Eighteenth Report
Instruments reported
The Committee has considered the following instruments
and has determined that the special attention of the House should
be drawn to them on the grounds specified.
Home Information Packs Regulations 2007 (SI
2007/992)
Energy Performance of Buildings (Certificates
and Inspections) (England and Wales) Regulations 2007 (SI 2007/991)
Summary: The Home Information Pack Regulations
2007 prescribe the contents of Home Information Packs (HIPs) which
will be required for sales of residential properties from 1 June
2007, including information about energy efficiency and other
provisions relating to HIP duties.
The Energy Performance of Buildings (Certificates
and Inspections) (England and Wales) Regulations 2007 require
the production of Energy Performance Certificates (EPCs) and recommendations
for the improvement of the energy performance of buildings when
the latter are constructed, sold or rented out. EPCs are to be
included in HIPs. As a consequence, some properties could be required
to have updated EPCs more frequently than every 10 years, going
beyond the requirements of the relevant European Directive.
The HIP Regulations reflect the change of policy
in July 2006, when the Government announced that HIPs would not
after all have to include Home Condition Reports. In the period
since the change was announced, a number of interested parties
have voiced concerns about the impact and effectiveness of HIPs
as now proposed.
We sought limited written evidence, and also questioned
officials from the Department for Communities and Local Government,
on whether HIPs would make the home-buying process significantly
easier or more transparent, which was the policy objective underlying
the relevant provisions of the Housing Act 2004. We also questioned
them on the implementation of the relevant European Directive
in the detailed requirements for EPCs.
The Government present their proposals as a limited
regulatory intervention intended to stimulate a more extensive
market response. The comments on these proposals which we have
received from interested parties show at best scepticism, and
at worst hostility. The Government have not been able to convince
the principal stakeholders in the housing market that their proposals
as they now stand are sensible or worthwhile, or are likely to
be effective for their declared purposes; and they need to do
more if the market is to respond positively to this intervention.
The Home Information Pack Regulations 2007 are
drawn to the special attention of the House on the ground that
they may imperfectly achieve their policy objective.
The Energy Performance of Buildings (Certificates
and Inspections) (England and Wales) Regulations 2007 are drawn
to the special attention of the House on the ground that they
may inappropriately implement European Union legislation.
Scrutiny of Statutory Instruments
1. We think it appropriate to remind the House
of the wider context in which the Merits Committee fulfils its
role of scrutinising statutory instruments. This context has most
recently been described in the November 2006 report on "Conventions
of the UK Parliament" by the Joint Committee on Conventions
(HL Paper 265, Session 2005-06). At paragraph 227, under "Conclusions",
the Joint Committee said: "On the basis of the evidence,
we conclude that the House of Lords should not regularly reject
Statutory Instruments, but that in exceptional circumstances it
may be appropriate for it to do so. This is consistent with
past practice, and represents a convention recognised by the opposition
parties."
2. There are a number of reasons why it should
be exceptional for this House to reject statutory instruments,
but among them is the fact that such instruments are made under
powers provided in primary legislation which has itself previously
been agreed by Parliament.
3. Against this background, the Merits Committee
conducts its policy consideration of statutory instruments in
order to inform the House's scrutiny process, and not in order
to guide the House towards either approval or rejection of statutory
instruments.
4. In the case of these Regulations, the House
will recognise that Part 5 of the Housing Act 2004 imposed duties
on people marketing residential properties in England and Wales,
requiring them to have an HIP available for prospective buyers.
Section 163 of the 2004 Act gave the Secretary of State the power
to make Regulations prescribing documents to be included in HIPs.
5. The Committee's consideration of the Regulations
has taken as its starting-point that the Government will use the
powers to introduce HIPs which were provided by Parliament's approval
of the 2004 Act. We do not seek to re-open the principle of introducing
HIPs. We have however been concerned to establish whether the
Regulations seem likely to implement this principle effectively,
and this is the basis for the comments which we offer to the House.
6. In reaching our conclusions, we think it appropriate
for us to take account of views on the Regulations which have
been voiced by interested parties. We have no doubt that it is
ultimately for Government to determine the final shape of the
implementation of legislation, after listening to relevant views
expressed, and subject of course to the appropriate processes
of Parliamentary scrutiny and approval. None the less, we see
it as inherent in our role of informing the House about the statutory
instruments that we should refer to significant expressions of
concern, such as have been made in relation to these Regulations.
The Regulations
7. The Department of Communities and Local Government
(DCLG) have made the Home Information Pack Regulations 2007 (SI
2007/992: "the 2007 HIP Regulations").[1]
In parallel, they have made the Energy Performance of Buildings
(Certificates and Inspections) (England and Wales) Regulations
2007 (SI 2007/991: "the 2007 EPB Regulations").[2]
An Explanatory Memorandum (EM) and Regulatory Impact Assessment
(RIA) have been provided for both sets of Regulations. In addition,
a Transposition Note accompanies the 2007 EPB Regulations.
8. The two sets of Regulations are closely related,
and the Government have identified two main aims in bringing them
forward: to make the home-buying process more transparent, quicker,
less expensive, less uncertain, and less stressful; and to reduce
the current level of 27% of UK carbon emissions that come from
homes. The Committee has taken evidence on the Regulations from
DCLG representatives; a transcript is published as Appendix 2.
History of Policy
9. Policy on Home Information Packs (HIPs) has
been formulated over a long period of time. Government consultation
was initiated with a paper published in 1998. Subsequent consideration
resulted in the inclusion of relevant provisions in the Housing
Act 2004 ("the 2004 Act").
10. In June 2006, DCLG made the Home Information
Pack Regulations 2006 (SI 2006/1503: "the 2006 HIP Regulations"),
setting out detailed requirements for HIPs which would take effect
in June 2007; Home Condition Reports (HCRs) were prescribed as
a mandatory element of HIPs. In June 2006, we drew the 2006 HIP
Regulations to the special attention of the House.[3]
We commented that we did not under-estimate the difficulties involved
in making such an important change to long-standing arrangements
for the buying and selling of property. We stressed that it would
be a major organisational challenge to ensure that there were
enough qualified Home Inspectors to meet the likely demand for
HCRs.
11. In July 2006, a month after the 2006 HIP
Regulations were laid, the Minister for Housing announced that
HCRs would not after all be mandatory. The EM to the 2007 HIP
Regulations states that the laying of the 2006 HIP Regulations
and the publication of the RIA led to renewed debate and representations
to the Department about HIPs. It explains that "it became
apparent that, despite the Department's firm intention to implement
home information packs from 1 June 2007, many mortgage lenders
would still require buyers to pay for costly valuation inspections
in addition to Home Condition Reports as they would not be ready
to implement automated valuation models from that date. This meant
that consumers were likely to face duplicate costs if the mandatory
requirement for Home Condition Reports had remained as it was."
Effect of 2007 HIP Regulations and of 2007 EPB
Regulations
12. The 2007 HIP Regulations revoke the 2006
HIP Regulations, but the EM to the former says that they have
broadly the same purposes as the revoked Regulations, including
prescribing the contents of HIPs which will be required for marketed
sales of residential properties from 1 June 2007, including information
about energy efficiency. The EM to the 2007 HIP Regulations also
identifies changes now proposed:
- the Home Condition Report (HCR) will no longer
be a mandatory element of HIPs;
- HIPs will not necessarily have to include information
from local authority searches, or about leaseholds;
- Energy Performance Certificates (EPCs) will be
required for dwellings in use once marketed, but energy performance
information (i.e., not EPCs) will be required for properties marketed
while under construction;
- such information, or EPCs, will be the first
document in the pack after the index;
- for properties put on the market before June
2007, the transitional period during which they will not need
an HIP is extended from 31 October to 31 December 2007.
13. The EM to the 2007 EPB Regulations states
that, in implementing obligations under the Energy Performance
of Buildings Directive ("the Directive"), they contain
the following requirements of relevance to HIPs:
- EPCs and recommendations for improvement of the
energy performance of the building are to be produced when buildings
are constructed, sold or rented out; and
- energy assessors producing the certificates or
carrying out the inspections are to be accredited.
14. The EM to the 2007 HIP Regulations sets out
DCLG's view "that the introduction of home information packs
should have the benefit of increasing awareness among the general
public about energy efficiency matters relating to their properties.
Energy Performance Certificates and energy improvement recommendations
will be required under the Energy Performance of Buildings (Certificates
and Inspections) (England and Wales) Regulations 2007 for marketed
sales of residential properties. The Department believes that
placing the certificate in the home information pack will enhance
its value by providing important energy efficiency information
to the buyer at the start of the home buying process and increasing
the likelihood that the certificate will be read and recommendations
implemented."
Concerns Expressed about Policy Development
15. Before the 2006 HIP Regulations were laid,
the Government took advice from the Home Information Pack Components
Project Board, which was made up of representative organisations
including the Council of Mortgage Lenders (CML), the Law Society,
the National Association of Estate Agents (NAEA), the Royal Institution
of Chartered Surveyors (RICS), and Which? (formerly the Consumers
Association). The EM to the 2006 HIP Regulations made it clear
that, over a period of more than a year before the laying of the
2006 HIP Regulations, the Project Board had been involved in the
drafting process and had been consulted on successive drafts.
16. In order to inform our consideration of the
latest Regulations, we invited these organisations to offer us
written comments on them. Their comments are reproduced as Appendix
1. It is the general practice of the Committee to consider the
handling by Government Departments of consultation not only on
proposed policy developments, but also on the embodiment of policy
proposals in drafts of statutory instruments. The written comments
that we have received raise questions about the Government's approach
to consultation on the latest proposals. While some of these organisations
clearly represent members who are involved in current arrangements
for property transactions and may therefore be expected to take
a cautious view of proposed changes, they were brought in as partners
in the initial development of these proposals by the Government
itself.
17. Which? drew our attention to a letter they
sent to the Secretary of State for Communities and Local Government
in response to the July 2006 announcement about HCRs and HIPs,
which contained the following: "I am writing to express our
disappointment with your decision to withdraw the Home Condition
Report from HIPs and our intention to no longer support their
introduction. The Home Condition Report was an essential part
of the HIP … This half-baked compromise will result in something
that is of little value but of real expense to consumers and Which?
cannot therefore continue to provide support."
18. The Law Society expressed their view that
the decision to remove the mandatory HCR had undermined the whole
concept of the HIP; that it was inappropriate to link EPCs to
HIPs; and that HIPs "will, in fact, make the process more
difficult, much more expensive and remove existing transparency
from the market place."
19. The NAEA expressed a number of concerns,
and asked us "to seriously consider the facts and to come
to the conclusion that the regulations, as now published, will
not make the home-buying and selling process easier. HIPs are
now purely an administrative burden to the process."
20. The RICS stressed their concern that the
introduction of HIPs in June 2007 will have a detrimental impact
on the market and the economy. They questioned the Government's
decision to require an EPC to be produced every time that a residential
property is marketed, and said that "it is RICS' view that
Article 7 of Directive 2002/91/EC on Energy Performance of Buildings
is being gold plated and used to prop up the HIP, an ailing domestic
policy."
21. We are aware that the same concern was expressed
by the Better Regulation Commission (BRC), in comments published
in February 2007. The BRC's comments include the statement that
DCLG's proposals for residential properties "go beyond the
requirements of the Directive in requiring a new EPC to be produced
every time a property is put on the market for sale, and by requiring
its production before the property can go on the market. Yet it
has provided no supporting evidence to justify this 'gold-plating'."[4]
22. The CML did not submit further evidence,
but they drew our attention to comments that they had made to
DCLG in February of this year, and in particular to their view
that the Government had not provided sufficient information about
the likely impact of HIPs. Their comments included a "call
on the Government to postpone the introduction of HIPs until the
trials are complete, the outcomes reviewed, and the issues [we
raise] resolved."
23. We also invited comments from the Local Authorities
Co-ordinators of Regulatory Services (LACORS), since the Trading
Standards Officers (TSOs) whom they represent will have important
enforcement responsibilities in relation to HIPs. LACORS voiced
particular concern to us about the enforcement provisions. They
explained that they had argued for breaches of the Regulations
to be a criminal offence, and for the use of fixed penalty charges
which could be enforced in the Magistrates Courts: "this
was rejected and instead local authorities are left with the only
enforcement tool being a £200 penalty that is only enforceable
through the civil courts. We feel this level of penalty is very
low to provide an incentive for compliance." We would point
out that provision for a civil penalty rather than a criminal
offence was made in the 2004 Act itself, although it is the Regulations
which specify the level for the penalty.
Evidence from DCLG witnesses
24. We asked DCLG's representatives to describe
the benefits which they expected to flow from the introduction
of HIPs as now proposed. We were told that "Ministers believe
that the mandatory pack as it currently stands will have benefits
itself, both in establishing the principle of information being
provided up front and providing a means of speeding up transactions,
reducing wasted costs and helping to reduce the implications of
failed transactions, but also by providing a new basis on which
the market can build ... What we have here is a situation where
there is an initiative that is having immediate benefits but at
the same time is likely to prompt change in the market situation
and encourage innovation and thus the market to move forward in
the way that other retail markets have moved forward over the
last ten, 15, 20 years." (Q8)
25. DCLG told us that the decision in July 2006
that HCRs should not be mandatory was driven by a desire to avoid
a duplication of costs to consumers, as well as by a recognition
that there might be too few inspectors to meet the demand for
HCRs. In addition, however, "Ministers were keen to create
a situation in which the market could lead the take-up of Home
Condition Reports in which they did not necessarily need to be
imposed as a regulatory requirement." (Q3) We pointed out
that the Government had argued that the prime cause of transaction
failures in the housing market was house condition issues, and
that the Government's wish to reduce the incidence of failures
provided an argument for making HCRs compulsory, as the Government
had originally proposed. DCLG agreed that to do so would have
the benefit that transaction failures would be further reduced.
(Q26)
26. We pointed out that in 2006 the Government
had advocated mandatory HCRs as part of mandatory HIPs, but that
in 2007 it favoured voluntary HCRs while HIPs remained mandatory;
we asked whether it would now make sense to encourage HIPs as
a voluntary initiative. DCLG said that "the evidence of the
last 20-30 years does suggest that voluntary change is unlikely
to bring about an improvement" (Q19); but stressed that "what
the Government has done is make the HCRs voluntary, not abandon
them, and press forward with a small mandatory pack ... The real
issue is how big a regulatory intervention is required in order
to stimulate change which Ministers believe would be better market-led
than taken forward as a regulatory imposition." (Q20)
27. We asked DCLG's representatives to explain
why the organisations that had been members of their HIP Components
Project Board had all now become critical of, or opposed to, the
latest proposals for HIPs. DCLG said that "there has been
a range of reasons given and they are all slightly different.
What we are talking about is something that will lead to a significant
shake-up in the home buying and selling market in this country.
It is perfectly understandable that that is not greatly welcomed
by those who work in the current regime." (Q14). We pressed
the question of whether such a shake-up would lead to improvements.
DCLG said: "We start from a situation where the average transaction
takes of the order of six and a half months, where there is a
failure rate of one in four between offer and exchange and where
the cost in terms of average expenditure on fees is of the order
of £5,000, so a process that is slow, expensive and uncertain
in a sector that does not seem to have responded to consumers
in improved effectiveness and efficiency in the way that many
other sectors have. There is a belief that by making the changes
that are proposed significant improvement can be brought about."
(Q17)
28. We raised the issue of the Government's approach
to implementing the Directive and the decision to link the preparation
of EPCs for residential properties to the production of HIPs,
so that an updated EPC will have to be prepared for such properties
every time an HIP is produced. The Directive requires an EPC to
be prepared every 10 years. Under the Government's approach, an
EPC for a house might have to be updated several times during
a 10-year period if that house is sold several times. DCLG explained
the basis for this approach: "The judgment is about how much
notice buyers would take of a survey that was up to ten years
old when energy prices will have changed significantly in the
meantime so that the figures will be out of date; when the technology
that is available to increase efficiency and reduce emissions
will have changed. It is the Department's view that buyers are
much more likely to take account of an up-to-date document and
that is why Ministers have concluded that for each sale there
should be a newly produced Energy Performance Certificate."
(Q45)
29. We referred to the criticism made by the
Better Regulation Commission (BRC) that the Government had offered
no evidence that going beyond the Directive's requirements would
lead to improved outcomes. DCLG said that they had offered a briefing
to the BRC, but that the offer had not been taken up: "How
they were able to conclude that we had no evidence without discussing
our evidence with us is something that is beyond me ... We clearly
have evidence. A Regulatory Impact Assessment has been published."
(Q57, Q58) We would comment that we did not consider that the
RIAs submitted by DCLG contained a full and easily understandable
account of the costs and benefits to users of HIPs and EPCs. (Q33,
Q34) DCLG undertook to send us more extensive information about
these aspects. Since the evidence session, DCLG have said that
they will provide this information after publication of the Report,
alongside a response to the Report which the Government intend
to offer.
30. We put to DCLG the view expressed by the
RICS that the Government's decision to link EPCs to HIPs was motivated
by a wish to prop up an ailing domestic policy. DCLG concurred
with the suggestion that the RICS' view was wrong (Q67); they
stressed that the inclusion of EPCs in HIPs was a long-standing
aspect of the policy (Q46); and they said that, despite some negative
media reporting, "when people experience the use of Energy
Performance Certificates in practice they will see their benefit,
and certainly the evidence from the area trials is that the majority
of sellers, when they get their Energy Performance Certificate,
find it simple and easy to understand and they recognise that
it is a good thing." (Q66)
31. We also pressed DCLG to clarify what would
be the role of trading standards officers (TSOs) in the enforcement
of HIP duties, and questioned whether this would include any qualitative
assessment of EPCs. DCLG said that the role would include "checking
that the HIP has been provided and that it has the documents it
needs to have in it, and the trading standards officer will be
able to confirm that there is an Energy Performance Certificate
in a pack produced by an estate agent ... What the trading standards
officer is not required to do, and neither is the estate agent,
is to check that the energy assessor has prepared the Energy Performance
Certificate to an appropriate standard." (Q77) DCLG explained
that the latter role would be fulfilled by accreditation schemes
under which, for example, repeat inspections would be carried
out to check that EPCs were producing reliable results.
Conclusions
32. We recognise that, for the best part of a
decade, the Government have sought to make progress on their commitment
to improve the process of buying and selling homes, and that they
have brought forward these Regulations on Home Information Packs
(HIPs) and Energy Performance Certificates (EPCs) as an important
contribution to delivering that commitment, as well as to the
aim of reducing carbon emissions from homes. These are important
issues: over one million residential properties are sold each
year; and there is a failure rate of one in four between offer
and exchange in house sale transactions. The Government foresee
immediate benefits from the introduction of HIPs, from the "up
front" provision of information needed to progress home-buying,
which may in their view reduce costs to consumers. They also look
to HIPs to stimulate further innovations in the housing market,
albeit that evidence of the costs and benefits of such innovations
seems limited.
33. However, we cannot overlook the doubts that
have been widely expressed about the benefits identified by the
Government. Home Condition Reports (HCRs) will not now be a mandatory
element of HIPs, and yet HCRs were conceived as a means of tackling
a prime cause of transaction failures in the home-buying process.
Ministers hope to see significant voluntary take-up of HCRs, and
yet the Government acknowledge that voluntary change is not powerful
enough to bring about real improvements in the housing market.
We question therefore whether the HIP Regulations will effectively
achieve their policy objective.
34. EPCs may well prove persuasive in alerting
actual and potential home-owners to the energy efficiency of their
properties. The Government accept that linking EPCs to HIPs as
proposed will mean that many EPCs have to be updated more often
than the frequency of 10 years specified in the Directive. We
cannot say that the Government have presented a rationale for
this approach which refutes all the criticisms voiced; and we
question therefore whether the EPB Regulations appropriately implement
the European Directive.
35. The Government have presented their proposals
as a limited regulatory intervention intended to stimulate a more
extensive market response. The comments on these proposals which
we have received from organisations representing key interest
groups in the housing market show at best scepticism, and at worst
hostility. We cannot but conclude that the Government have not
been able to convince the principal stakeholders in the housing
market that their proposals as they now stand are sensible or
worthwhile, or are likely to be effective for their declared purposes;
and that they need to do more if the market is to respond positively
to this intervention.
1 Under sections 161, 163, 164, 165 and 250(2) of,
and paragraphs 2 and 11(b) of Schedule 8 to, the Housing Act 2004. Back
2
Under section 2(2) of the European Communities Act 1972 and sections
1(1), 8(6), 35 and 47 of, and paragraphs 1, 2, 4, 7, 8 and 10
of Schedule 1 to, the Building Act 1984. Back
3
In the 39th Report of 2005-06 (HL Paper 214). Back
4
See BRC press release dated 26 February 2007: http://www.brc.gov.uk/news/2007/070226.asp
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