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Secondly, does the Chief Secretary anticipate any adverse impact on domestic energy efficiency if people
realise that there is little incentive or indeed some risk in generating a significant excess? We have heard much about that point this afternoon. Lastly, would not it be simpler to forget the idea of intention altogether and stick with the generation limits already contained in the Climate Change and Sustainable Energy Act 2006?
There is a compelling need for the Government’s policy on incentivising microgeneration to receive some scrutiny, which amendments Nos. 35 and 36 will provide. As we have heard, the most significant challenges faced by those wishing to install microgeneration are the high start-up costs and, consequently, the length of time needed to justify the initial capital costs. In principle, at least, exempting from income tax the sale of electricity from domestic microgeneration is a step forward, as it would seem to speed up the return on that initial investment. I suspect, however, that the measure will make not a jot of difference; it is a classic case of gesture politics.
First, there is no evidence whatever that HMRC has attempted to collect any tax in that context. If it had done so, the policy could have been curtailed in a memorandum of understanding rather than in legislation. Secondly, the sums involved, I suspect, will be truly minute. In any event, the Government are committed to clamping down on a significant excess of generating capacity, which suggests a policy that is pulling in two directions at once. We have no idea how successful the provisions are expected to be, or how it is thought that they will influence behaviour. While the Government are arguing over pennies, the pounds seem to be going astray. The low-carbon buildings programme seems to have restarted, but the general impression has been one of a policy in disarray and a lack of co-ordination across Government. Waiving income tax on electricity generation will not address the central issue of capital costs, and how else it can contribute remains to be seen.
A report on the benefits of the policy would be most welcome so that the issue does not continue to obscure the significant challenges faced in the quest to take microgeneration into the mass market. Clearly, we are not there yet. Recently, I met representatives of British Gas to discuss the latest phase of its innovative scheme to incentivise microgeneration: Members with an interest in climate change and energy efficiency will have heard me wax lyrical previously about its successful partnership with Conservative Braintree district council to offer council tax relief in return for cavity wall insulation. That scheme has now been extended to a subsidy of microgeneration technology. However, the numbers are still, at least to my mind, marginal. It costs £11,000 to install a photovoltaic solar panel or, slightly better, £4,300 for solar thermal installation. In return, participants qualify for a one-off council tax rebate of £500 and £300 respectively, in addition to eligibility for a subsidy of about 10 per cent. from the low-carbon buildings programme. Those technologies require some 25 or perhaps 30 years to repay the investment, and are unlikely to have mass market appeal.
I would like a report to be made to Parliament, as the amendments propose, to see whether the Government’s policy has any impact on the numbers. If it does, I shall applaud them. The British Gas representatives whom I
met wryly observed that one of the reasons for the scheme’s success was that people preferred a tax rebate to a subsidy, even if the amount is the same. In the same spirit, perhaps a tax-free income from microgeneration will prove to be a similarly successful incentive. We shall have to wait for the report called for by the amendments, which I hope the Government will support.
7.15 pm
Mr. Dunne: I wish to speak briefly in support of the amendments, which are to clauses that I recall describing in Committee as a “puny measure”—because of their impact on the revenue, and because they illustrated the Chancellor’s attempts to position the Budget as a green Budget without having any significant impact on take-up of microgeneration. The amendments will therefore highlight and expose for the Government and the public at large the fact that the measure will be meaningless.
There are two inconsistencies in the Government’s approach to microgeneration and renewable energy. First, as the Chief Secretary will know if he has read the National Audit Office’s report, the Government have an opportunity to encourage renewable energy in their own building programme. They spend some £3 billion a year, across different agencies, on new buildings and refurbishing existing premises, and they have committed themselves to introducing energy efficiency into those buildings. But when it comes to actual measures—surprise, surprise—they find, as my hon. Friend the Member for Braintree (Mr. Newmark) was saying, that the lack of cost-effectiveness is unfortunately prohibitive. In the case of Nottingham prison, it would have cost more than £2 million to install the energy efficiency measures that the prison authorities wanted; they did not have the budget, so none of them was installed. In the public sector, the payback on solar panels is approximately 18 years. Action taken on such measures would be far more effective than the clause under consideration.
Secondly, in relation to the low-carbon buildings programme, which, as other Members have highlighted, has been introduced in a shambolic fashion, the companies proliferating around the country trying to help domestic consumers to make such installations have been subject to regulatory overload in the form of the Building Research Establishment. It has now started a system of registration of those installers—a registration process that is adding considerably to the costs and risks of being in business. Most of them have relied on the low-carbon buildings programme grant to encourage customers to take up installations. Not only do they find that those grants are cut from month to month and are unreliable as to availability, but they are now being charged to be registered as installers—£1,800 to get registration, plus an additional £600—
Madam Deputy Speaker: Order. The hon. Gentleman is going rather wide of the amendments.
Mr. Dunne: The point of my illustration, Madam Deputy Speaker, was to show that far from easing microgeneration, the Government are making it more difficult through such measures. The Chief Secretary ought to address those issues, rather than introduce gesture clauses.
Mr. Timms: We have had an interesting debate, marked by passion and commitment across the House. We have had debates of a similar tenor on such matters previously.
Let me remind the House of the purpose of clauses 20 and 21. They aim to remove a barrier, or hurdle, which has discouraged householders from investing in microgeneration. As we have heard, microgeneration is defined in section 4 of the Climate Change and Sustainable Energy Act 2006. That Act requires the Secretary of Sate to consider by next year whether the introduction of targets for microgeneration is appropriate, and to report annually on measures taken to meet that target. We will return to that in relation to the amendment about reporting. The list of eligible technologies is set out in that Act.
The low-carbon buildings programme has been discussed this afternoon. Between 2002 and 2006, we provided £11.6 million of funding for householder microgeneration installations. The low-carbon buildings programme will provide householders with £18.7 million over two years, including the additional moneys announced in the Budget—a significantly improved level of funding. We are aiming, however, for a sustainable UK industry that is not dependent on subsidy. Grant funding for householders has certainly played its part, but we need to look to longer-term measures that will support the industry in future, such as the energy efficiency commitment, the removal of planning barriers and the zero-carbon homes commitments, including the removal of stamp duty, which we debated earlier.
Mr. Drew: I hear what the Chief Secretary says, but surely the policy would be more credible if we were trying to achieve economies of scale. One problem with the low-carbon building programme is that it is aimed at individual households. To make a real difference, as we see in parts of Europe such as Germany, we need to generate by using renewables on a street-by-street or estate-by-estate basis. What are the ways in which the Government are seeking to achieve that?
Mr. Timms: We are considering a variety of ways, in particular through the renewables obligation. It is a powerful market-based mechanism that is a lever for bringing about the changes that we need. It introduces advantages for householders, but even more advantages for generators. Offshore wind generation has started and other new technologies are being introduced. That is how we can achieve a sustainable and long-term way forward, avoiding the huge costs of some of the feed-in tariff systems on the continent.
Alan Simpson: Will the Chief Secretary reconsider his point about huge costs? As I understand it, according to the figures, the scheme in Germany cost its Exchequer nothing last year, and it cost the energy industry a total of €15 per household bill per year to finance. So far as the Germans are concerned, the claims of huge costs do not stack up.
Will the Chief Secretary also reconsider what he said about renewables obligation certificates? It would help if the Treasury could examine whether they work in terms of accessibility. I am a generator of surplus energy who has been defeated by the process of claiming ROCs. If those of us who are anoraks cannot
get through the maze, then those who are keen but are not anoraks will give up, too, and the system of ROCs will defeat all the Government’s intentions.
Mr. Timms: The renewables obligation is proving to be an effective lever for raising the proportion of electricity generated from renewable sources. We have seen that rise pretty sharply over the past few years in response to the renewables obligation. There has been an animated debate in Germany about the costs of the feed-in tariff and other processes. I did not follow the election debate there closely, but I am told that that was a significant element of it. It is certainly not the consensus in Germany that the feed-in tariff measures are inexpensive. I am sure that one can present the figures in a variety of ways, but there is serious political concern about the costs of the arrangements.
I am disappointed to hear that my hon. Friend has been unable to claim any ROCs for his own electricity generation. I shall take that point away and consider it. I agree that the mechanisms need to be accessible to change behaviour. There is no doubt, however, that the renewables obligation is starting to bring about the large-scale changes that we need for an up-scaling of electricity generation from renewable sources.
The primary purpose of microgeneration is for people to generate their own domestic electricity, but they can, and are most welcome to, sell surplus electricity back to the national grid, as my hon. Friend has done. ROCs are available. I am confident that people are receiving those from domestic generation, although I shall check that point further. The certificates can then be sold to energy companies.
However, receipt of income in that way raises the question of liability for tax. Uncertainty about the tax position has been a disincentive to the take-up of microgeneration. Clauses 20 and 21 aim to remove that disincentive. Together they ensure that householders do not face a tax bill by investing in microgeneration equipment for their own domestic use. They exempt from income tax and capital gains tax the proceeds from the sale of surplus electricity and from the receipt and disposal of ROCs. They remove the uncertainty and therefore the disincentive. I think that the House will agree that that is a welcome change.
The precise value of the income tax exemption will depend on how much surplus electricity a householder will generate. A householder can expect to make between £120 and £240 a year from a wind turbine and perhaps £40 a year from a solar photovoltaic system, although that will depend on the weather conditions and the contracts that are in place. We announced in the Budget that the Government will ask Ofgem to examine how householders can benefit more from the prices paid to them when they export electricity to the grid. Perhaps that will give us an opportunity to address the problem of microgenerators accessing ROCs.
The tax exemptions are available only for householders who have installed microgeneration primarily for their own domestic use. They do not apply to individuals who invest in microgeneration with the intention of selling surplus electricity or of dealing in ROCs as a commercial activity. That is right. The test of significantly exceeding the amount that they use themselves is simple and straightforward, and it ensures that the tax exemptions are properly targeted.
It has been argued that the “significantly exceeding” test should be removed from both the exemptions, so widening the scope of the tax exemption to include those individuals who are seeking to make a commercial profit from domestic microgeneration. I argued in Committee, and argue again now, that that would be ill advised. The clauses provide clarity for householders who are involved in microgeneration. They ensure that unless an individual is trying to make a significant profit, he will not face a tax charge as a result of microgenerating electricity.
Mr. Redwood: What would happen if a family of five put in generation equipment that was suitable for their requirements and shortly afterwards the children went to university, one of the two adults left home, the family broke up and only one person was left living in the house? Would that person be deemed to be generating far more power than he should and therefore have a tax liability?
Mr. Timms: The test is based on intention. Most householders are not installing microgeneration systems that substantially exceed their total consumption in a year. As long as that is the case at the point of installation, depending on the circumstances, I do not think that they would be caught. However, it is right that a business based on commercial microgeneration should pay tax on its profit just like any other commercial activity. To do as the amendments propose would be unfair. They address a problem—uncertainty about the tax position—that does not exist if the primary purpose is commercial. It would be odd to give tax incentives to electricity companies to set up power stations in people’s homes, to use the right hon. Gentleman’s phrase. Why should there be a tax unfairness against renewable generators? That would be the wrong way to go. The “significantly exceeding” test is the right approach. I hope that the amendment will be withdrawn.
By deleting clause 21, amendment No. 35 would remove entirely the exemptions for both income tax and capital gains tax which apply to the receipt and sale of ROCs. That would simply perpetuate the uncertainty—indeed, it would make the uncertainty worse for householders who have invested in microgeneration equipment for their home—and undermine the aim of removing uncertainty, which from the tenor of the debate is something that I think the whole House would support. That uncertainty has discouraged take-up of domestic microgeneration. Removing the clause would make the position worse again.
7.30 pm
Finally, I come to amendments Nos. 34 and 36, which would impose a statutory obligation on the Treasury to publish an annual report on the effectiveness of the new income tax exemptions. I noted in particular the heartfelt nature of the calls by my hon. Friend the Member for Nottingham, South (Alan Simpson) that the Treasury should take that on. I know that we have had this debate before, but I make the point to the whole House again. Last year, the Government published their microgeneration strategy, which included the commitment to assess progress on a continual basis and
publish a report each year as part of the annual report on the energy White Paper. There is no case for duplicating that with another report along those lines.
Nor do I agree with my hon. Friend that nothing ever happens unless the Treasury takes charge of it. That is a counsel of despair. The Secretary of State with responsibility in that area rightly has the lead responsibility and has to report in collaboration, of course, with the Treasury. I can tell the House that Treasury officials have met representatives of the microgeneration industry a couple of times just in the last six weeks. The Treasury is firmly engaged with this issue, but does not have the policy lead, which rightly rests with the Secretary of State, and that is also where the reporting duty should rest.
Jeremy Corbyn: I am delighted to hear that the Treasury is firmly engaged in this process, and that is good news, but my right hon. Friend understates the power of the Treasury. Clearly there are tax issues and costs involved, as well as huge benefits for the community. What is the problem with reporting on microgeneration issues once a year? Decisions made by the Treasury will have a huge impact on whether or not we promote microgeneration.
Mr. Timms: Of course the decisions of the Treasury have a wide impact on a broad range of issues, but it would be wrong to say that therefore the Treasury should lead on all of them. The appropriate Secretary of State is the right person to lead and, in this case, there is a clear statutory obligation to annual reporting. The annual reports should address the kind of issues that we have discussed in this debate and, no doubt, information from the Treasury will enable those reports to be completed. However, it would be a mistake to say that the Treasury should lead on this or all the other issues to which one might apply the same argument. The right person to make the report is the appropriate Secretary of State.
Mr. Paul Goodman: As an indication of the Treasury’s willingness to report, will the Chief Secretary now answer the question that I put to him initially? How many microgeneration schemes does he expect these tax reductions to produce?
Mr. Timms: As I said earlier, the Climate Change and Sustainable Energy Act 2006 requires that the Government consider, by November next year, whether it is appropriate to introduce targets for microgeneration and, if they are introduced, to report annually on things done to meet those targets. That decision will be made by November next year —[ Interruption. ]
Madam Deputy Speaker: Order. The level of conversation in the Chamber is rising. Members who have been present throughout the debate are entitled to hear the closing remarks.
Mr. Timms: I am grateful to you, Madam Deputy Speaker. I am about to draw my remarks to a conclusion—[Hon. Members: “Hear, hear.”] I note the enthusiasm of the House for my concluding observations. The amendments are unnecessary and I ask the House to reject them.
Mr. Goodman: This has been an interesting debate and it has formed itself around an observation by the hon. Member for Nottingham, South (Alan Simpson). He argued that what one does not report on, one is less likely to be held accountable for. What one is not held accountable for, one is not likely to have much of an incentive to improve. If the Treasury were to report once a year on the effectiveness of its microgeneration strategy, it would set out clearly how successful it expects the strategy to be; it would raise expectations and standards; the Treasury Committee would take great interest in it; and it would enable the Government to be held to account for what they are doing under these two clauses.
The main amendments that we propose, amendments Nos. 34 and 36, are simple. They ask the Government to give an assessment not of their wider strategy, but simply of how successful they expect the clauses to be.
John Bercow: My hon. Friend will agree that the Chief Secretary is a prodigiously intelligent fellow, but although we listened intently we have not heard of any ill effect that could possibly flow from the adoption of the amendments. As an earnest of good intent, therefore, why does not the Chief Secretary accept them?
Mr. Goodman: The Chief Secretary has simply argued that it would be duplication for the Treasury to produce a report about tax, which is its responsibility and not the responsibility of other Departments. The Chief Secretary, who is indeed prodigiously intelligent, was radiating institutional resistance to the idea that once a year the Treasury should be required to report on how effective the measures are likely to be.
I cannot ask the House to vote on all the amendments, but I will pluck out the main one, so it is our intention to press amendment No. 34 to a vote. We regret that, in his last full day as Chancellor, the Chancellor and his Ministers have not taken the chance to join the consensus that has been demonstrated across the House this evening. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: No. 34, in page 15, line 17, at end insert—
‘(3) The Treasury shall prepare and lay before the House of Commons annually a report on the effectiveness of the tax relief mentioned in subsection (1) in achieving its objectives, with particular reference to the change in the amount of electricity generated by microgeneration systems.’.— [Mr. Paul Goodman.]
Question put, That the amendment be made:—
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