Draft
Electricity and Gas (Energy Companies Obligation) Order
2012
Draft Green Deal Framework (Disclosure, Acknowledgment, Redress Etc.) (Amendment) Regulations 2012
The Committee consisted of the following Members:
† Barker, Gregory (Minister of State, Department of Energy and Climate Change)
† Berger, Luciana (Liverpool, Wavertree) (Lab/Co-op)
† Coffey, Ann (Stockport) (Lab)
Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
† Doran, Mr Frank (Aberdeen North) (Lab)
† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)
† Fabricant, Michael (Lichfield) (Con)
Godsiff, Mr Roger (Birmingham, Hall Green) (Lab)
† Jones, Graham (Hyndburn) (Lab)
† Murray, Sheryll (South East Cornwall) (Con)
† Newmark, Mr Brooks (Braintree) (Con)
Ruffley, Mr David (Bury St Edmunds) (Con)
† Sanders, Mr Adrian (Torbay) (LD)
† Sandys, Laura (South Thanet) (Con)
† Sawford, Andy (Corby) (Lab/Co-op)
† Syms, Mr Robert (Poole) (Con)
† Tredinnick, David (Bosworth) (Con)
† Wright, Simon (Norwich South) (LD)
Mark Etherton, Committee Clerk
† attended the Committee
First Delegated Legislation Committee
Tuesday 27 November 2012
[Sir Alan Meale in the Chair]
Draft Electricity and Gas (Energy Companies Obligation) Order 2012
8.55 am
The Minister of State, Department of Energy and Climate Change (Gregory Barker): I beg to move,
That the Committee has considered the draft Electricity and Gas (Energy Companies Obligation) Order 2012.
The Chair: With this it will be convenient to consider the draft Green Deal Framework (Disclosure, Acknowledgment, Redress etc.) (Amendment) Regulations 2012.
Gregory Barker: It is a pleasure to serve under your chairmanship on this very grey morning, Sir Alan.
The green deal is the Government’s transformational energy efficiency policy, and the energy companies obligation, or ECO, is a vital part of the policy architecture. I want to start by setting out the context behind the two statutory instruments that we are debating.
One of my Department’s key priorities is reducing carbon emissions from energy-inefficient homes and the number of households in fuel poverty. The green deal programme and energy companies obligation are designed to meet those objectives and give consumers access to a range of funding streams for energy-saving improvements in their homes. The green deal is an innovative financing mechanism that enables consumers to pay for the cost of energy efficiency improvements, over time, through savings in their energy bills.
Since the green deal legislative framework came into force in October, we have seen more than 270 separate installer organisations register to deliver green deal measures and more than 140 expressions of interest from potential green deal providers, with 13 already authorised and many more in the pipeline. We recently announced £12 million of funding to be shared across seven core cities, including Bristol, Newcastle and Greater Manchester, and a £10 million pioneer places competition to support local authorities in delivering energy efficiency activities.
The availability of finance for green deal plans will be market driven, but we are working hard with the Green Deal Finance Company and key stakeholders to ensure that that finance is in place by the end of January.
The energy companies obligation, which we estimate will be worth around £1.3 billion per annum, will work with the green deal and require energy suppliers to support those living in harder-to-treat properties and to assist low-income households, helping them to heat and insulate their homes.
The Green Deal Finance Company recently highlighted the important linkage between those policies when it stated that only with the ECO would the green deal be
truly transformational and that together they would provide the large-scale funding necessary to upgrade homes significantly and help the UK meet its carbon reduction targets.Some energy suppliers have questioned the projections given by the Department of Energy and Climate Change on the costs of delivering the ECO and therefore the costs passed through to consumer bills. Clearly, the coalition Government take any impact on consumer bills extremely seriously. Some companies are claiming that the costs of delivery could be more than twice as high as DECC estimates, but I want to reassure the Committee that we do not believe that that will be the case. If we did get evidence that costs were much higher than anticipated, we would certainly take action. We will be monitoring the situation on a rolling, month-by-month basis.
We believe that our economic modelling is robust and that energy company modelling significantly underestimates the dynamics of the growing domestic energy efficiency market. For example, we know that the linkage between ECO and green deal finance, as well as funding to drive green deal demand, will also drive down the costs of ECO delivery. Some of the modelling from the energy companies does not accurately take account of those factors or of the new competition and the many companies seeking to come into the market to compete with the big six.
Michael Fabricant (Lichfield) (Con): My right hon. Friend has rightly pointed out the argument—I think it fair to use that word—between DECC and the energy companies. How can the matter be resolved? If at the conclusion of negotiations and discussions the energy companies say that the costs are higher and my right hon. Friend’s Department says that that is not the case, what process of resolution is there, in law or procedure, to ensure that DECC will win the argument and that costs are not passed on?
Gregory Barker: That is a very good point, and one that many consumers will be concerned about. The proof will be in the pudding. The roll-out of the ECO will begin in earnest in the new year, and we will monitor the figures. The issue is a matter for conjecture until we see what happens in practice.
There is a danger for the energy companies; they are making a good argument for opening up the market even further through regulatory intervention, to bring in more competition. There are many more suppliers, which say that they can supply the measures for less and give a better deal for the consumer.
The big six had a cosy arrangement under the carbon emissions reduction target and community energy saving programme, CERT and CESP, and previous energy obligation programmes, where there was no choice or competition. There was one big monolithic provider—no transparency or accountability. That is not the future; the future is competition and transparency.
In contrast with previous programmes, we will be able to see on a month-by-month basis exactly how much the measure is costing consumers and the supply chain. If we were to see costs rise, we would act to intervene and alter the targets. We will not allow the measure to impact on consumer bills, but nor will we be
railroaded by the energy companies. We will not settle for the status quo ante whereby they had it all their own way.Luciana Berger (Liverpool, Wavertree) (Lab/Co-op): A moment ago, the Minister said that his Department had received 140 expressions of interest for new green deal providers, of which just 13 had been agreed. Will the Minister tell us which of those are new entrants? He said that new entrants would drive down the cost within the ECO market.
Gregory Barker: I cannot tell the hon. Lady off the top of my head, but I will happily give her a comprehensive list. The very fact that there are 14 rather than six means that we have already more than doubled the number of people providing the measures. That is just the beginning. We are going to see a proliferation of choice and competition for consumers under this Government, and we are going to break open the grip of the big six on this important market.
Luciana Berger: The Minister also talked about the opportunity for broadening out beyond the big six. If there are lessons to be learned from CERT and CESP, they are about the importance of that. Does the Minister regret the fact that only 50% of the ECO will be available via the brokerage system to players beyond the big six?
Gregory Barker: We are consulting on the ECO brokerage; no firm decision has been made on that. The case that the big six energy companies now make—that they cannot deliver the ECO within the cost band that we anticipate—suggests that the hon. Lady is right, and that we should look for an even lower level of maximum big six participation in the ECO and extend the amount brokered by other companies and new entrants. The hon. Lady makes a good point.
We accept that there are uncertainties about the precise cost of the ECO; it is by definition imprecise because it is entirely new. There is simply the difficulty of accurately predicting the future, but those problems are exacerbated by the fact that we do not have access to information on the costs to the companies of delivering current schemes—CERT and CESP—and on how the companies choose to pass on those costs to consumers. We have ensured that in future we will have that information under the ECO, so we will be well placed to understand whether real costs are higher—or, of course, lower—than we have estimated, and to take any necessary corrective action as a result.
I make no apology for the fact that the ECO is inherently ambitious. In terms of its impact on the ground, we estimate that ECO subsidy will support the installation of more than 1 million insulation measures in hard-to-treat and the poorest households by 2015, driving take-up and development of solid wall insulation technologies, very few of which were deployed under previous insulation schemes.
We remain fully committed to helping low-income, vulnerable consumers to keep their homes warm at an affordable cost. That is why we have ensured that a minimum of 40% of ECO support will be targeted at low-income households—support worth about £540 million
a year. But that is a minimum, not a maximum—the amount that we have ring-fenced, not the amount that we have specified as the maximum.The ECO will be a more cost-effective way of delivering support to about 230,000 low-income households each year, making a huge difference to the lives of those who need it. That is in addition to the fuel bill reductions provided to about 2 million households per year, including a focus on the poorest pensioners through the warm home discount.
Graham Jones (Hyndburn) (Lab): It is a pleasure to serve under your chairmanship, Sir Alan. Will the Minister remind the Committee of the position regarding the vulnerable households that he mentioned in the private rented sector whose landlords refuse to accept the green deal? Such tenants live in terraced properties that are hard to heat and they would really benefit from the ECO.
Gregory Barker: That is a good point. The green deal is great news for exactly those types of tenure; those people had a raw deal under previous schemes. We took powers under the Energy Act 2011 to ensure that, by 2016, no green deal could be refused by any landlord at the reasonable request of a tenant. By 2018, the deal will be mandatory as part of a minimum energy efficiency requirement.
We have taken strong powers and the year 2016 should be seen as a backstop, not a start. We have anticipated the rental cycle, when properties become empty and more ambitious measures can be installed, as well as the fact that it will take time for landlords to put all the measures in place. We certainly think that the private rented sector in particular will benefit greatly from the measures.
Luciana Berger: The Minister referred to the measure as a minimum efficiency standard, but the legislation states that from 2018 no house that is F or G-rated will be able to be rented out unless it has a green deal package. That would not necessarily lift it above an F or G rating if it were so energy inefficient that, having had a green deal package, it was still draughty and still needed further insulation. It is important for the record that the right hon. Gentleman should clarify that the legislation does not say that an F or G-rated property cannot be rented out; it just insists that the property must have a green deal package. That will not necessarily lift it above those ratings.
Gregory Barker: In layman’s terms—in consumer language—that is a minimum energy efficiency standard. We do not live in East Germany, where everyone lives in identical concrete blocks. There are many historic properties. Many older properties cannot be brought up to the modern energy efficiency standard without fundamentally ruining the fabric of the building. We shall not go to Anne of Cleves house, stick solid wall insulation in it and fit PVC double-glazed windows.
We have to be a little sensitive to the architecture and history of our country; more than 80% of the houses in 2050 will already be built. [ Interruption. ] In beautiful Lichfield, for example. I reassure my hon. Friend the Member for Lichfield that we will not be swathing the cathedral close in PVC.
Graham Jones: I am grateful to the Minister for being so generous; it is helping the debate. I wish to push him a bit further. I am thinking of people who could have PVC doors and windows, require insulation and live in terraced houses that are not historic properties. Is it right that they must wait to have their homes insulated in poor, rented private property—for either four or six winters, depending on whether the time threshold is 2016 or 2018?
Gregory Barker: Of course that is not right, but we see that as the end game; it is when we blow the whistle to signify that that the transformational change should come to an end. It cannot all be done in one year. A huge amount of housing stock needs to be renovated and we anticipate that the green deal will make huge sense for private sector landlords.
For the first time, landlords will have no disincentive in respect of upgrading their properties. They will have access to the finance. It will be good for the tenants, who will see an improvement in their properties, which will be warmer and healthier places to live. Such measures will have a beneficial impact on energy bills and there will be no cost to the landlord to upgrade the property. I expect rented private sector homes to be at the forefront among the homes that take advantage of the green deal.
We are talking about a transformational programme, so it cannot all be done in one go. However, I anticipate that within four years—by 2016—the vast majority of private sector rented homes will have taken advantage of the green deal, and those that have not done so will then be obliged to do so. For most people—for the many, not the few—this will be a great opportunity.
Graham Jones: I am listening to the Minister with interest. Let us take my own constituency of Hyndburn. The two types of vulnerable householder that the Minister says he wants to protect are, first, pensioners—who I can see will benefit—and secondly, people in the private rented sector.
The vast majority of people in Hyndburn who are vulnerable live in the private rented sector in terraced stock, because 60% of the housing stock is terraced. If the landlords for those types of people say no, the vast majority of vulnerable people in constituencies such as mine will not receive help from the ECO. How is the Minister going to make that breakthrough and meet his own ambitions to help vulnerable people? In my own constituency and others, that will prove difficult while landlords are able to be exempt until at least 2016 or—probably, in reality—2018.
Gregory Barker: From 2013 to 2016 is three years. It would be very foolish indeed for any landlord to think that they would be better served by simply taking no action until 2016, knowing that they would then be obliged to take action, rather than taking advantage—particularly in terraced streets—of the street-by-street roll-out that will begin earlier.
The roll-out will be supported by the ECO, because it is not just about the green deal. In areas such as the hon. Gentleman’s constituency, I have absolutely no doubt that progressive local authorities will take advantage of the ECO subsidy and act on the beefed-up advice that I have issued about the Home Energy Conservation Act 1995. That advice obliges local authorities to draw
up a plan about how they will roll out the green deal, with supporting ECO, in their areas. So it is exactly those sorts of tenant—tenants in terraced houses in deprived areas—who will be among the first to feel the advantage of ECO and the green deal.The hon. Gentleman should talk to his local authority. If he is worried, he should convene a meeting of local landlords. He should also work with us. We will send officials—I will even come myself, if necessary—to explain the virtues and benefits of the green deal, because that is exactly where we need to see the green deal hit on the road.
The green deal and the ECO will boost the burgeoning low-carbon economy by supporting up to 60,000 jobs in the insulation sector alone by 2015, up from around 26,000 now. To smooth the transition between the current CERT and CESP schemes, which are coming to a close at the end of this year, and the new ECO, we have allowed a greater number of loft and cavity wall insulation measures to be installed under the ECO. We have provided £2 million of funding to support the retraining of insulation installers, so they can take full advantage of the more complex and more added-value solid wall opportunities.
On 21 September, Ofgem published its proposed approach to CERT-CESP scheme compliance, including its intention to allow energy companies that fail to meet their targets by 31 December to deliver mitigating actions into next year. That will also help to smooth the transition for the insulation industry.
I am grateful to the Committee for allowing us to debate these statutory instruments together. I will briefly describe the purpose of each of them. First, the draft Green Deal Framework (Disclosure, Acknowledgment, Redress Etc.) (Amendment) Regulations 2012 essentially relate to the energy performance of buildings regulations, which cover energy performance certificates. Of course, EPCs are already a common feature of the property landscape.
It is important that the Government amend the regulations relating to EPCs by 28 January 2013, when green deal plans can begin to be made—that is, the finance can be written for a consumer—to ensure that the EPC framework can be used to disclose the key terms of the green deal plan to subsequent bill payers when, for example, a property is sold or let out. This will be an essential element of our approach to consumer protection under the green deal.
Our initial legal view was that regulation 42 of the green deal regulations did not need to be in force before we amended the EPC regulations. However, this is highly complex legal territory. Having given further consideration to the issue and to avoid any doubt, we have concluded that the amendment that we are considering today should be brought into force before 28 January. It will come into force the day after it is signed by the Secretary of State following its approval by Parliament, meaning that we create a clear window of time within which the separate changes to the EPC regulations can be made. As the amendment that has been made is simply a change of date, I do not propose to take up the Committee’s time by discussing it further.
I move on to the draft Electricity and Gas (Energy Companies Obligation) Order 2012, known as the ECO. The ECO places three obligations on energy suppliers who have more than 250,000 domestic electricity and/or gas customers and have supplied more than the specified level of energy in a relevant period: first, a carbon saving obligation; secondly, a carbon saving community obligation; and thirdly, a home heating cost reduction obligation.
Andy Sawford (Corby) (Lab/Co-op): One of the big concerns of constituents in Corby is rising fuel prices; they have gone up by £200 on average in the past two years, on the Minister’s watch. Under the home costs reduction plan, what would be the average reduction in home energy fuel prices for my constituents who chose to participate in the scheme?
Gregory Barker: I congratulate the hon. Gentleman on his by-election victory and welcome him to what I presume is his first SI. I am sure he will enjoy it.
It is difficult to give an average for Corby or any one constituency because it will depend on a whole range of different factors: the typical house, the type of occupation and the behaviour. It would be very unwise of me to give a sweeping generalisation; the only thing I could guarantee is that it would not be the right figure. If the hon. Gentleman is interested in looking in more detail at the profile of homes in Corby, I would be happy for him to meet my officials and discuss in more detail the types of indicative savings that should be available to the types of homes in his constituency under the green deal and the ECO.
The ECO order was previously, and successfully, debated before the summer recess. It is brought back to Committee now for consideration in light of the technical amendments that we have identified as essential to its effective operation. Those amendments centre on something called an in-use factor, which is used to reduce the amount of energy that a particular energy efficiency measure is calculated to save compared with its theoretical assessment. The inclusion of an in-use factor will reflect that measure’s likely actual performance when in situ in a property. The previous draft ECO order did not incorporate the provisions necessary to ensure that in-use factors were applied, which created a degree of uncertainty for obligated parties.
We effectively say, “We expect this measure to produce x savings.” Having calculated that, we apply an in-use factor that says, “We will err on the side of caution and reduce that by y”. Basically the in-use factor is how conservative we should be in estimating the factors so that we always err on the side of caution. It is essential, if we are to avoid mis-selling, or even if products are sold in good faith, that people get a good experience.
Wherever possible, we want to see that we under-promise and over-deliver in terms of the measures that are installed in people’s houses. Having a deliberately cautious, conservative approach to the likely savings that will accrue from any given measure or technology installed under the green deal seems appropriate. In that way, we err on the side of caution.
Mr Adrian Sanders (Torbay) (LD): I am a little concerned about adding to the energy performance certificates. There will be a requirement for a document
to be attached to the certificate. My concern is whether the people who currently put together the certificates will be trained to ensure that their contents are wholly accurate.Gregory Barker: I assure my hon. Friend that that is a relatively simple procedure, although important. Effectively, it is about adding information. We are expecting those people not to undertake forensic audits, but simply to add a piece of information to existing EPCs. The training for that will be minimal; it is just an additional line of information that will be easily accessible. I appreciate my hon. Friend’s concern, because, like us, he is concerned to keep bureaucracy to an absolute minimum.
Luciana Berger: For the record, will the Minister share with us why the measure was not included in the original order? We have had to return to Committee, having debated the original order a few months ago. There is considerable concern among industry players who want to get on with the green deal. We have already had the soft launch. Will the Minister give us a bit of detail about why we have to discuss the statutory instrument today?
Gregory Barker: Absolutely. It may come as a shock to the Committee, but the Department is not perfect and nor are the officials and Ministers who work there. There was an oversight between different parts of the Department. It was not reconciled in the summer, although it was spotted early on. Unfortunately, as we made good time in getting the Energy Bill on to the statute book—we wanted to provide investor certainty—we closed the original order before we had got to the bottom of the issue. It surfaced over the summer, and we had a short consultation immediately to address the anomaly.
Michael Fabricant: On a point of order, Sir Alan. Is there a mechanism for awarding gold stars for honesty to Ministers?
The Chair: On another subject, was that an Abbey road moment when you crossed over to the other side of the Chamber?
Michael Fabricant: Sir Alan, if I was being mischievous I would say that I thought that side was the UK Independence party, but I will not be mischievous. I was congratulating the hon. Member for Corby on his win, despite my best efforts to get the opposite result.
Gregory Barker: As I was saying, we undertook a short technical consultation to get thoroughly to the bottom of the issue and ensure that what we did was consistent with industry best practice. I apologise to the Committee for not identifying the technical inconsistency earlier, but I assure the shadow Minister that as soon as we did, we took the necessary steps to correct the position. My Department launched a short consultation immediately to address it.
The overwhelming majority of respondents—about 80%—agreed with the three proposed technical amendments that we consulted on. The following revisions have therefore been made to the draft ECO order that we are considering today.
First, in-use factors have been included for the scoring of measures installed under the carbon emissions reduction obligation and the carbon saving community obligation. Secondly, a schedule of fixed in-use factors for specific measures has been added. Finally, the draft order now provides for ECO-eligible measures installed from 1 October 2012 to be counted towards a supplier’s eventual ECO obligation.
We have also made a small number of other amendments to the draft ECO order. They are not changes to policy, but will provide greater clarity for energy suppliers and Ofgem in administering the scheme and ensure that the ECO delivers its policy objectives as they were set out in the Government’s consultation response and impact assessment.
The changes make explicit that ECO affordable warmth assistance should be targeted at individuals living in private tenure properties and provide clarity on the treatment of excess actions carried forward from the current CERT and CESP schemes. They also make clear that the supplier can be credited for both space heating savings and hot water savings in a case where a measure delivers both—for example, a boiler or central heating system. That will be good news for the fuel-poor.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op): The Minister will be aware of the shocking statistics on excess winter deaths, estimated to be more than 27,000, many of which are down to fuel poverty. He will also be aware of the separate Arbed scheme in Wales, carried out under the Welsh Government. How does he view the ECO and the green deal working alongside Arbed to tackle those winter deaths?
Gregory Barker: I had a very good meeting with the relevant Welsh Minister last week and we have pledged to work closely together. Arbed is a very good scheme. A lot of learning can be exchanged. As for the green deal, we want to take many of the aspects of Arbed and scale it up. The Welsh Government will certainly be looking to learn from us and will benefit from a bigger energy efficiency economy, which is what we are building as we scale up the number of measures. The green deal will be transformational for the solid wall market, which is currently small and as a result very expensive. The economies of scale that will come from driving the green deal and the ECO across the United Kingdom will deliver real results on the ground. We will certainly work closely with the Welsh Government.
Taken together, the order and the regulations will help to improve the energy efficiency of millions of homes across Great Britain, reducing our carbon emissions, and, crucially at this time, helping households to manage their energy bills. I commend them to the Committee.
9.26 am
Luciana Berger: It is a pleasure to serve under your chairmanship this morning, Sir Alan. I do not intend to keep the Committee for too long as most of the substantive points about the ECO and the green deal were covered when we debated the previous order a few months ago. We do not propose to oppose today’s order and regulations.
I have said many times that the Opposition support the principles of the green deal. If done properly, a pay-as-you-save scheme could lead to more jobs, lower energy bills and lower carbon emissions. The Minister has just talked about helping millions of households, and we want to see them helped.However, we have real fears that, because of the way in which the Government have designed the scheme, and with expected high interest rates and harsh early repayment fees, the public will be put off, and low uptake will mean that this potential is wasted. I want to press the Minister on such concerns. We have also had some new information that I am keen to raise.
Since we debated the previous order, we have had the first part of the green deal’s launch. I say “part”, because it is fair to say that the launch so far can hardly be described as smooth. Just a few months ago when the Opposition were warning that the green deal was not going to be launched on time, the Minister was busy assuring people that it and the ECO would be launched on time on 1 October. We then learnt that there would be a soft launch in October, but that the finance would not be available—he would not be able to sign on the dotted line—until 28 January. Again, we were told not to worry, because hundreds of people would be having their green deal or ECO assessment between October and January, ready to sign their finance agreements in January.
Unfortunately, further to a question that I asked, we have found out that since October not a single household has had a green deal assessment carried out. We now have the Minister in the tenuous position of trying to convince us that he has not in fact launched his own policy. This bizarre turn of events would be laughable if the consequences were not so serious. Every day we hear from businesses crying out for certainty. We hear that word time and again, not only in the green deal/ECO space, but in other parts of the energy sector. Businesses are expressing concerns, particularly regarding the green deal and the ECO, that the finance will not be in place. Combined with the delays to this order, there are serious concerns about job losses.
We know from the Government’s own figures that when the green deal and the ECO are introduced, they are expecting an 87.5% reduction in the loft insulation market; a 57% reduction in the cavity wall insulation market; and a 16% drop in the solid wall insulation market. However, many insulation companies are now worried that a lack of available finance, low green deal take-up and delays to the ECO will lead to a huge gap between the end of the existing regime, which includes CERT, CESP and Warm Front, and the proper start of the green deal and the ECO. The Insulation Industry Forum predicts that if those fears are realised, 16,000 jobs, primarily in loft and cavity installation, will be lost between now and the end of 2013.
Gregory Barker: Rather than allowing the hon. Lady to go on scaremongering unnecessarily, I will reassure her that I had a good meeting—along with the Secretary of State—with the chairman and chief executive of the Green Deal Finance Company yesterday. We are on track, as planned, to deliver the finance in January. Will she now stop trying to talk down the green deal scheme? Does she realise that her words damage investor certainty
and destroy jobs? If she is genuine about supporting the green deal, perhaps she could do that with her rhetoric rather than trying to have it both ways.Luciana Berger: I thank the Minister for his intervention. We have raised these concerns for two years now. He knew about this well in advance of October, and I have articles dating back over a year stating that it was crucial that, when the scheme launched, it was properly designed, and that issues such as the interest rate were dealt with. The fact is that the scheme has launched but people do not know what the interest rate is. The Government were supposed to sign on the dotted line in October, but they are now expected to sign at the end of January.
Gregory Barker: I repeat for the hon. Lady’s benefit that the scheme for consumers has not launched. It will launch on 28 January when the first consumer will be able to write a finance plan. Before that time, in January, they will know the interest rate. There is a sequence of events in this complex scheme—she may not understand it in its totality—and a timeline by which each fence must be taken in turn. There is still a lot to do before we launch the scheme on 28 January, but I assure her and the Committee that we are on track to deliver the finance and measures on that date.
Luciana Berger: Again, I am confused. The Minister said that the scheme has not launched, but a press release from the Department of Energy and Climate Change dating back to October states that it has. As I understand it, people can now have their properties assessed, and if so it is important that they be aware of all the available options. That includes the cost of paying back on their green deal package.
The Minister described this as scaremongering, but the Department’s own figures and impact assessment show the potential reductions in various parts of the insulation market. We have been raising that issue for a year and we would like it to be addressed. I do not want to see 16,000 job losses in the insulation sector, and that is why I want the Minister and the Government to address that issue in the transition from the current schemes to the new ones.
Gregory Barker: If the hon. Lady looks at the impact assessment she will see that jobs in the insulation industry will rise to 60,000 because solid wall insulation, which will be the lion’s share of the green deal going forward, is a much more added-value proposition than just bunging in a bit of lagging. Much of it will be manufactured here—at the excellent Rockwool plant in Bridgend, for example—and it will require far more skilled technicians to install such measures. The number of jobs in the insulation industry will increase.
Luciana Berger: I listened to the Minister’s words carefully. A minute ago he said that up to 60,000 jobs will be created by 2015, and I would love to see those jobs created, but I am concerned about the massive transitional gap between the current schemes and the new ones. The Insulation Industry Forum predicts that the gap will result in 16,000 job losses by the end of
2013. How will the Minister ensure that, in the coming winter months and into 2013, we will not see those losses?I listened carefully to what the Minister said about his conversations with the Green Deal Finance Company, with which he said is “working hard”. Can he categorically confirm that, by 28 January, finance will be available from that company, and what will the interest rate be? Many people—not just in the sector; I have spoken to many households—are interested in the green deal and they would be pleased to know what the interest rate will be.
We are also keen to know what conversations the Minister has had with his colleagues in the Department for Business, Innovation and Skills on the green investment bank. We have heard many comments—particularly from the Deputy Prime Minister—that the bank will be on hand to assist the Green Deal Finance Company. Will that support be forthcoming to support the start of the green deal, as we heard the Deputy Prime Minister say in a speech just a year ago? Would the Minister like to respond to those points before I move on to fuel poverty?
Gregory Barker: I am happy to respond. The Green Deal Finance Company is on track to deliver finance in January at a competitive interest rate, and the green investment bank is totally engaged and has, in principle, agreed to support the green deal. The details of this complex financial structure are still being completed, but we have full confidence that both the green investment bank and the Green Deal Finance Company will complete the deal in January. I cannot be any more supportive and clear than that. The interest rate, as the hon. Lady knows, is important, but it is only one driver of value. This obsession with interest rate alone, to the exclusion of every other part of the value proposition, is ridiculous. It is much better to have a slightly higher interest rate for a lower-priced product than to have a lower interest rate for a higher-priced product. The hon. Lady is obviously regularly taken in by 0% finance offers for leather sofas. It is the whole proposition that is important. We can offer 0% interest rates but, fundamentally, if we do that, the value will be recouped somewhere else in the value chain to the consumer. Ultimately, we have to look at the total value that is being offered to consumers.
Luciana Berger: I am disappointed that the Minister feels that we have to talk about a 0% interest rate on sofas. He will know that time and again, I have made the point that the interest rate is part of the package.
Gregory Barker: “Part” of the package—exactly.
Luciana Berger: It is an important part of the package. We know that people are increasingly averse to debt. I am sure that the Minister, like me, has surgeries and speaks to his constituents. He will know that an interest rate puts off many people. The cost of the finance could be detrimental to the range of measures included in a green deal package if it excludes measures that take it past the golden rule and the £10,000 figure. The Minister talks about economies of scale and getting prices down in the market. If the interest rate is too high at the start, which will put off people, we will not see the economies of scale and the prices coming down in the market that he and I would like to see.
On fuel poverty, to which the Minister referred, he used the word “transformational” when he talked about the green deal and the ECO. We would like the ECO to be transformational in reducing the number of fuel-poor in the UK. The figure was reduced by 1 million during Labour’s time in office, but it has risen again. As I told the Minister in a previous debate on such an order, we are concerned that the level of guaranteed support for fuel-poor and low-income households will fall under the ECO.
According to analysis by National Energy Action, spending on the fuel-poor and low-income households will be cut by 50%—from around £1.1 billion under schemes in place this year to just £540 million under the ECO in 2013. I listened very carefully when the Minister said that that was a minimum. Concerns have been raised that the people who will go after the ECO will be those most engaged in the market. During the Committee stage of the Energy Bill, we said that any money available under the ECO should go first and foremost to homes in fuel poverty and not be used to subsidise households that can afford to heat their homes.
A report published today by the Association for the Conservation of Energy shows that the number of fuel-poor households receiving energy-efficiency measures in England will drop by a third—from 150,000 in 2009 to 100,000 next year. We are therefore not surprised that Transform UK predicts that the number of households in fuel poverty could rise to a staggering 9 million by 2016. Given the reductions in spending, and the fact that the Government’s own impact assessment for the ECO predicts that it will only result in a net reduction in fuel-poor households of between 125,000 and 250,000 by the time the costs are no longer passed through to bills in 2023, can the Minister explain how those figures are consistent with his claim in the House on 16 December 2010 that the green deal and the ECO will be the game-changer for fuel poverty?
Last time we debated such an order, I asked the Minister what steps he was taking to ensure that the costs of the ECO do not spiral out of control. Indeed, he referred to that briefly in his contribution. We have had warnings from energy companies that the ECO could add an extra £50 to consumers’ bills. They believe that the Department has underestimated the cost of the work on the ECO. I listened closely to what the Minister said about the lack of transparency regarding what that cost might be.
If green deal take-up is low, will not ECO costs have to go up even more to meet the Government’s own targets? The Government plan for small amounts of the ECO to be used to top up green deal packages to make them more affordable. That would mean that less ECO funds would be spent per house, enabling the ECO to be spread further. Our concerns relate to low take-up. If we see low take-up in the green deal market, companies will be forced fully to subsidise work on a whole house in order to meet their ECO obligations. Funding will not go as far, and more will need to be spent to meet the targets. Again, those costs will be passed on to consumers through higher bills.
I would like to know what plans the Minister has in place if bills go up because of the ECO. He mentioned that he will be doing a monthly review. What plans does
he have in place if his review shows that bills are going up? What will he do to stop that happening? Will he impose a cap on the amount that can be levied for the ECO? If he did impose a cap, what effect would that have on the number of homes getting help under the ECO? I hope the Minister will address those issues and the other points that I raised.9.41 am
Gregory Barker: We have had a good airing of the issues related to the green deal. The hon. Lady was extremely generous in allowing me to intervene at length. I will not tread too much over ground that we have already had a good gallop over.
It is absolutely essential to be clear about what happened on 1 October and what will happen on 28 January. On 1 October, the green deal framework went live, which meant that companies—either providers, installers or assessors—that wished to offer the green deal could begin to gain the qualifications and the necessary accreditation to offer that service to the public. They cannot install, assess or provide under the green deal until they have approval from the Government through the relevant provider bodies. That process is happening; it is going full steam ahead. Every day, we are seeing more assessors, providers and installers gaining accreditation and coming to the market. In the first phase following the green deal going live, it is a business-to-business proposition.
We are aware of people who have booked ahead to have their assessment, but we do not expect many people to have it before Christmas. Certainly, we do not expect the real market in assessments to kick in until January. It is most likely be spring, after the finance is in place and the marketing of the green deal by the commercial players kicks in, when the public start to get involved. At the moment there is no advertising of the green deal to the public. There is no campaign out there, because it is simply not available. People are not advertising and marketing Easter eggs at the moment, because they are not in the shops, and in the same way people are not advertising and marketing the green deal, because people cannot it until next year. I hope the shadow Minister will understand that and stop scaremongering about something she knows fundamentally not to be true.
On interest rates and the Green Deal Finance Company, I reiterate that we are on track. The green investment bank has committed in principle to investing in the Green Deal Finance Company and facilitating consumer finance at real scale, exactly as the Deputy Prime Minister promised.
Graham Jones: I am interested in what the Minister said about interest rates. That will become apparent, I presume, in the new year. An issue we discussed in Committee that keeps coming back is whether there will be a premium charge on pre-payment meters. Will the Minister update the Committee on his Department’s position on the green deal, charges for pre-payment meters and interest rates for those not on pre-payment meters?
Gregory Barker: I have to be honest with the hon. Gentleman and say that I will need to double-check, but I understand that there will be no premium for those on
pre-payment meters. Obviously, they will continue to pay through that model, but I will write to him with better detail and clarification on that important point. My expectation is that there will be no penalties for those who are unable to pay either by standard credit or by direct debit.Interest rates are important, which is why we are working with the green investment bank. If the shadow Minister is saying that interest rates should be lower, that will clearly require additional subsidy, so perhaps she should be honest and tell British consumers how much money she is prepared to put on their bills this winter to pay for that subsidy. Is it £10? Is it £100? Is it perhaps like the renewable heat incentive that the Leader of the Opposition, in his previous role, levied on consumer bills? The coalition took that levy off consumer bills before the public were stung for £178 on every bill. Is Labour going back to its old tricks and ramping up consumer bills any which way it can?
Luciana Berger: We have had this discussion on numerous occasions and I am more than happy to put my point on record again. My concern is that the Government should be held to account for the Deputy Prime Minister’s commitment in a public speech that the Government would use the money in the green investment bank to capitalise and start off the green deal. That is what I am holding the Government to account on. I have used on many occasions the example of Germany, where the interest rate is subsidised down to 2.65% in order to incentivise the market and the take-up is 100,000 homes a year. I accept, however, that the scheme is similar but different, but I use that example because the Government’s ambition for the green deal is greater than what has been achieved in Germany. It is crucial that the Government get this part of the green deal right in order to incentivise households to take up the scheme and ensure that it is affordable.
Gregory Barker: The hon. Lady does represent the official Opposition. She is not some disinterested consumer writing to her local paper. If she wants lower interest rates, we are already making a commitment through the green investment bank. If she wants interest rates to be on a par with the subsidised interest rates in Germany, that would likely add hundreds of pounds to the typical consumer bill. I will happily go into the next election on a platform to defend the British public from a Labour party that would do that.
Michael Fabricant: My hon. Friend may or may not be aware that Bloomberg is currently quoting 10-year British bonds at 1.84%, French bonds at 2.13%, Spanish bonds at 5.58% and Greek bonds at 16%. Is he aware that those countries have much higher interest rates because they are borrowing, borrowing and borrowing? The Labour party is now saying that it wants to borrow us out of recession. That would put interest rates up.
Gregory Barker: Even the most disinterested person would find it curious that anyone could propose borrowing as a cure for a deficit.
Luciana Berger: We are almost talking in different languages here. I am holding the Government to account on the commitment that they made to use the couple of
billion pounds that they put into the green investment bank to subsidise or support the capitalisation of green deal loans through the Green Deal Finance Company, which is the mechanism that has been created. I am talking about the money that Government have put into the green investment bank, part of which they said they would use to finance loans under the green deal finance scheme. I am not talking about borrowing anything more.Gregory Barker: That is exactly what we are doing. I will say it one more time for clarity. The green investment bank launches tomorrow in Edinburgh. I am proud to say that the Conservatives were the first party to commit to the establishment of such a groundbreaking institution, and it has been delivered by the coalition. Labour had 13 years to create such an institution, but chose not to. On Wednesday, we will see not only the launch of the green investment bank in Edinburgh, but a restatement of the strategic priority that the green investment bank is giving to lending and investment in the green deal.
Perhaps the shadow Minister is saying that we should not be investing in skilling up the supply chain for offshore wind. Perhaps she would like to tell that to all the constituencies down the north-east coast of England that will benefit from that investment, as that is clearly her choice. We are going to deliver low interest rates, we have the green investment bank and we are on track with finance from the Green Deal Finance Company.
I turn to fuel poverty, an issue that I know unites the whole House in concern and in frustration that we are not doing more or moving at greater speed. However, I have to say that the shadow Minister is either living in fantasy land or using some sort of dodgy, Enron accounting if she honestly expects people to swallow the idea that fuel poverty went down under the previous Government. It is a matter of record, provided by the Office for National Statistics, that in 2004 there were 2 million people living in fuel poverty, but when the Labour party left office that figure was 5.5 million. During the last five-year Parliament, fuel poverty more than doubled in the United Kingdom. To try to wish away the record of the previous Administration over the whole tenure of the previous Parliament is nonsensical. The problem is real and intractable, and has been so for many years. We are determined to bring a new and much more sophisticated approach. I will explain a little more how we will deal with the issue; the Labour Government failed to do so for 13 years.
Luciana Berger: The Minister will be aware that Labour came into office in 1997, not in 2004. Can he share with the Committee, and put on the record, how fuel poverty has fared under the two and half years of his Government, telling us what the figures were when he came into office and what they are now?
Gregory Barker: The hon. Lady is saying that, in 13 years, from 1997, during the greatest boom in the economy for 200 years, a Labour Government were able to do nothing about fuel poverty. How many years would it take the Labour party to deal with fuel poverty?
I will tell the shadow Minister what has happened. In 2009, there were 5.5 million households in the UK living in fuel poverty. In the first year of the coalition,
the projected number fell to 4.75 million. We are not complacent—we expect that number to rise again, and that is why we commissioned an independent review of fuel poverty by Professor John Hills, a respected academic from the London School of Economics, to look in detail at both the definition of fuel poverty and how we target the problem most effectively. It is clear that there are people who go in and out of fuel poverty, depending on how the economy is going, but there is also a significant residual core of people who are living in the most abject and awful conditions. Clearly, those people should be first in the queue for any help, support, assistance and action that we can offer.Mr Sanders: It really is not helpful to get into a debate about which party did what and when. We have an opportunity here to put on the statute book, without opposition, legislation that will help thousands of people, improve properties and reduce our carbon footprint. We should concentrate on that.
Gregory Barker: Absolutely. The shadow Minister raised a very fair point about how we target the ECO to ensure that it benefits the fuel-poor. In his review, Professor Hills found that targeted energy efficiency schemes were one of the most effective means of tackling fuel poverty. He suggested that around 50% of the ECO should be set aside for an affordable warmth obligation, to reduce fuel poverty. We have to balance a number of considerations when looking at the ECO, not least the need to get the maximum leverage of private sector finance into the sector so that we can get the economies of scale that we all want, get the energy efficiency economy moving, bring in investment and drive down the cost of measures and installations so that we can all benefit from that private sector investment. As a result, it is important that some of the ECO is available to those in the private sector in order to jump-start and prime this new market.
However, we listened to Professor Hills very carefully, and more than 40% of ECO investment will be targeted specifically at low-income households. That is not the maximum; that, for us, is the absolute minimum. That is the amount we have ring-fenced that can be spent only on focused measures for the fuel-poor, with the expectation that more than 50% of the ECO will benefit low-income households. It is all conjecture at this point, but my personal view is that it will end up being significantly more, because I have put in place a strategy and an obligation on every local authority to draw up a plan of their own, work in partnership with the private sector and have a street-by-street roll-out focusing on the fuel-poor in place by March 2013. They are then to begin a systematic roll-out of such a programme. That will be an attractive proposition for the private sector along with the element mandated under the ECO. I think that we will actually see very attractive schemes, which will sweep through whole streets and be able to treat every household under the ECO, regardless of tenure.
One of the most frustrating things I saw was on a visit to Salford, where we would go to a street of low-income households in relatively poor quality, old terraced housing, the like of which we could visit in most cities up and down the country. We would walk
down the street, and it would be pepper-potted. We would say, “This house has been done—great retrofit. That one is left empty. That one has not been treated. This one has been done, but that one has not.”Under the scheme that the previous Government had in place, it all depended on the household income at a particular time. As a result, a family in which the mum had recently gone back to work after having a baby just missed qualifying for support. Or the pensioner couple in the next house had a little bit of occupational pension of their own, and some savings, which meant that they just missed qualifying for the retrofit. The people in the house opposite were all unemployed and on benefits, and there may have been five of them in the household, but they qualified and their house was retrofitted.
We want something that is fair for everyone, because it is clear that, ultimately, all the properties in a street have to be treated. We want to sweep down such roads and not only ensure that the scheme is fair to everyone and that all the homes are retrofitted, but recognise that those properties will continue to be inhabited for decades to come. Long after the transient population have moved out and families have grown up and moved away, those areas will be home to thousands of low-income families. The onus is on us to transform those streets and areas. That is why we have put such emphasis on community regeneration and why we make it clear that we want to treat whole areas and communities, not just cherry-pick individual households based on income at any given time.
That will be the transformational impact of the ECO and the green deal. We will draw on much of the learning, benefits and successes of the community energy saving programme in particular. CESP was a model, created by the previous Government, that had the same aims in mind but became very bureaucratic to administer. It was top-heavy, and the cost of correctly identifying the right households often became greater than the cost of what was installed. Our model will be much fairer and more permissive. It is not going to be done overnight. It is not a programme that will allow me to stand up in February and announce victory—I doubt that I will be able to do that in 2015. It is a programme covering two decades. It will unleash a new market and new investors, and new players are expected to grow, but I am confident that the measures and frameworks that we now have in place will ensure steady investment and steady growth, and deliver the investor certainty that the private sector needs so that it can start planning now.
That the Committee has considered the draft Electricity and Gas (Energy Companies Obligation) Order 2012.
DRAFT GREEN DEAL FRAMEWORK (DISCLOSURE, ACKNOWLEDGMENT, REDRESS ETC.) (AMENDMENT) REGULATIONS 2012
That the Committee has considered the draft Green Deal Framework (Disclosure, Acknowledgment, Redress etc.) (Amendment) Regulations 2012.—(Gregory Barker.)