MPs criticise Green Deal

30th October, 2013

A cross-party committee of MPs has delivered the strongest blow yet to the green deal, the government's flagship programme for energy efficiency, calling it "unattractive and uncompetitive".

The latest figures for the green deal formally launched in January after several delays show that only 384 households have yet signed up for improvements, out of more than 71,000 households that received assessments under the scheme.

The green deal is aimed at encouraging people to install loft, cavity and solid wall insulation, which would reduce energy bills and the heat leaking from the UK's draughty homes. But so far the main beneficiaries have been middle-class households receiving free subsidies for new boilers.

At current rates, critics have pointed out, it could take 160 years for all of the UK's housing to benefit.

However, the All-party parliamentary group for excellence in the built environment released a report on Tuesday that roundly criticised the scheme. "Financially, the green deal is unattractive and uncompetitive. It is overly complicated and it doesn't work for social housing organisations," they said. The group of MPs also found that "there is currently little financial incentive for households" to improve the energy efficiency of their homes. The committee found the framework of the green deal was "not as strong as it needs to be".

At present, loans for green deal improvements to properties are charged by lenders at about 8% interest. This is in contrast to mortgage payments, which from many lenders are currently charged at less than 2.5% on average. Householders applying for loans to improve the properties on which they have a mortgage are currently charged by most lenders at their ordinary mortgage interest rates for the improvements, which lenders generally approve of because they both reduce household outgoings and increase the value of the property.

That makes green deal rates uncompetitive, according to Ben Warren of Ernst & Young. "The cost of loans offered by the government-backed scheme, which is run by the Green Deal Finance Company, are, depending on the size and payback of the loan, at over 8% AER [annual equivalent rate], when private lenders are offering energy efficiency loans to their mortgage customers at 2.29% AER. The lack of take-up raises questions about whether the green deal finance company was ever a sensible intervention for government to make."

The parliamentary group concluded: "We are convinced that, unless the price of energy surges in a way that tips the financial scales and increases the savings, the green deal will not gather the necessary momentum to succeed, without additional incentives to encourage action and a means to reduce the cost of finance."

The group's report also emphasised the need for strong regulations in driving change, including strengthening building regulations something the government has been reluctant to do, after the furore over the so-called "conservatory tax", by which households undertaking significant home improvements such as an extension or conversion would have been required to make the rest of their property energy efficient as well. The idea was axed by Eric Pickles in 2012.

A spokesman for the Department of Energy and Climate Change said: "The green deal is an ambitious 20-year programme at the heart of the coalition's strategy to make our buildings more energy efficient, while helping people take control against rising energy costs. Thousands of innovative businesses are invested in this new opportunity and the signs, including over 70,000 assessments done so far and 174,000 homes improved with ECO [Energy Companies Obligation] help, are promising. It's still early days."

John Alker, director of policy and communications of the Green Building Council, who sat on the group, said: "This report adds yet more weight to the calls for additional incentives to get the green deal off the ground. With the housing market on the up, stamp duty is surely an obvious policy lever for government to pull.

"The strength of this report is that it is cross-party, and is a measured response to a policy that has disappointed so far, but is not beyond rescue."

The Green Building Council has previously suggested that owners of energy efficient homes should pay less council tax and stamp duty, funded by increases in charges to those with "leakier" homes.

The Green Deal Finance Company said a report it had commissioned from Capital Economics had found its rates "competitive". The rates range from 7.9% to 9.8%. The company said its rates were not secured on the property, so cannot be compared with rates arranged for or alongside mortgages, which would be cheaper.

However, although the company's loans are not raised by using the property as surety, as mortgages are, the loans are attached to the property to which the improvements are made. This means that any future owner of any property on which a green deal loan has been taken out will be liable for repayment of that loan, at the rate originally agreed. This effectively means that buyers of properties on which green deal loans have been raised will be obliged to continue to pay off the loan at the interest rates initially agreed, even if the improvements could have been carried out at a much lower overall cost without such a loan, or by raising a loan through a mortgage.

Source: The Guardian

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