Government Assistance to Industry

Memorandum submitted by The Heating and Hotwater Industry Council

1. Introduction

The Heating and Hotwater Industry Council (HHIC) welcomes the opportunity to submit evidence to the Business, Innovation and Skills Select Committee inquiry on Government assistance to industry.

HHIC understands the Committee will be reviewing key three themes as part of their inquiry process. Our submission, addresses the first of these themes, the role of Government in providing grants through industry focused programmes. HHIC and our membership have unique experience here, through the Boiler Scrappage Scheme, which was introduced in January 2010. The 50 million scheme was established to support the UK boiler and heating industry as well as to generate carbon savings by encouraging home owners to replace inefficient central heating boilers.

The scheme proved to be highly successful and stimulated rapid take up by homeowners. Both consumers and the heating and hotwater industry benefited directly from the Government scheme and our submission outlines the valuable role this scheme played to the Committee.

2. HHIC

The Heating and Hotwater Industry Council (HHIC) is the representative body for the UK domestic heating and hot water industry, worth £3-4 billion. 93-95% of heating and hot water solutions in the UK are covered by HHIC’s membership, and members are committed to supporting and promoting the sustained growth of a low carbon economy.

As an independent, expert knowledge-base for UK domestic heating and hot water, HHIC can support Government in the development of effective, long-term energy efficiency policy for the benefit of the consumer, UK manufacturing and UK carbon reduction targets.

3. The UK boiler and central heating industry

The heating industry makes a major contribution to the UK economy. In 2009 over 1.5 million gas and oil central heating boilers were sold and installed in the UK. About 80% of these boilers are manufactured in the UK and account for about 10,000 manufacturing jobs. In addition new and replacement boiler installations require other components such as controls and pumps. Including installation then the total number of jobs involved in this sector is over 120,000. Total annual turnover is some £4 billion.

4. Improving the efficiency of boilers in UK homes

Since 2005 the UK has the most demanding minimum energy efficiency installation standards for domestic boilers in Europe. Building Regulations in England and Wales were revised in 2005 and required that in most cases condensing boilers would become the minimum installation requirement. Similar provisions were subsequently made within Scottish and Northern Ireland Building Regulations. As a result over 99% of boilers installed in the UK marker are the most energy efficient condensing boilers with efficiencies of about 90%.

There are some 22 million central heating boilers installed in UK homes. At the end of 2009 the number of boilers in each of the efficiency bands A to G was as follows.

(Thousands of boilers)

Whilst Building Regulations across the UK require that when a boiler is replaced then in most cases a condensing boiler must be used, there are no requirements or incentives for home owners to replace existing working boilers. The table shows that there were still some 4.5 million Band G boilers in use in UK homes at the end of 2009. Whilst these boilers are inefficient (many well below 60%) there tend to be extremely robust and can be easily and inexpensively repaired when they go wrong. As a result very long service lives (well over 30 years) are common. As a result home owners have proven reluctant to replace old boilers despite the well publicised benefits of improved energy efficiencies and reduced fuel bills resulting from the installation of condensing boilers. Market modelling forecasts had shown that there would still be over 1 million Band G boilers in use in UK homes in 2020. Industry had provided evidence of this and had lobbied for an incentive to encourage home owners to replace old inefficient boilers.

5. Boiler Scrappage Scheme

In the December 2009 Pre Budget Report, the Government announced the intention to introduce a £50 million boiler scrappage scheme known as the ‘Green Boiler Incentive’. This would provide an incentive of £400 to help up to 125,000 households to scrap their old boilers and upgrade to the latest high efficiency models. The Government’s objectives were to:

· Help sustain work for installers and UK based boiler manufacturers through the economic recovery

· Reduce a household’s energy bill by between £200 and £235 a year

· Reduce carbon emissions by a total of 140,000 tonnes of CO2 per year

Following this announcement Industry was invited to work closely with DECC to advise on a scheme which would be easy for householders to access, would be available for all products and appropriately qualified installers and would have low administration costs. The resultant voucher scheme was launched on 5 January 2010 and was administered by the Energy Saving Trust

The scheme was a major success. There was an immediate high demand from householders for the vouchers and by 26 March all 125,000 vouchers had been issued and the scheme was closed. Home owners were given three months from issue of the voucher for the new boiler to be installed and for the voucher to be redeemed. Within a few weeks of 26 March the Energy Saving Trust reported that virtually all of the vouchers that had been issued had been redeemed. Checks had also been included in the scheme to prevent fraudulent applications for vouchers and to ensure that only eligible boilers i.e. working Band G boilers, would qualify for support. Monitoring by the Energy Saving Trust has demonstrated very high level of compliance.

Boiler sales statistics collected by HHIC also confirmed the very high demand for boilers during the period that the boiler scrappage scheme was in operation. During the first quarter of 2010 gas boiler sales were more than 11% higher than the same period in 2009 resulting in increased business across the supply chain including manufacturers, distributors and installers.

The scheme received near universal praise in delivering its main industry, consumer and environmental objectives. It also fully met the other requirements of ease of access, opportunities for all industry players to participate and simple and low cost administration.

6. Conclusion

A number of lessons can be learnt from the Boiler Scrappage Scheme that HHIC hope the Committee will take into account in their review of Government assistance programmes. The two key lessons are:

· A simple and readily accessible consumer scheme can provide highly effective support for industry and can deliver real benefits to consumers

· A small but appropriately designed and targeted incentive can have a strong influence over consumer behaviour. In this case a simple £400 voucher encouraged homeowners to spend typically a further £2000 -3000 to replace an old inefficient boiler with a new efficient model

28 September 2010