Examination of Witnesses (Questions 483-499)
PROFESSOR JOHN
CHESSHIRE AND
MR JOHN
CLOUGH
5 JUNE 2008
Q483 Chairman: Gentlemen, welcome to
this second part of today's evidence session. Thank you for your
written evidence, which I appreciate. Could you introduce yourselves
and your organisations for the record?
Mr Clough: John Clough, Chief
Executive of eaga plc.
Professor Chesshire: I am John
Chesshire, a member of the Fuel Poverty Advisory Group, currently
acting Chairman of that group.
Q484 Chairman: Professor Chesshire,
there is one thing that intrigues me about your memorandum. It
has some quite critical things to say about the structure of the
industry and implicitly some of the behaviour of some of the members
of it. I notice that Graham Kirby of E.ON, Ian Peters of Centrica
and Eva Eisenschimmel of EDF Energy are all members of the group.
Do they not come to the meetings?
Professor Chesshire: They do indeed.
They are a broad church, FPAG members. You are quite right, we
have government officials there and we have the voluntary sector,
we have the housing sector, fuel poverty organisations and the
energy suppliers. We can very rarely aim at unanimity, Chairman,
but we do aim at the highest common factor most of the time, but
where there are a set of views which is shared by a majority where
there clearly is a problem affecting fuel poverty we try to express
it even though the energy suppliers sometimes would not wholly
share our views.
Chairman: That is a helpful clarification.
Q485 Mr Wright: In terms of Warm
Front you heard my comments beforehand. What are your views so
far as the performance is concerned of Warm Front?
Professor Chesshire: As far as
the Fuel Poverty Advisory Group I think we see it as a very successful
scheme in itself. It has been evaluated, there have been some
difficulties, some of which you raised yourself a little earlier
with other witnesses, but where there have been value for money
assessments undertaken of the scheme by government and by the
Scheme Board of Warm Front (eaga), it is shown to be broadly successful.
I am sure lessons have been learnt from those evaluations. I am
not being entirely complacent of it. The primary criticisms are
the sheer scale of the programme and we can come to that maybe
later on. You heard also about the limit on the grant maxima which
is becoming a constraint in the programme. Some people would also
see a greater focus by joining up some of the alternative delivery
programmes such as CERT and Warm Front maybe at an area based
level.
Mr Clough: In terms of the scheme
itself at a macro level the indicators are that it has never been
more successful than it is at the moment. It has assisted getting
on for half a million homes in the last two years. The average
impact on fuel bills is of the order of £300 per annum. Those
people who receive a heating intervention then that saving is
considerably more than that but, as John has said, and as you
yourself have echoed, there are some challenges in the programme.
Some of those are architectural by the nature of the scheme in
terms of its grant maxima, et cetera. To give you a feel
for that, because I know that that is a matter which particularly
interests Members, since 2002 the grant ceiling of £2,700
has risen by 8%. In the same period, RPI is above 20%. That is
not to be complacent. We have applied downward pressure to pricing
and the supply chain and that has been somewhat successful, but
we have moved from a programme which, in 2000, was hailed as effectively
free at point of access—whilst the word "free"
was not used, that was the implication—to a system where
now if you are eligible for a heating intervention, and 65% of
those people who we assist do get a heating intervention, about
half of them are expected to make a contribution now. The average
contribution is over £500 and, as Jenny said in her evidence
earlier, that is a significant sum for this client group. It is
unsurprising, therefore, with the pressure on this client group
that we have because of high energy prices, and the demand has
never been higher for the programme, nor its satisfaction levels
higher, that we have got this confluence of forces which is bringing
to bear a very high demand and with some individuals who are in
great need an inability to fund the excess themselves. We work
very closely with local authorities, caring agencies and the likes
of the British Legion. Indeed, we ourselves have a corporate social
responsibility fund and this year we will forego £2 million
of contributions as effectively the installer who is the backstop
to provide these services if no-one else will. So there is a significant
amount of contribution from the supply chain, from local authorities
and from caring agencies, but there are still 16,000 people on
my waiting list who cannot have a heating system because they
cannot afford it.
Q486 Mr Wright: Have any customers
been prevented from going ahead with the Warm Front because they
could not afford the top up, or has there always been something
in place to take into account that amount?
Mr Clough: There are a number
of people who basically say "I can't afford it".
We try every available route to assist them. They look obviously
to see if they can afford it by some other means but there are
a number of people who have sadly fallen by the wayside because
they just cannot proceed.
Q487 Mr Wright: Do you have numbers?
Mr Clough: There are 16,000 at
the moment who are sitting there waiting for more funding. That
is not to say all of those will not go further, but all I can
do is give you a snapshot in time as to the number of people who
are not proceeding through the programme.
Q488 Mr Wright: Is that 16,000 who
could not afford the top up, or is it 16,000 waiting for the next
tranche of money to come through from government?
Mr Clough: No, we are not constrained
at the moment in the sense that we have not run out of money,
but each individual only gets £2,700, so those 16,000 are
sitting there with a bill greater than £2,700. We know from
the independent assessment—no-one was keener than I to see
the result of that appraisal—was that the equivalent service
in the, if you like, private sector where you go out and seek
your own contracts would be 57% more expensive. If I can just
pre-empt one of your questions which you asked previous witnesses—why
is it that a local installer can offer a cheaper price—the
question is about sustainability of that price offering and there
is always a spot market available and that is not to decry that,
but a very important point is compliance with the likes of Part
L of the Building Regulations. The big difference between the
likes of Warm Front and if you or I went to our local installer
is that, under Warm Front, we inspect 100% of all of the heating
systems independently to ensure that they have been installed
to those building regulation and safety standards. If you or I
went to a Corgi registered installer, I am afraid we would take
that Corgi registered installer's view that he was operating to
standard and, to be perfectly frank, as a non-technician I would
have to take his word for that.
Q489 Mr Wright: I have raised a concern
with a particular constituent of mine with yourselves and I would
question that particular statement in that respect, but in terms
of the eligible households, how many would you estimate in the
UK would be eligible for Warm Front if they were to put their
name forward for it?
Mr Clough: I would concur with
the earlier figures where we have, in terms of eligibility for
Warm Front, around the three million number because they are the
vulnerable fuel poor as opposed to the larger cohort of fuel poor
households at four and a half million, vulnerability being determined
as disability on a means-tested benefit, et cetera. Those
are the proxy eligibility criteria which enable you to apply for
Warm Front.
Q490 Mr Wright: Was there any reason
given to you by the Government as to why the spending had been
cut in this particular area?
Mr Clough: Government do not need
to account to me. The company is there to deliver the programme
at the funding levels provided. Clearly the impact is significant.
Q491 Mr Wright: In terms of numbers,
even at the level of £2,700, how many are we talking about
in reduction on an annual basis?
Mr Clough: On an annual basis
the funding has gone from £350 million or so of government
funding last year to the order of, and I have yet to have the
final number confirmed, £280 million this year, so a £70
million reduction at an average grant spend of about £1500.
That gives you an impact on the number of households, but in fact
because of the increase in what I would call run rate—the
rate of activity month by month—at the end of last year
Warm Front was operating at a level on an annual basis in the
last quarter of about £400-£410 million, which is now
reduced to £280 million, so the downturn is significantly
more.
Q492 Mr Wright: If the Government
was to come back and say there are financial difficulties and
decisions to be taken, which there always are, how would you suggest
that they could actually claw back or raise the extra revenue
required to breach that particular gap, but also go a step further
to make sure that there is more than enough money in there to
take into account the extra costs, but also the number of people
that would require this, because quite clearly this impact of
Warm Front would have an effect of reducing the number of people
who are in fuel poverty.
Mr Clough: It would and it is
very effective at alleviating fuel poverty. If we were just looking
to restore the budget, then we would be looking for something
less than £100 million per year, but the true demand out
there is well in excess of £400 million per year. We know
that from the demand we get in our contact centre and through
our networks each day. In terms of where would those funds come
from, there are a number of choices but clearly they are political
choices and we just offer some thoughts on that. We have looked
at winter fuel payments in terms of every individual gets those,
whether they are on a higher tax band or not. The impact of taxing
those people on the higher band and recovering that would be,
we believe, of the order of £200 million per year, so there
is an opportunity there. Increased fuel prices of course, whilst
they are the cause of this problem, also bring increased VAT receipts
to the Treasury and the estimate there from such as FPAG is of
the order of £400 million per year. If you were to look at
recycling the "windfall" under EU emissions trading
schemes, that also has been estimated at about £400 million
a year. I think there are levers which can be pulled if the political
will is there to pull them.
Q493 Mr Wright: You highlight nearly
a billion pounds of extra income which could be put to good use.
Mr Clough: Indeed.
Q494 Chairman: I think we have covered
some of this ground already in your earlier answers and we can
take this quite quickly. How successful do you think the Energy
Efficiency Commitment was at tackling fuel poverty?
Professor Chesshire: As an energy
efficiency programme it was a great success. The provisional evidence
from Ofgem, which I received earlier this week, suggests they
have overshot the three year target 2005-2008 quite considerably.
When I looked specifically at the impact on fuel poverty the only
data I could find readily, Chairman, was in the Government's own
fuel poverty annual report of last December which said, looking
at the last six years of EEC 2002-2008 and the CERT Programme
to 2011, that nine year period would lower fuel poverty numbers
by about 100,000.[1]
It is important to bear in mind though that those programmes were
not designed as fuel poverty programmes. EEC was designed primarily
as an energy efficiency programme and certainly the Carbon Emissions
Reduction Target, as its name implies, has placed even greater
weight on carbon savings, so in a sense almost by scheme design
the fuel poverty reductions are incidental.
Q495 Chairman: Should CERT be about fuel
poverty at all?
Professor Chesshire: A big battle
certainly in the Fuel Poverty Advisory Group. We argued a case
for a significant increase in capital programme resources both
from Warm Front, the Government-funded programme for England,
but also from the extension of EEC and what became known as CERT.
We argued for about a billion pounds a year of capital programmes
in England. If Warm Front had been kept at the same level that
would have been running at or about £400 million or thereabouts,
but as you have heard it was cut. We argued, as public expenditure
pressures were mounting undoubtedly last year, that the share
that went into the priority group in CERT should remain at 50%.
The Government, as you probably know, chose to lower that to 40%,
although they have now said that they will include all those over
70 years of age, so there is a bit of a widening. The focus on
the priority group is exactly the same as that on fuel poverty—it
is a very broad proxy—so our view is that overall the resources
for fuel poverty have not increased and certainly in relation
to the population now suffering fuel poverty they have diminished.
Q496 Chairman: The best way to reduce
carbon dioxide emissions would be to move entirely to renewable
energy and nuclear energy supply, would it not? It would not do
anything for fuel poverty at all though, would it?
Professor Chesshire: I am not
sure that is true, Chairman. In the climate change programme evaluation
on which John was talking earlier in a different context, the
third most cost-effective carbon reduction programme in the United
Kingdom was the Warm Front Programme.
Q497 Chairman: Let's look at the
extent to which Warm Front and CERT overlap. You have already
mentioned this earlier. How bad do you think that overlap is?
Mr Clough: There are three areas
of potential overlap or integration: at the policy level, at the
financial level and at the implementation and delivery level.
At the policy level clearly they have primary objectives which
are separate. Warm Front is a social policy programme. The Energy
Efficiency Commitment (CERT) is a carbon reduction programme.
There is some overlap which is attempted but they are largely
separate. At the financial level we do have a degree of interaction
because what we are delivering is essentially, to a large extent,
insulation in homes. Both of those programmes have that target
in their sights and therefore to the extent that eaga as Warm
Front main contractor can persuade a utility to contract with
us to fund the insulation measures that we find as we enter a
home so that we will pay for the heating system, and hopefully
reduce the level of contribution required of the client whilst
the utility pays for the insulation and we do that. To give you
an idea of the quantum, last year with a government budget of
about £350 million we raised about £25 million from
the utilities in addition to that by trading those credits. At
an installation level we have an interest in that regard. Where
we enter someone's home we will look to fund the measures again
by whichever route is possible. That can be confusing for the
client because they are not quite sure who is paying for this,
what the deal is, it is not a joined up approach. My own preferred
solution is that wherever we can do the financial reconciliation
and as far as the customer is concerned it is a seamless experience
that someone else—an accountant in a back office—does
the financial reconciliation and sends the invoices either to
Government or the utilities with forward facing contracts to give
us assurance in that regard. That is by far the most cost-effective
way of doing it and the most seamless and best customer experience
for the client.
Q498 Chairman: How does that marry
up with the NEA's suggestion of a hybrid scheme?
Mr Clough: I would see the NEA's
version of the hybrid scheme to be more a joined up version of
what you can do on the ground and we are great supporters of Warm
Zones which effectively then spurs the hybrid programme. In that
regard where you look at a national programme in Warm Front or
a Warm Zones local based initiative or a hybrid base, the key
word in this policy agenda is "and", not "or".
They each have their place, they each have their function and
it is very important that we join those together and we do simply
because we know one another in the field and work very closely
on these things to reduce confusion as much as possible for the
customer.
Professor Chesshire: Warm Front
only targets the private sector and primarily focuses on central
heating systems as well as insulation. The CERT programme by and
large is wider than that. Historically the EEC programmes have
been used very heavily by local authorities and residential social
landlords and so on because there are clusters of properties that
contractors have found attractive to handle. They are running
out of those clusters. The only other point I would make is that
really neither programme has an objective of eradicating fuel
poverty. We have no policy instrument in place to eradicate fuel
poverty. I know that sounds an absurd point to make, Chairman,
but it is a fact.
Q499 Mr Wright: I have a couple of
quick questions because I think they were covered in the previous
session and, Mr Clough, you mentioned it very briefly in terms
of the winter fuel payment. Do you consider it is reaching those
most in need and if the increase that has been announced this
year is going to actually take more people out of the poverty
trap anyway and cover the extra costs?
Professor Chesshire: May I make
a number of points in response to that question. In the Fuel Poverty
Advisory Group we take the view that the winter fuel payment is
not really a winter fuel payment; it is kind of a Christmas payment.
There are those of us on the Fuel Poverty Advisory Group on the
other hand who would say revenue support is running well over
£2 billion a year UK-wide for winter fuel payments. The capital
programme is almost a tenth of that through Warm Front and the
devolved equivalent. Some of us are concerned over time of incremental
changes—the increments of expenditure on Warm Front and
increments of expenditure on revenue programmes such as winter
heating payments. You have heard others give evidence today arguing
for an increase in winter fuel payments. What I would say there
is that we do not know in public policy terms where the next £50
million is best spent. Is it on a capital programme, an increment
to Warm Front? Is it on revenue support to winter fuel payments,
or might it be £50 million to DWP to increase take up of
benefits, because we can take up benefits by those who are not
claiming them. On average I think the benefit health check increases
household income by about £1400 a year. That would make a
dramatic effect. I think we need some cross-Whitehall analysis
with the constrained resources of where is it best spent. Specifically
to your question, as John has said, those paying the 40% marginal
rate of tax are receiving approximately £200 million a year
of tax free income. They are not a priority group I would have
thought. FPAG has argued if resources really are tight you have
to tax that back. The other area for revenue is value added tax.
We heard earlier this afternoon that the increase in consumers'
expenditure in the household sector on energy in the last five
years is £8 billion. The Chancellor gets 5% of that through
VAT and there is £400 million. There is the windfall tax
already, as it were, so there is money there. The question is
where do we most cost-effectively spend it? At FPAG we cannot
tell you that at the moment.
1 Note by witness: The source for this data
is the Government's 5th Annual Progress Report-The Fuel Poverty
Strategy, December 2007, page 19, paragraph 3.27. Back
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