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Julia Goldsworthy:
The Minister has said a great deal about what Government Departments can do to help to raise standards. This year, immediately after Second Reading of the Sustainable Communities Bill, the hon. Member for Gower (Mr. Caton) sought to introduce a
private Member’s Bill that would allow local government to set higher environmental standards, but it was talked out by the Government. Does the Minister agree that if the Government genuinely wish to encourage lower carbon emissions from housing they should empower local authorities to set even higher standards where necessary?
Ed Balls: I certainly think that we need to work closely with local government to meet those objectives, so I agree with the hon. Lady. I fear that if my answer to her is too detailed I will stray beyond the scope of the clause, but I very much accept the tenor of her comments.
The hon. Lady will agree that building regulations are not all that is needed to meet the objective. We need to ensure, too, that the planning system helps to encourage lower carbon emissions and does not present a barrier to the development of new homes—that is a matter for local government. We have therefore consulted on a draft planning policy statement on climate change, and we will publish the final document later this year. The consultation on building regulations sets out interim steps, but we have taken other initiatives as well. We have, for example, suggested that improvements be made to building regulations in 2010 and 2013 before going to zero- carbon status in 2016. We also launched the code for sustainable homes as a voluntary standard in England. It allocates a star rating from 1 to 6 to new homes, thus assessing their overall sustainability performance, and it sets out our aspirations for new-build housing. We have proposed, too, making rating against the code mandatory from April 2008. Code level 6 represents a zero-carbon standard, and I shall explain why that is relevant to our debate.
The new stamp duty land tax exemption is an important building block, and it completes our strategy. Our long-term goal is to achieve a zero-carbon standard in all new homes by 2016, but with technology in that area moving so quickly, it is difficult and undesirable for anyone to try to predict precisely what standard we will have to meet in 2016. We do not know what technological developments lie ahead. On the other hand, we want early action to kick-start the market—in Committee, we had rather a long debate about the definition of “kick-start”—so the stamp duty land tax exemption will sit alongside code level 6 as an incentive.
Following our consultation and discussions in Government, I can set out today our view that it is important that these two initiatives, code level 6 and the definition of zero-carbon homes in our stamp duty land tax regulations, are aligned so that we can adopt the same definition of zero-carbon homes. I therefore propose, following consultation with ministerial colleagues, and subject to the outcome of the consultation and the debate that I promised Parliament later this year, that we will aim to align the stamp duty land tax exemption definition with the code level 6 definition. Starting with a common definition will maximise certainty for house builders in the crucial early stages.
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We are still consulting on these issues, but I can give hon. Members two examples of what the alignment may mean in practice. First, following the publication of our draft regulations, we are now inclining to the
view that both the code and the stamp duty land tax exemption should include the provision that, initially, a zero-carbon home for stamp duty land tax purposes could be connected to the gas mains, provided that there was adequate offsetting for the gas burned through renewables provision. Similarly, we know that it is sometimes more efficient for renewable energy to be provided on a development-wide basis, rather than house by house. This is another area where we want to adopt the same approach in both instruments.
In both examples, without pre-empting the consultation that is under way, we will seek to achieve that in the regulations that we intend to put before the House under the affirmative resolution procedure.
Julia Goldsworthy: The Economic Secretary mentioned that properties connected to the gas mains may be eligible to qualify as a zero-carbon home. There will obviously be significant regional diversity. Most of Cornwall, for example, does not have access to gas mains. Will areas that do not have the benefit of such infrastructure be disadvantaged by that approach?
Ed Balls: On one reading of the draft regulations that we published, those parts of the country that do have gas mains might have been excluded. The indication that I am giving today is that we are minded to allow areas with a gas main to benefit, potentially, from the stamp duty land tax, provided that there is adequate offsetting for the gas burned through renewables provision. Clearly, in areas that do not have a gas main, the issue does not arise. That is one of two areas in which we are seeking to be clearer in regulations in order that we can align code level 6 with stamp duty land tax regulations when we publish them.
Of course, over time we will need the flexibility to change the definitions. Because it is a generous tax relief, we need, first, to be sure that the SDLT exemption is working as intended—that is, genuinely incentivising innovation through the early build-up of zero-carbon homes on the road to 2016. Secondly, as hon. Members would expect in an area of tax policy, we need to ensure that we take the right steps to tackle any potential tax avoidance. Following consultation, I am therefore committing the Treasury today to conducting an interim review of the SDLT definition of a zero-carbon home halfway through its five-year life for the express purpose of testing the exemption against those two criteria.
Furthermore, as I said in Committee, we will carry out before the end of the five-year time limit a full review to assess whether or not we should extend the tax relief, and we will
“give a clear, public signal of our future intentions well in advance” ——[Official Report, Finance Public Bill Committee, 15 May 2007; c. 137.]
of the five years. So there will be the review in advance of the five-year end point to see whether, in order to achieve the incentivisation that we seek, we will need to extend the SDLT provision after five years, and there will also be a review after two and a half years to see whether the definitions continue to be aligned, whether we are achieving our objectives, and whether we need to tighten or loosen the definition.
By announcing that intention today, we are giving the industry and home owners fair warning that we are
setting a high standard which we wish to see new houses reach in return for the tax relief, but that we are willing for the moment to offer flexibility in the definition to kick-start the market, particularly in the areas that I highlighted a moment ago. We need at all times to balance our requirements for a robust tax definition that delivers value for money against the need for an achievable standard in the short and medium term to incentivise the development of the market. We believe that the process that we are setting out today, the consultation in which we are engaged and the affirmative resolution procedure will allow us to do so, and to align code level 6 and our regulations to give clarity and certainty to the market.
Having set out our overall strategy, what we are doing to implement it and what additional steps I can announce today as part of the consultation, I shall deal with the amendments to clause 19 proposed by the Opposition. Amendment No. 6 proposes the deletion of subsection (2)(a). The subsection provides that the regulations may
“Refer to a scheme or process established by or for the purposes of an enactment about building”
in relation to the evidence that a building satisfies the definition of a zero-carbon home for the purposes of the relief.
The amendment would remove a paragraph which allows the regulations to refer to schemes or processes established for the purposes of another enactment. In particular, it would mean that evidence in the form of a certificate or a letter relating to the zero-carbon home criteria but issued by an assessor accredited for the purposes of the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 could not be adduced as evidence that a house qualifies for relief from stamp duty land tax.
The assessors in question—SAP, or standard assessment procedure, energy assessors—are the only class of people who can produce energy performance certificates for newly built homes. They are a different group of energy assessors from the domestic energy assessors who are being trained to produce energy performance certificates for inclusion in home information packs. The new home assessors have been up and running for some time.
If we did not allow taxpayers to adduce such evidence, we would lose much of the evidence base that would be used to evaluate whether a home was zero carbon or not. That is particularly important because the decision on stamp duty is made at the moment of purchase, whereas we are trying to incentivise homes to be zero carbon throughout their lifetime. If we could not use the evidence produced by those assessors, we would have to use other, perhaps less reliable, forms of evidence to evaluate a home’s entitlement to the relief.
If HMRC had to develop a new accreditation system, that would be tantamount to reinventing the wheel. Such an approach makes no sense. It would mean increased costs for builders as they would face more regulatory burdens to build zero-carbon homes, because they would face one set of mandatory tests for the purposes of the energy performance of buildings regulations and another to satisfy HM Revenue and Customs that the relief is justified.
In designing the relief we have tried to build on existing structures, and I do not see how the amendment would help. We are trying to encourage the building of zero-carbon homes by developers, not to make them go though additional tests. When developing proposals for the relief, we thought that builders should be able to draw on the use of existing material from other legislation to adduce the home’s entitlement to the relief from stamp duty land tax. Energy performance certificates were initiated in January 2003 and it will be mandatory for an EPC to be issued when a new building, including a new home, is built, sold or rented out.
The criteria for zero-carbon homes draw on the same methods of establishing energy performance of buildings as used for EPCs, although the criteria for zero-carbon homes go beyond the assessment required for EPCs. The advantage of using the energy performance certificate system is that it already exists as a framework to assess the energy performance of buildings. To set up another system to deliver similar objectives and assess deliberately similar tests would be inefficient.
Amendment No. 7 would insert two new paragraphs in the clause. The first new paragraph adds a requirement that the regulations made shall expire one year after coming into force. Further regulations permitting the relief would have to be laid. The second new paragraph—paragraph (9)—states:
“Further regulations under section 58B may not be made unless they contain a provision specifying that they expire one year after coming into force.”
The amendment would limit the lifetime of any such set of regulations to just one year after their coming into force, after which either the relief would not be available or new regulations would need to be made annually affording the relief. As a consequence, parliamentary and Government time would have to be deployed every year in renewing the regulations on an annual basis between now and 2012.
Obviously, like most hon. Members, I recognise that the regulations that underpin this relief will change over time. That is inevitable as the zero-carbon homes industry is in its infancy and technological developments make change inevitable. We have made allowances in the clause to amend the regulations where such technical changes are needed. Indeed, I have today announced a two-and-a-half-year review to ensure that we are achieving our objectives of alignment and progress towards our goal. There is a considerable difference between having the flexibility to make changes to regulation if required and what is being proposed in amendment No. 7, which is essentially that, every year, the relief should be allowed to run only on a year-by-year basis, depending on renewal by the House. Our fear is that that would send a negative signal. Imposing a one-year time limit and having to renew the regulations each year would not provide developers with the certainty that they need in order to plan the development of zero-carbon homes. Given the length of time needed from land acquisition to the sale of new homes, such an amendment could restrict house builders’ opportunity to take full advantage of the tax exemption. In our view, the amendment would create uncertainty for homebuyers and also home builders, and significantly reduce their ability to plan ahead financially with a view to building a zero-carbon home.
Stewart Hosie: I did in fact take part in the debate in Committee, where I asked a question about definition and validity of the tax incentives. When the Economic Secretary considered the matter, he said:
“We may need to make the measure more generous, or we may find when we look in advance of 2012 that we were more generous that we needed to be and that there is a lot of dead-weight cost.”— [Official Report, Finance Public Bill Committee, 15 May 2007; c. 143.]
That brings me to the very point that we are discussing. He is speaking about alignment in relation to the planning system, building regulations, stamp duty, definitions and all sorts of other issues. He has offered an interim review. Given that there is a requirement in the Government’s mind that all the measures should be aligned across legislatures and in local government, would it not make sense to have a more frequent annual review that the industry, and developers and builders in particular, know about in advance, to ensure that the alignment continues and that he gets the linear trajectory that he expects?
Ed Balls: The hon. Gentleman is right that we need to strike this balance carefully. The two areas in which I have clarified our position in our desire to achieve alignment—gas mains and multiple homes—indeed involve ways in which we can offer the prospect, following consultation, of more generous relief through a more generous interpretation of zero-carbon homes in the early years when we produce the regulations in the autumn. We are making those concessions, but at the same time, we also have to ensure that we strike the right balance and do not open the door to substantial rebadging and tax avoidance relating to homes that do not really meet our zero-carbon objectives. We are trying to get a sensible and aligned, and in the early years generous, definition. Our two-and-a-half-year review is intended precisely to give us the opportunity to assess whether we are making that progress.
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As I said, however, to review year by year and particularly not to give any certainty that the regulations would continue after one year unless the House acts again, as the amendment proposes, would run the risk of holding back the market and making it too easy for Governments not to deliver on our commitment. We want to kick-start the market. Our fear is that the amendment would hamper the market’s ability to kick-start, because it would be too easy to renege on an annual basis if Ministers of either party so desired.
I should like to return to our debates in Committee and quote the contributions of some Opposition Members, who unfortunately are not all present. The hon. Member for Windsor (Adam Afriyie) said: “From my business background”—this was one of the numerous occasions on which he cited his business background—
“and given how long it takes to build properties, it seems to me that putting a short time limit on the tax relief”—
at that point, he meant five years—
“sends a signal that the Government are uncertain whether the relief will continue. What confidence does that inspire in builders, who have to invest hundreds of millions of pounds developing new homes? It sends no confidence signal at all.”
I set out to the hon. Gentleman why I thought a five-year limit was a sensible point at which to assess the future of the relief. In the same debate, the hon. Member for Braintree said:
“I am concerned that from the outset there is a limited window of opportunity—five years—attached to the scheme, however. As a business man, I point out that the technology required to approach the standard of a true zero-carbon home will require significant capital investment from developers to reduce the high unit cost of microgeneration technology.” ——[Official Report, Finance Public Bill Committee, 15 May 2007; c. 126-137.]
It is because we want to make sure that we achieve the incentive that we have not only set out a five-year relief, but said that well in advance of five years we will make a public decision as to whether the relief will continue.
I think that we are hearing a rather confused message. The amendment tabled by Opposition Front Benchers proposes not an extension of the five-year time limit, but annual renewal of the regulations, while two Opposition Back Benchers suggested that five years was not long enough. I genuinely value the practical experience brought to the Committee by former and, as in the case of the hon. Member for Braintree, current business men when designing the relief, I do not think that they would agree that moving to an annual basis for making the decisions would be a sensible way to proceed.
Let me quote Stewart Baseley, the executive chairman of the Home Builders Federation, another business man:
“We welcome this package of measures in setting both the goal and direction for achieving more and greener homes. Progress will be achieved most effectively through a framework in which Government sets clear objectives, industry is given the space to deliver and consumers are on board.”
That is what we are trying to achieve with these measures. The amendments would not only add to bureaucracy, but by moving to an annual basis for making the decisions, they would have the opposite effect to that intended by hon. Members on both sides of the House and the Government, and also the Home Builders Federation.
In conclusion, I hope that the House will agree that the Government amendment will add value to the process of developing better legislation and fulfil the commitment that I made in Committee to do everything I could to ensure that we had an affirmative procedure on this matter. I hope that I have given reassurance to the right hon. Member for Wokingham that we are making progress on the detail in order to achieve, within the scope of the clause, the objectives that we have set out. I hope also that we have satisfied the hon. Member for Falmouth and Camborne that we are making tangible progress in providing clarity in definitions, and that we have seen off some of what I think she called the cynicism that we heard in the Committee, which is not well founded in this particular policy area.
I hope that we have persuaded hon. Members that presentation is not what this is about. I am sure that my colleague on the Labour Benches, my new hon. Friend the Member for Grantham and Stamford, would agree that this is an area where substance not spin is the way forward. I therefore urge the House to deliver our 2016 zero-carbon home objective, to support the Government amendment and to reject both the amendments tabled by the Opposition.
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