme in terms
of the number of households converted to it?
Mr Samuel: Yes. I think the last
figures I have to hand really are the November figures, where
there were 300 conversions with many more in the pipeline. There
was only a fixed sum available to implement these measures and
that was easily achieved. What I can do is request the scheme
operators, Braintree and Centrica for an update and I can forward
that to you as well.
Q65 Mr Hurd: Presumably this is something
which individual authorities could do off their own bats without
central government up to the limit of affordability?
Mr Samuel: Yes, up to the limit
of affordability, and that is one of the issues. We are seeing
individual local authorities coming forward for this, South Hams
and south Cambridgeshire are two of the schemes. It is there,
but one of the issues is that each of the local authorities have
to go through the process of seeking legal views and they were
putting the administration in place and negotiating with the energy
suppliers. So it is quite a long and drawn out process. We feel
that clear guidance on what they can do and a central fund being
in place to actually support the schemes would be helpful.
Q66 Mr Hurd: Just to be more specific,
you presumably would support any initiative by the Government
to give these councils greater incentives to go down this track,
because at the moment it is not clear what the incentives are?
Mr Samuel: Yes.
Q67 Chairman: Another incentive which
you have advocated is Stamp Duty discounts or rebates, which seems
to me logical and simple to introduce. Do you know why the Government
has been reluctant to do this?
Mr Eyre: I think the feedback
we have had from the Treasury and what the Treasury has said in
public is that Stamp Duty is currently a very simple tax and it
does not want to see it made more complex. I think after the market
research which Brian referred to, we had not pushed as hard on
Stamp Duty because the feedback we got from consumers was that
they did not particularly understand or think Stamp Duty was as
visible as council tax and therefore it would not have such a
big incentive effect. Also, there was a feeling that although
an incentive at the point of moving might seem logical, it is
a very stressful period in people's lives when they are moving
lives and they feel that one other thing to worry about or think
about was not particularly popular. So we certainly would not
rule out Stamp Duty, but on the basis of talking to the people
who matter, the consumers, we think that council tax would be
a preferable route.
Chairman: In the context of another inquiry
we are conducting on sustainable housing, we have been talking
to some housebuilders and they seemed to give the impression that
they thought it would be quite useful. If you have got research
which suggests that consumers are less interested, I think we
would be quite interested if it is possible for you to share that
with us. The Treasury's objections about complexity can be dealt
with fairly easily because it has already got three different
rates of Stamp Duty now, which have been fairly recently introduced,
and therefore to introduce a discounted rate would not seem to
pose a huge administrative problem, certainly not of any significant
order over and above what they have already introduced, and some
perverse incentives already operate about how you deal with property
prices. So I think we would be interested to see that research.
As you say, consumer attitudes are clearly very crucial for it.
Q68 Mr Caton: In the Energy Efficiency
Innovation Review you suggest that grants for landlords to install
energy efficiency heating in private rented sector accommodation
might have to be set at more than 100% of the costs in order for
them to be effective. Why is that, and with that in mind, what
do you think the Government's Green Landlord Scheme is actually
going to achieve?
Mr Samuel: One of the issues is
the split incentives in the sense that the private landlords own
the property and the benefits of any energy efficiency measures
go to the bill-payers, who are the consumers. It is very difficult
for private landlords to actually increase the rents to cover
the cost of the investment they may have made. So I think that
is the prime issue in the private landlord sector. There is also
a big difference between the small buy-to-let private landlords,
who may have one or two properties and the larger landlords as
well, who have a different approach and run the rented stock as
a business. So yes, grants may have to be higher than the actual
cost to implement them. We therefore felt that regulation might
actually be a better approach. As regards the Pre-Budget Report
announcement, the Green Landlord Scheme has been around in name
for a bit now. There is still a lot of uncertainty around the
wear and tear allowance and how it would actually work. We do
not know.
Q69 Mr Caton: The jury is still out?
Mr Samuel: The jury is still out.
It is a difficult sector to tackle, without a doubt, and it is
fairly small and therefore regulation may ultimately be a better
policy instrument.
Q70 Chairman: I think you told the predecessor
committee that incentivising landlords needs "more stick
and less carrot". That is really confirmed by what you are
now saying?
Mr Samuel: Yes.
Mr Eyre: I think we are saying
it would need a very, very large carrot, if that was the approach
that was taken, yes.
Q71 Dr Turner: Your memo suggests that
the capacity to pay for a relatively modest increase in vehicle
fuel duty has never been greater. Even with increased fuel prices,
people would not necessarily notice an increase in fuel duty;
indeed if you drive along you find enormous variations between
petrol pump prices from one garage to the other in any event.
So how much do you think the public will stand an increase in
fuel duty? How far do you think it could go up?
Mr Eyre: I suspect people who
stand for election are better placed to answer that question than
we are, if anybody! I do not think we do say that it would not
be seen as an issue, I think we just make the point (which is
a factual point) that the cost of motoring is still lower than
it used to be and that therefore the incentives for efficiency
are lower than they used to be. In terms of advocating policy
change, we are certainly looking more at Vehicle Excise Duty as
a means to influence efficiency and I think that probably is driven
by an analysis of what is politically realistic at the moment,
particularly with oil prices rising.
Q72 Dr Turner: The fuel escalator has
been steady for some time now, it is frozen, and according to
the Pre-Budget Report oil prices have been going up because of
the world situation anyway. Do you think this has had any effect
on increased purchases of fuel-efficient vehicles as opposed to
guzzlers?
Mr Eyre: It will have some, but
that is why we make the point that despite these increases, despite
the operation of the escalator over several years and recent oil
prices, the cost of motoring is still at a historically low level.
It is an important point to make.
Q73 Dr Turner: Do you think we would
have made more progress in that direction if we had not abolished
the fuel duty escalator?
Mr Eyre: It must be the case that
if we had had higher fuel prices the incentives for fuel efficiency
would have been higher. All we are saying is that we recognise
there are political trade-offs here and that governments are elected
with the difficult job of making those trade-offs.
Q74 Chairman: You have mentioned VED
and I certainly am keen on the scope there is for VED which can
target directly different levels of fuel efficiency in vehicles
rather than with the fuel duty escalator, which is a rather more
blunt instrument. Why do you think the Treasury in the Pre-Budget
Report just said it would continue to consider the case? Why is
it so non-committal about this?
Mr Eyre: The easy answer is, I
do not know, for the reasons which we often do not know about
the Treasury. I think the more positive answer would be that the
Treasury does believe in good analysis and does tend to look very
carefully at the evidence before it takes the decision. So if
it says it is still considering it, I think I am still reasonably
optimistic. We have submitted evidence to them showing what we
think the effects might be. Those are, of course, based on market
research and what people say they would do, which is not necessarily
what they actually would do when faced with a tax change. We think
there is a case there both for broadening the bands and for increasing
the number of bands because the top band of most inefficient vehicles
covers such a wide range of vehicles. We think there is scope
for having a proper gas-guzzler band at the top which would pay
a much higher level of VED.
Q75 Chairman: The issue of acceptability,
which we touched on in relation to the fuel duty, seems to me
inherently easier in the case of VED. If you have even quite a
wide differential in the bands, no one is forced to buy vehicles
which are in the top band to travel around in, so actually there
is almost an unlimited scope for raising VED for the least fuel-efficient
vehicles?
Mr Samuel: Yes, and it has worked
in the business company car sector, where you have seen through
the pricing mechanisms more efficient, lower carbon vehicles being
purchased. It has got infinite scope.
Q76 Chairman: On that, you said in the
memo that "although company car tax is in general working
better than Vehicle Excise Duty, there is an apparent leakage
at the executive end of the market to the less effective VED regime,
and that this needs to be curtailed." What do you mean exactly
by that?
Mr Samuel: I think what we mean
by that is the fact that people are opting out of company cars
into purchasing private vehicles and receiving payments or incentives
as part of their overall salary package to do so.
Mr Eyre: It would be another reason
to address Vehicle Excise Duty because it would help make the
two systems more comparable in terms of the incentives and therefore
prevent incentives which flip from one system to the other.
Q77 Chairman: So regardless of however
large a problem that is or might become, there is an easier solution
to it, is there, in what you have just described?
Mr Eyre: Yes.
Q78 Mr Chaytor: On this particular point,
is there not another issue here? We have focused on VED and company
car tax before, but if there is this leakage away from company
cars to people taking their benefits in terms of cash, is there
not an issue about differentiated purchase tax on new vehicles
which would also deal with that? Your solution is to increase
the differentials in VED, and that seems perfectly rational, but
there has been no debate so far, as far as I am aware, about the
use of differential purchase tax on new vehicles which would reflect
the relative fuel-efficiency of those vehicles. Is that not an
easy solution which is just waiting for someone to explore?
Mr Samuel: I think that is potentially
a solution. With VED you have got the opportunity to engage with
the consumer, which we believe is actually helpful. That is why
we prefer the VED route, because you can have that engagement
and we would look to actually utilise that to provide consumer
advice as well, and certainly improving signposting to the most
efficient vehicles, perhaps through some form of a league table,
for example, we believe would probably be helpful as well.
Q79 Mr Chaytor: That would equally apply
with the differentiated purchase tax on new vehicles, would it
not?
Mr Eyre: I think you have to be
careful with purchase tax. One attribute which vehicles have is
an unfortunate ability to cross borders and therefore you would
have to worry about the potential for vehicles being purchased
outside the UK if this was a significant effect. Of course, we
know that historically there have been times when car prices were
higher in the UK, for other reasons, than on the Continent and
there was that effect. So there may be some scope for European
cooperation here as well.
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