Improving housing
118. The Government has two main initiatives for
improving the energy efficiency of the housing stock. First, the
Carbon Emissions Reduction Target (CERT) places an obligation
on energy suppliers to achieve targets for reductions in carbon
emissions in the household sector. Under CERT, suppliers must
direct at least 40% of carbon savings to a priority group of low-income
and elderly consumers. Second, the Government's Warm Front programme
provides a package of insulation and heating improvements for
private homeowners up to the value of £2,700 (or £4,000
if oil central heating is recommended). Although it is not targeted
specifically at the fuel-poor, only households on certain benefits
are eligible to receive grants.
119. Warm Front has delivered significant benefits
for recipients of grants, and on average it has reduced their
energy bills by £300 per annumsome 30%.[219]
However, the Chief Executive of the scheme's operator, Eaga, told
us it faces some significant challenges. Since 2002, the Government
has raised the grant ceiling of £2,700 by far less than the
rate of inflation. As a result, the programme has gone from being
effectively free at the point of access, to one where a large
number of beneficiaries must contribute an additional amount themselves.
Eaga told us some 16,000 people are currently on its waiting list
because they cannot afford the top-up.[220]
Moreover, from this year the Government has cut funding for Warm
Front by 16%, from £350 million in 2007/08 to £295 million
in 2008/09. Funding will further reduce to £270 million in
2009/10 and £235 million in 2010/11. Yet Eaga told us current
demand for the scheme is worth in excess of £400 million
a year.[221] In evidence
to the Liaison Committee, the Prime Minister suggested that there
might soon be developments which could correct this: we hope these
announcements are made soon.
120. In its most recent annual report, the Fuel Poverty
Advisory Group stated:
"The cut in Warm Front is, to put it mildly,
difficult to understandgiven the programme's success and
given the still more pressing need, in the wake of the price increases,
to improve the energy efficiency of homes and heating systems.
The programme has been cut when fuel poverty is at its highest
level for nearly a decade."
The fuel poverty groups suggested various ways in
which the Government could raise funding from other sources to
increase support for Warm Front. The FPAG estimates that discontinuing
Winter Fuel Payments for higher tax rate payers could raise an
additional £200 million, but we do not believe this option
is politically acceptable. It also said that the Government could
recycle some of the £400 million of additional VAT payments
it is receiving from energy customers as a result of recent prices
rises and suggests redistributing some of the windfall gains made
by electricity generators from Phase 2 of the EU Emissions Trading
Scheme, which we discussed in Chapter 3.[222]
However, the Government is correct to say that increased VAT income
from one area is often counter-balanced by reductions elsewhere.
We also note that the Government is making substantial gains from
the auctioning of permits under the EU ETS, and would have made
more if it had chosen to auction 10% of permits, as it could have
done, rather than opting for the lower level of 7%.
121. After several years of increases, it is very
disappointing that in the current three-year spending period the
Government has reduced the budget for Warm Front at a time when
the need for it is greatest. This is especially so, given that
HM Treasury has received additional income from the auctioning
of permits under Phase 2 of the EU Emissions Trading Scheme, while
electricity generators are benefiting from windfall gains from
the free allocation of the majority of permits under the same
scheme. We hope that this reduction in funding will be corrected
very quickly.
122. We recognise the claims made by the generators
about the way in which they have used the 'windfall gains' under
Phase 2 of the EU ETS, and we understand the danger that regulatory
uncertainty could delay investment plans. However, given the apparent
size of the gain (something we have already asked Ofgem to examine
more carefully), and the extreme need of many households, we believe
there is a compelling rationale for at least a modest, one-off
top-slicing of these gains to help fund action to reduce the energy
bills of vulnerable families in the long term. However, we also
note the windfall gains accruing to HM Treasury, and believe it
too must make its contribution in these exceptional circumstances.
123. Energy prices are likely to remain high,
by historic standards, and the Government is unlikely to be able
to raise incomes sufficiently rapidly to meet its fuel poverty
target, especially given the current economic downturn. This means
that in the future, government and industry efforts need to focus
on improving the housing stock of the fuel-poor, as the most cost-effective
means of reducing both their energy bills and their carbon emissions.
We believe the Government must consider whether the Carbon Emissions
Reduction Target and Warm Front should be more precisely focused
on helping the fuel-poor, and whether synergies between the two
initiatives can be more actively exploited. If the Government
remains committed to eradicating fuel poverty it must have in
place policy instruments specifically designed to achieve this
aim that do not rely on ongoing subsidy of fuel bills. A great
many households face a difficult winter; it is imperative that
the Government reviews its approach to fuel poverty and does so
urgently.
202