My Lords, I thank the Minister for explaining these extremely complex changes, and for doing so despite a short-term disability in terms of
delivery. It is probably sensible that she indicates that she will write to me on any points she wishes to take up because we have another set of regulations to get through before we finish on energy today.
I also thank the Minister’s officials because they have produced Explanatory Notes and an impact assessment that are extremely complex. However, some of that raises rather more questions than it answers. The Minister has done her best to present this as an advance in tackling energy efficiency but my assessment is that in some ways it is a retreat. It is obviously part of the broader approach of government to the multifarious challenges of energy policy but most commentators would say that the energy-efficiency dimension of it is faltering.
Let us look at a bit of history. When they came in, the Government inherited a number of different schemes from the previous Government: Warm Front, CERT and CESP in England and the equivalent taxpayer-funded Warm Front schemes in Scotland, Wales and Northern Ireland, which are still running. None of those schemes was perfect, although when I was a Minister Warm Front actually delivered 250,000 interventions per annum, which is considerably more ambitious than the aggregate of all the schemes to which the Minister referred.
The intention of the Government was that the ECO, funded by consumers rather than taxpayers, would replace all those schemes in one way or another, at less cost. It would be more consolidated, more stable and more geared to the physical and social challenges implicit in dealing with energy efficiency and fuel poverty. It has fallen well short of that so far. Some minor improvements have been made and are being made today in terms of the coverage, techniques and technologies for which ECO can pay—but on balance it is going backwards. That is partly because the Government’s very good first intention when they introduced the concept of the ECO was that this framework would last for 10 years. It was said that it would run to 2023 in broadly these terms. However, after two years we have some pretty major changes and some significant underperformance.
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As the Minister explained today, the ambition has now been reduced on a number of fronts. There is a reduced ambition in relation to carbon. She referred to the 33% reduction. There is in my estimation a reduced focus on the output of the ECO on fuel poverty and a reduced focus, at least in the short term, on what are known to be the least energy efficient forms of housing, which house many of those most in need, principally in the private rented sector.
The Government intend by these changes to refocus the programme and to reduce, or at least control, the cost to consumers. As the Minister repeated today, the average cost to consumers through their bills should be reduced by £35 a year as a result of the changes. Previously I received letters from the Minister which I looked at again to determine where the £35 comes from. I will not go into the full details of that but I was not totally convinced by the figures. The final paragraph of one of the letters sent by the Minister’s officials stated that this was the figure that the companies
estimate will be the saving. You cannot work out a priori a figure of £35 from the figures that are given. However, if that is what the companies are saying, it has not been delivered. Four of the big six companies have delivered less of a cut than £35, and those on fixed prices are particularly affected. Part of the problem is that we not only depend on the supply companies to deliver energy efficiency improvements, we also appear to trust the way they calculate their effects and the effect on bills. That may be a mistake in the medium term.
Because we are introducing changes there has also been a bit of a hiatus in delivery. One estimate suggests that 55,000 households have missed out because of the uncertainty about where we were moving. There are certainly anxieties within the insulation industry and the installation industry about how these changes will affect the way in which they deliver and the cost efficiency with which they can deliver. So we have a situation where some uncertainty has been introduced on top of pre-existing uncertainty. It is not entirely clear to me that the Government intend to maintain this framework beyond the two years we are talking about. Perhaps the framework should be changed, as I shall discuss later.
I turn to the proposals themselves and the documentation provided with them. As I say, we have reduced the carbon ambition, as was explained by the Minister and is set out in the impact assessment, which states at page 27 that only 10,000 will be taken out of fuel poverty by 2018 out of 1.8 million or so—depending on the definition you use. As regards the type of housing being addressed, it is well known, and has been for years, that the lowest energy efficiency is found in the private rented sector. As noble Lords will know, the private rented sector is an increasing part of our housing tenure. Roughly 21% or 22% of people now live in the private rented sector. The impact assessment states on page 23 that from 2013 to 2015, only 11% of interventions will be in the private rented sector and only 6% in 2015 to 2017. However, dwellings in the private rented sector continue to pose the greatest problems as far as energy efficiency and fuel poverty are concerned.
Some beneficial changes have been made in terms of the particular problems of rural areas but what has been given with one hand has been taken away with the other. While there is an extension of the technologies which can be employed so that off-grid households within rural or semi-rural areas can be addressed more effectively, the focus on the poorest within those areas has effectively been removed because we now have an objective of rurality as well as of need. That could mean that within rural areas those in the most desperate need may not be given priority.
As to the total number of interventions, page 27 of the impact assessment states that in the period 2013 to 2015 just over 1 million interventions are envisaged. Over the following two years, only 842,000 will be addressed. That is a reduction of nearly 20%. However, because ECO is divided into three parts, in the affordable warmth section which affects certain types of fuel poor housing, it represents a decline of 47% in the number of interventions. The impact assessment shows
that the changes that have been made, primarily to reduce consumers’ bills—which no one is objecting to although the form of the Bill is a matter of contention—have led to distortions which have reduced the total impact on carbon and on the focus on the fuel poor and the least energy efficient housing. At the same time, because it has caused some disruption in the industries, the cost per intervention may also have suffered. Certainly there are elements within the installation industry which would suggest that.
There are objectives for landlords within the private rented sector to improve the energy efficiency of their dwellings by 2018 to at least band E. However, with the reduction in the focus on the private rented sector, any help for landlords to meet that target is to be reduced at the point where they begin to focus on needing to do so. So it affects not only the tenants within the private sector but the preparation for tighter requirements on landlords.
Behind all this is the problem that the policy of relying on the ECO and the way it is structured as the sole measure of delivery on energy efficiency in terms of carbon savings, savings on consumers’ bills in general and tackling fuel poverty is flawed. A single measure by itself cannot be sufficient to deal with all of these issues, even though there are at least three different sub-schemes within the ECO. It is flawed also because we rely heavily on the supply companies to deliver it.
The Government have indicated that they would support a more area-based approach. However, these regulations do not facilitate that. A more area-based approach would be more cost efficient and more able to focus on areas of bad housing and low incomes than one which goes house by house or is delivered by the supply companies. There will be different supply companies for different consumers, different households and different streets.
It is also a political problem in that the cost of this has fallen on the general consumer in the form of what is almost a poll tax. Although attacks on government additions to energy bills have tended to focus on the subsidy for green energy, it has also been subsumed in relation to the social redistribution which the ECO levy covers. That makes it difficult to ensure any consumer understanding of the way in which these costs are being paid for and delivered.
I am speaking for the Labour Front Bench today, but the following is one of the bees in my bonnet, if you like. It is probably too late for this now, but if we are going on a house by house basis, the best way to deliver this would have been to associate it with the smart meter programme, as every single house in the country has to be associated with that and we could have prioritised those who were in most income need. However, we are where we are. There are some extensions that I approve of here, but the total ambition is sadly lacking, and we are going a bit backwards, both on the number of interventions and on the carbon outcome, as well as not contributing as effectively as we could to the reduction of fuel poverty.
As I say, the political problem is that consumers do not understand what they need to do in terms of improving the energy efficiency of their housing or
why they are paying for what they may regard as other people’s problems with energy efficiency. The problem is that the Government have not managed to deliver a narrative through all these changes and have not really convinced the industry that there is a stable environment in which it can invest for the future and thereby bring down unit costs in terms of future interventions.
This is going to run for two years, and we will see whether even the reduced targets are actually delivered. I hope that they are and that we in fact exceed them—we may well do so if the industry gets it act together, but there are more fundamental problems here. I am not convinced that the ECO as it stands will deliver what needs to be achieved. We need a longer-term framework, and in that sense I cannot fully support these regulations, although there are parts of them, as I say, that I do approve of.
I can only hope that an alternative Government will perhaps rethink this and have a more holistic, cost-effective and long-term strategy for tackling the triple problem of carbon reduction, energy costs and fuel poverty. I am afraid that these regulations as they stand do not take us very far down that road—and in some respects, they go backwards.