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Electricity and Gas (Energy Company Obligation) (Amendment) Order 2017

Volume 782: debated on Tuesday 21 March 2017

Motion to Consider

Moved by

That the Grand Committee do consider the Electricity and Gas (Energy Company Obligation) (Amendment) Order 2017.

My Lords, I am pleased to open the debate on this draft order. The ECO order exercises powers set out in the Gas Act 1986 and the Electricity Act 1989 which allow obligations to be placed on energy suppliers in Great Britain.

In the Prime Minister’s first speech of her term in office, she recognised the hardships faced by poorer households in Britain—hard-working families, who,

“can just about manage but … worry about the cost of living”.

As part of the response to that dilemma, the Government are committed to helping households in fuel poverty or on lower incomes living in homes which are expensive to heat. That is why this order is before the Committee today. It will also make an important contribution to the Government’s clean growth plan and to reducing carbon emissions.

We are making amendments to the existing ECO order, which covers the period from 1 April 2015 to 31 March 2017. The amendments extend the current scheme from 1 April 2017 to 30 September 2018 to enable reforms to be introduced, while also allowing industry time before further improvements are made through a new longer-term scheme from 2018 to 2022. Planning ahead to 2022, beyond the life of this Parliament, reflects announcements on funding made in the 2015 spending review. This longer-term confirmation of funding is designed to give greater certainty to energy suppliers, installers, local authorities and other energy stakeholders.

This Government are facing up to the enormous energy challenges our country faces over the coming years. With the overhaul of the electricity market and continued investment in renewable technologies, we are well on the way to making sure that the UK’s energy is secure, low carbon and affordable. Improving the energy efficiency of the UK’s homes is central to this challenge and to addressing fuel poverty.

The energy company obligation scheme helps occupants keep warm, reduce their energy bills and protect their health and well-being. It does this by obligating energy suppliers to reduce carbon emissions and energy costs through installing energy-efficiency measures in households across Great Britain. The supply chains involved in this endeavour also provide economic benefits across the country. Since the introduction of the ECO in 2013, the scheme has proved remarkably reliable and cost-effective in upgrading our housing stock. Altogether, more than 2 million energy-efficiency measures had been installed in more than 1.6 million homes by the end of December 2016, with around 1.2 million of those measures going to 900,000 low-income and vulnerable households or households in deprived areas. This is a significant investment in addressing energy efficiency and fuel poverty. Thanks to the amendment order we are introducing today, we forecast that over half a million more insulation measures and around 45,000 more heating measures will be delivered through the ECO by 2018.

The changes implemented by the order before the Committee were consulted on in the summer of 2016. The consultation received 236 formal responses, which were broadly supportive of the proposals. The government response was published at the end of January 2017. The order will reduce the overall spend of the scheme from £860 million per annum currently to £640 million per annum. This is done to constrain the impact of government policies on all consumer bills. Although the ECO provides the recipients of energy-efficiency measures with long-term bill savings, it is important to recognise that the upfront costs of the measures installed are spread across all bill payers. As such, it is right that we have sought to ensure that the ECO support is focused more on those most in need, while reducing the overall cost from around £34 per bill currently to £25 per bill from April onwards. At the same time, it will still allow around 545,000 homes to be improved across the 18 months of the extension.

We have increased the period of the obligation extension from 12 months in the consultation to 18 months. This is in response to the views of stakeholders and is designed to make the transition as smooth as possible. It will avoid costs associated with industry implementing changes within constrained timelines, and will allow lessons from the operation of the extended period to be fed into the design of the longer-term scheme from 2018.

The separate carbon-saving community obligation element of the ECO, part of which currently delivers energy-efficiency improvements in rural areas, will be brought to an end for reasons of simplification, but there will be a safeguard guaranteeing a minimum level of rural delivery under the remaining carbon reduction obligation.

The affordable warmth element of the scheme, which places the greatest focus on targeting low-income and fuel-poor households, is increased from 34% to 70% of the overall estimated spend. This means that the carbon emissions reduction obligation element, which allows delivery to any home for carbon-saving purposes, will be decreased to approximately 30% of the overall spend. Changes are also being introduced to better target the affordable warmth obligation towards low-income and fuel-poor households.

First, income thresholds will be used to determine eligibility under affordable warmth. The process will be simple, while recognising differences in household size. Secondly, eligibility for the affordable warmth element has also been extended to allow the installation of particular measures to social housing occupants in the least efficient homes—those with an EPC band of E, F or G. Thirdly, a new voluntary provision will allow local authorities to use their local knowledge to determine eligible fuel-poor or vulnerable households for up to 10% of a supplier’s affordable warmth obligation. In particular, they will have opportunities to help people with health problems living in cold homes.

Fourthly, mains gas boiler replacements delivered under affordable warmth have been limited to the equivalent of approximately 25,000 per year. Our analysis suggests that other measures, such as insulation and first-time central heating, are more beneficial and cost effective. We will also require a minimum delivery of the more expensive solid wall insulation, equivalent to 21,000 homes a year, to protect the development of that sector and improve some of the least efficient homes. A key focus of the changes made by this order has been simplification to reduce the administrative burdens and complexities associated with the scheme. This may allow more measures to be delivered under a given amount of supplier spend.

These are important changes to the existing ECO order but they will continue to drive large-scale investment in energy efficiency across the country. Support will be targeted more at those who need it most: those living in fuel poverty or on lower incomes and struggling with bills. The order will promote measures that bring reductions to energy bills, simplify scheme delivery, and better target energy-efficiency funding to vulnerable and low-income households. I commend this draft order to the Committee.

My Lords, this order is something of a curate’s egg. There are a number of aspects that one would be quite happy with were it not for the fact that one player in this whole scheme is absent: the Government. They are changing some of the regulations and arrangements but they are providing no money themselves, unlike the Administrations in Belfast, Cardiff or Edinburgh. Therefore, we have to say in the first instance, on the objective of moving the starting time by six months, from 12 to 18 months, if we are to get a better scheme, that might be very well. However, it is a delay, in fact from 2015, when the opportunity to introduce an improved scheme first arose.

It begs the question: why is there a delay? If it is because the Government are wrestling with the complexity of it, I submit that they have had plenty of time to do that. I know from the briefing I received from National Energy Action—of which I happen to be the honorary president, and therefore declare a limited, non-pecuniary interest—that this estimable charity has somewhat mixed feelings, which reflect my own. The Government seem to be doing a little bit with one hand, and then taking it away with the other. When we see the reduction in boiler replacement, it is not because the job is nearly ending—that we have completed the replacement of inefficient boilers—but simply because the Government take the view that it costs too much.

There is also the fact that if you want to make households more conscious of the benefits of energy efficiency, a dramatic change such as the replacement or introduction of a boiler is of critical significance in this change of thought process. We know that in many respects the households that are most disadvantaged are those which have so many problems that trying to be energy efficient is very much a kind of finger-in-the-dyke operation, and they need assistance. Very often, when we are able to secure the replacement boilers, we get a change of step and a greater willingness to help.

It is also fair to say that we have insufficient sums to meet even the most modest of home improvements. We are told by a number of bodies—including, for example, the Committee on Fuel Poverty, the Committee on Climate Change, and Policy Exchange—that even to meet the very modest target of getting households to EPC E level by 2020 will require £1.9 billion. To get households to EPC D level by 2025 will cost £5.6 billion. To get all households up to EPC C level by 2030 will require £12.3 billion. These are large sums. However, what the Minister is talking about seems to be nowhere near what is required to reach these households. Indeed, it has been suggested that a baby born today into inadequate housing would probably be about 75 before their home was properly heated.

A number of the changes are sensible and not unwelcome. However, the Government cannot get away with the platitudinous nonsense the Minister spoke at the beginning of his speech when he quoted the Prime Minister. If the Prime Minister really wants to help hard-working families and do something about this kind of household, the Government will have to use central taxation as a mechanism to do it. It is not enough just to express pious hopes and, on occasion, go for cheaper options. That seems to be at least part of the thinking behind a number of the changes in this measure.

Therefore, as I say, this is a curate’s egg. This Committee does not have the opportunity to overturn or amend it. I know that it has been the subject of fairly wide consultation but I do not think that all the organisations that were consulted would necessarily embrace everything in the order. Therefore, as I say, my welcome of it is highly qualified and I am somewhat disappointed. An opportunity has been missed here—and not because the Government have rushed into this. They have had since 2015 to get something done and the best that they can come up with is this rather feeble list of changes and a further six-month delay in bringing about many measures that would be regarded as improvements. We cannot take any consolation as some of the less desirable aspects of this measure will continue for some time.

As I say, I think that this is a missed opportunity for the Minister. He and I are old friends from Select Committee days in the Commons. I am trying to chastise him as gently as I can as I know that he is new to the job and I expect that his influence over the drafting of this order was probably minimal. However, I would like to think that in the months and years that he may still be in the job he will be able to come up with something better before too long.

My Lords, something is better than nothing. We on these Benches, at least, welcome this measure, although there are many “buts”. There is no doubt that improving the quality of existing homes can play a very important part in increasing warmth and comfort and help to make fuel bills far more affordable, particularly for vulnerable occupants. However—I think the Minister recognises this—it is also a highly cost-effective way of reducing carbon emissions and saving energy. In addition, ambitious energy efficiency savings programmes can capture substantial macroeconomic benefits.

I remember taking through the House of Commons a Private Member’s Bill that became the Home Energy Conservation Act 1995, and saying that the job creation potential in making homes energy efficient was enormous. I regret that some 20-plus years later, we are still grappling with this issue and people are still living in fuel poverty. As the noble Lord said, people born into fuel poverty today will probably still be in fuel poverty at the end of their lives. That is very sad.

Like the noble Lord, Lord O’Neill, I am a vice-president of National Energy Action, a fuel poverty charity that has been campaigning on this issue for a long time. I have been associated with it for my whole time in Parliament, so it has been campaigning for probably 25 years now. In all that time, the mission—we are still trying to do it—has been to ensure that fuel poverty is eradicated and that nobody lives in a cold home. We have never managed to target that effectively. The poor targeting of existing schemes and the lack of investment in energy-efficiency programmes mean that we are still in a bad position today. The noble Lord, Lord O’Neill, gave us some of the figures.

The UK Government have in many ways been slow to respond to the scale of this challenge, but during the coalition years, when my then right honourable friend Ed Davey was the Minister, we managed to get a fuel poverty strategy in an energy Bill. I and others pushed very hard to get it—I think the noble Lord, Lord O’Neill, backed us—against the Conservative elements in the Government who were not very interested in having it. That is why we have this order today, which we welcome. I know that my colleagues at National Energy Action welcome it and are trying to work with the Minister and his department to see that we make a success of it, and perhaps get something even better in future.

At the moment, this mechanism is the only deliverer of energy efficiency nationally. The noble Lord, Lord O’Neill, touched on this. The scheme will be shifted away from all citizens and focused on those at risk of fuel poverty. As the noble Lord said, other parts of the British Isles have additional schemes to help ensure that more homes are better insulated. As the Minister said, one of the good things about this measure is that it will increase by 70% the number of places that will get affordable warmth, but it will take longer. We have heard of the change from 12 months to 18 months, which, I am advised, means a shortfall in activity of around £1 billion in lifetime savings for the poorest households with the highest energy costs.

It is important to point out—as did the noble Lord, Lord O’Neill—that there are clearly limits to the extent to which levy-funded polices and those delivered by energy suppliers can exclusively be relied upon. As he said—I apologise for repeating myself—in the rest of the British Isles there are other schemes, as well as ECO, to deal with energy efficiency in homes. It is very disappointing that we cannot find more money from the Government to do that. Various reports have pointed that out, and what it means for those living in fuel poverty.

I end where I began: I am disappointed that here I am, 20-odd years in Parliament later, in one of the richest countries in the world and we are talking about fuel poverty. We can find lots of money for all sorts of things, but somehow we seem to find it impossible to find the money to help those who live in cold homes.

I thank the Minister for his comprehensive introduction and explanation of the order. The ECO is now the only government instrument to increase overall carbon emissions reductions targets for households and overall home heating cost reduction targets by a statutory obligation on the largest energy suppliers to install energy-efficiency measures for households in Great Britain. I approve of the order today and support the measures, as far as they go, to promote energy efficiency and the reduction of fuel poverty. Improving the quality of the housing stock is a highly cost-effective way in which to reduce carbon emissions, save energy, improve the lives of the fuel poor and capture substantial national economic benefits. However, I cannot disguise the widespread disappointment in the Government for their inability to meet their legal target to end fuel poverty by 2017. Comments around the Committee today have reflected that view.

The Government are now extending the ECO scheme in this intermediary fashion for a further 18 months, to September 2018, before introducing further measures to end fuel poverty by the end of the scheme in 2022. The increasing focus on fuel poverty is to be encouraged, but reducing the annual spend by 25% from £860 million to £640 million reveals a lack of political will and the required proper funding. The Committee on Fuel Poverty has estimated an investment requirement of £20 billion to improve fuel-poor homes in England to at least EPC rating C by 2030. The Committee on Climate Change considers that the current funding is less than half that which is required to meet these now delayed commitments.

The Green Deal has been a failure, improving only 15,000 homes. Last year, the Conservative Government scrapped the 2016 zero-carbon homes policy. The UK ranks bottom, 16 out of 16, in western Europe for the proportion of people who cannot afford to heat their homes adequately. While welcoming the change on balance towards better funding of energy efficiency measures, the cap on the installation of mains gas qualifying boiler replacements under the affordable warmth arrangements leaves a big gap in the provision needed to replace or repair existing gas boilers.

A big factor for being in fuel poverty is living in a home off the gas grid. The worst properties are located off the grid and are more likely to be located in rural areas. Over the last Parliament, the number of major energy-efficiency measures installed in homes fell by 76% as total investment fell by 53% between 2010 and 2015. The implications have been particularly crucial to the NHS. Of the 43,900 excess winter deaths calculated for 2014-15, at least 14,000 deaths can be attributable to the cold homes crisis.

Are the Government confident that electricity companies can access the necessary data to target expenditure effectively? The data-sharing powers need critical assessment. Hospitals need to join up outpatient care with fuel poverty initiatives for patients at risk of recurrent visits. Local authorities must act on their duties to enforce and monitor housing standards, and basic energy-efficiency standards should form a critical part of existing licensing requirements. Additional national energy-efficiency programmes are urgently needed to support the upgrading of lower rated properties, notably for the installation of first-time central heating. My noble friend Lord O’Neill and the noble Baroness, Lady Maddock, have highlighted how the Government are alone among UK Administrations in not providing additional funding towards this important policy. The National Infrastructure Commission and the Government must respond and act on the strong case for domestic energy efficiency to be regarded as a nationally important infrastructure policy.

I shall ask only one or two important questions on this order. These amendments are an extension to the present scheme and delays to meeting targets have been recognised. Will the Minister make clear how the statutory fuel poverty commitment will be met, with milestones along the way? Lastly, what additional energy-efficiency programmes are under consideration by the Government? What is the timing of any policy plan development between April 2017 and the end of this intermediary period in September 2018? In approving the order, I urge the Government to recognise their shortfall in ambition in tackling fuel poverty and the energy efficiency of homes.

My Lords, I accept that noble Lords who have spoken regard this order as a curate’s egg and that it does not go as far as they would like. I will try to address the more general questions raised by all three noble Lords. The Government feel that the supplier obligations have proven to be remarkably successful, but we have probably pushed them as far as they can go. That is why we have decided to cap the supplier obligation at £640 million. The noble Baroness, Lady Maddock, and the noble Lord, Lord O’Neill, think that we should go further. If I might slightly oversimplify it, I think I am right that the noble Lord, Lord O’Neill, feels that we should consider raising taxation more generally to solve this issue, whereas the noble Baroness, Lady Maddock, thinks that we could take money from other areas that we are spending money on to put more money into this area.

To start with the noble Lord’s point, our response is not to increase central taxation. He mentioned a figure of £12 billion, and the noble Lord, Lord Grantchester, came up with a figure of £20 billion to 2030. That level of increased taxation is simply not an option—at least not for our Government. Our response to the issues that the Prime Minister has focused on is not to raise general taxation, but to try to address the issue by improving the productivity of the country, which is why we have an industrial strategy. Frankly, to load a lot more general taxation on to our economy cannot be a way to improve productivity. I do not know whether that view will be shared by the leader of the Opposition—who knows these days?—But it is certainly not an option for us to raise central taxation. The noble Baroness, Lady Maddock, said that there must be other areas that we could take money from.

For example, we know that people who live in cold or damp homes, particularly elderly people, cost us a huge amount in the health service. Over the years, NEA has run various schemes and has looked carefully at this. That is one area where we could look to see whether we could get some money because it will save money in the long run.

I understand that argument, but it would take five minutes to have a whole list of other parts of the population, whether it is people who have mental health problems or learning difficulties or old people who are lonely. There are lots of people we would like to do more for and from whom there will be knock-on benefits to the NHS, social services and the like. As the noble Baroness will know well, the trouble with politics is that choices have to be made. It is very easy to say that we should take more money from this group and give it to that, but if only life was so simple.

I am almost reluctant to make this point because it is a wee bit unkind and it is not the Minister’s fault. We know that the Government have problems with raising taxes. We have seen that in the past two weeks in the context of national insurance contributions. There was a willingness to raise taxes, but they discovered that they were raising the wrong ones as far as their supporters were concerned. Perhaps between now and next November the Minister can look afresh at what sources of revenue could be secured to help the fuel poor and to meet the Prime Minister’s pious words about helping hard-working families who are unfortunate enough to be living in hard-to-heat homes.

I understand where the noble Lord is coming from. I repeat, our approach is diametrically opposite to his. We do not want to raise taxes from any group of citizens in this country when the alternative is to try to improve productivity. He will know from the time when he was chairing the Trade and Industry Select Committee in the other place that productivity has been, and is still, a huge issue for this country. I do not think that he seriously thinks that we are going to improve productivity by taxing hard-working British people. That is a choice that we have to make. His party, during those long-off, rosy days when Tony Blair was Prime Minister, had in a sense got the message that there is a direct relationship between high taxes and successful economic growth. Raising taxation along the lines that he described is simply not an option for this Government at this time.

As I said at the start of this debate, the ECO scheme has already helped to deliver more than 2 million energy- saving measures to more than 1.6 million households, including 1.2 million measures to 900,000 low-income and vulnerable consumers. It would be wrong to characterise the efforts that we have made, which were supported by the coalition Government, as having made no progress. Clearly our progress is not as much as some noble Lords would like, but we have made significant progress. At a time of rising energy bills, it is right that support is targeted at those most in need. At the same time, the amendments we are making to the existing order should reduce the cost of the scheme to bill payers to around £25 each year from £34 currently. With this amendment order ECO is expected to provide 545,000 households with more energy-saving measures. With this order, we will give a balance of improvements and continuity to consumers and to the energy-efficiency industry for 18 months before further change is made through a new longer-term scheme from 2018 to 2022

I therefore commend this draft order to the Committee.

Motion agreed.