EEH0037
Written evidence submitted by the Committee on Fuel Poverty
Environmental Audit Committee
Commons Select Committee
Inquiry: Energy Efficiency of Existing Homes
On-line Energy Efficiency of Existing Homes 22 June 2020
Email: eacom@parliament.uk
Dear Committee
Committee on Fuel Poverty’s written response to the Environmental Audit Committee’s Inquiry: Energy Efficiency of Existing Homes
The Committee on Fuel Poverty (CFP)[1] is an advisory Non-Departmental Public Body sponsored by the Department for Business, Energy & Industrial Strategy (BEIS). We monitor Government’s progress on their 2015 Fuel Poverty Strategy for England (as set out in ‘Cutting the Cost of Keeping Warm’[2]) and provide independent, expert advice to ensure that the Strategy’s milestones and target are met.
We will structure our response to your enquiry around the questions you have asked; however, you may also wish to look through our fourth Annual Report (embargoed copy attached).
Question: Should Government’s targets on residential energy efficiency be legislated for, and if so, what difference will this make?
The Fuel Poverty Strategy contains the following milestones and target:
Statutory fuel poverty target is to ensure that as many fuel poor homes as is reasonably practicable achieve a minimum energy efficiency rating of Band C, by 2030.
The two interim Milestones are:
- As many fuel poor homes as is reasonably practicable to Band E by 2020 and
- As many fuel poor homes as is reasonably practicable to Band D by 2025
We estimated in our fourth Annual Report and forecast, as a result of previous governments not targeting available budgets on delivering the milestone, out of the 292,000 fuel poor Band F and Band G homes at the start of the strategy, 120,000 will fail to achieve Band E by 2020, and therefore we forecast that the first milestone will be missed. Without additional funding and new programmes, we forecast that the 2025 milestone and 2030 target will also be missed.
There are 2.4 million households in fuel poverty representing 10.3% of all households in England:
- 51% of the fuel poor are owner occupied;
- 34% are in the private rented sector; and
- 15% are in social housing.
We believe that tenants of rented properties should have the right to live in properties that are affordable to heat and are free from damp and mold. Only 35% of all privately rented homes and only 60% of all social housing are at Band C or above. We strongly believe that energy efficiency targets of a minimum of Band C for rented properties should be legislated for and that landlords should fund the required energy efficiency upgrades of their properties.
There is evidence that landlords will benefit financially from an increase in the value of their properties resulting from higher energy efficiency levels (see BEIS Consultation on PRS MEES regulations)[3]. However, with the exception of possible resultant increases in rent, landlords do not benefit immediately as the resultant energy bill savings are to the benefit of the tenant and therefore, legislation will be required to drive the necessary change.
Question: What additional policy interventions are needed for social housing, leaseholders, landlords and tenants?
1) Private Rented Sector Minimum Energy Efficiency Standards
We recommend extending the current Private Rented Sector Minimum Energy Efficiency Standards (PRS MEES) that require landlords of households in Band F and Band G properties to upgrade them to Band E by 2020:
For PRS properties that failed to meet the minimum energy efficiency standards of the prior period, any underspend versus the prior period landlords’ cap should be added to the cap for the current period, for example, if a landlord failed to upgrade their property to Band D by 2025:
- 2025 Band D landlords’ cap £5,500 - Actual expenditure by the landlord on their Band E property was £3,000 but next measure would cost £4,000 and so was not installed. This property therefore failed to achieve Band D with an underspend of £2,500.
- 2030 Band C landlords’ cap £6,500 - 2030 Band C cap for the landlord who failed to achieve Band D in 2025 would be £6,500 plus £2,500 underspend from the prior period, so the landlord would be expected to spend £9,000 to improve their property to Band C.
Recommendation: To compensate PRS Landlords for investing in energy efficiency improvements to their properties, the Landlord’s Energy Savings Allowance – a former tax allowance on energy saving expenditure by landlords – should be re-introduced.
2) Social Housing Energy Efficiency Standards
We believe that standards should be set to raise the energy efficiency levels of social housing to Band C by 2030. We were delighted to read in the background briefing notes published alongside the Queen’s Speech on 19 December 2019[4], proposals to invest £9.2 billion in the energy efficiency of homes, schools and hospitals. We are aware that the Costings Document published alongside the Conservative Manifesto indicated a £3.8 billion Social Housing Decarbonisation Fund to upgrade energy efficiency levels. We therefore recommend:
- Regulations should be implemented to require social housing to achieve energy efficiency Band D by 2025 and Band C by 2030.
- A £3.8 billion Social Housing Decarbonisation Fund should be approved in the forthcoming Comprehensive Spending Review or earlier and upgrading the energy efficiency of social housing homes of fuel poor households should be prioritised.
Question: How should the proposed Home Upgrade Grant Scheme be delivered to help the fuel poor? Should the new grant scheme supplement ECO in its current form, or should ECO be redesigned?
Energy Company Obligation (ECO)
With regards to the ECO programme, we welcomed the October 2017 publication of the Government’s Clean Growth Strategy (CGS) as it included an ambition for a Home Energy Efficiency Programme (HEEP) which would extend to 2028 at a level of spend at least at the current level of ECO spend. Any successor scheme to ECO needs to be much better focused on raising the energy efficiency levels of fuel poor owner occupied homes, as only 30% of the current ECO scheme energy efficiency measures are forecast to be installed in fuel poor homes. In order to assist to deliver the fuel poverty strategy 2025 milestone and 2030 target, we recommend:
Implement the Clean Growth Strategy ambition for a Home Energy Efficiency Programme (HEEP) from 2022 to 2028, with a budget at least at the level of ECO3 and focus at least 50% of its budget on Band E and Band D fuel poor homes.
Unless the current ECO Flex scheme[5] can be fixed, we advise against devolving powers to local authorities to implement the HEEP, as there is no evidence that the ECO Flex scheme is delivering its objectives of identifying:
- Fuel poor households, especially those who are not in receipt of ECO eligible benefits, and fuel poor households who are not in receipt of any benefits, and
- Low income households who are vulnerable to the effects of living in cold homes.
Instead, we advocate using advanced statistics/machine learning, together with a wide set of data such as is available from utilising the Digital Economy Act, to cost-effectively and tightly target fuel poor households. We commissioned research into ‘Better use of data and advanced statistics/machine learning in delivering benefits to the fuel poor’[6] which demonstrates that these tools could be implemented in government policies.
Home Upgrade Grant (HUG)
Even if regulations are implemented to raise rented accommodation minimum energy efficiency levels to Band C by 2030 and the current ECO scheme is extended by a successor scheme to 2028, there is still a requirement for additional new funds to enable the 2025 milestone to be achieved.
In the briefing published alongside the Queen’s Speech there are proposals to invest £9.2 billion in the energy efficiency of homes, schools and hospitals. We are aware that the Costings Document published alongside the Conservative Manifesto indicated a £2.5 billion Home Upgrade Grant (HUG) programme to upgrade the energy efficiency levels of homes.
Based on an assumption that it will be possible to target 80% of the HUG at fuel poor homes, this will provide an estimated £2 billion of funding to deliver the 2025 Band D milestone. It is imperative that the HUG is approved in this year’s Comprehensive Spending review as £0.7 billion of funds are urgently needed to upgrade as many as is reasonably practicable of the residual 120,000 Bands F and G fuel poor homes to Band E. We therefore recommend:
We propose that HUG would be administered by a national scheme manager on behalf of BEIS (to be selected by open tender) who would also commission a monitoring and evaluation service. Funding would be awarded to consortia/partnerships, who are able to bring together interested parties and help drive and coordinate activities within their localities. Criteria for funding would be based on clear expected outcomes.
The primary focus of HUG should be on improving the energy efficiency levels of owner occupied fuel poor homes. However, we suggest that up to 20% of HUG funds are made accessible to private landlords who provide accommodation in Bands G, F and E homes. Over 40% of the 462,000 PRS homes in Bands G, F and E are rented to fuel poor households and they have high fuel poverty gaps. The current PRS MEES is only expected to upgrade 48% of Band F and G properties to Band E and the ambition levels of any extension of the PRS MEES to Bands D and C are unknown. Without funds from HUG, this would leave many fuel poor households continuing to live in highly energy inefficient PRS homes.
PRS support from HUG could be in the form of ‘match funding’. For example, once the landlord has fulfilled their obligation to invest up to £3,500 under the current PRS MEES (or the cap of any extension of the regulations), HUG will then provide match funding (i.e. landlord’s £1 invested above the cap would be matched by £1 from HUG) up to a maximum HUG contribution of £5,000 per property to upgrade the property’s energy efficiency rating up to the target level.
We support designing HUG to attract funding from other sources to supplement its budget. However, we would not support allowing HUG funds to be attracted into the ECO (or its successor) programme, as this would dilute the focus of HUG on fuel poor homes.
Question: Are there examples of where energy efficiency policy has fallen between Government Departments? How could cross-departmental coordination be improved?
Making more efficient use of existing departmental budgets
The main reason that progress to date towards the statutory fuel poverty Band C target has been slow, is a failure by BEIS and DWP to make the best use of the circa £2.5 billion per year England share of funds available from the Winter Fuel payment (WFP), Warm Home Discount (WHD) and Energy Company Obligation (ECO) budgets. Currently:
- 80% of these budgets provide funds to households to assist them to pay their fuel bills, thereby raising greenhouse gas emissions and only 20% on sustainably reducing fuel needs via improving energy efficiency levels. This is not consistent with a commitment to achieve net zero.
- Less than 15% of these budgets are received by fuel poor households. This is inconsistent with the Fuel Poverty Strategy’s guiding principle of ‘Prioritisation of the most severely fuel poor’.
It has been widely agreed that the £1.7 billion per year budget for the WFP is poorly targeted as it provides assistance to many state pensioners who have high incomes. The House of Commons - Business, Energy and Industrial Strategy Committee (July 2019) report on ‘Energy Efficiency: Building Towards Net Zero’[7] states…We recommend that Government access the value of refocusing the Winter Fuel Payment to those most in need and using any savings to invest in energy efficiency programmes for fuel poor households…
We have been strong advocates of making better use of the WFP budget. Together with the Committee on Climate Change, we commissioned research which demonstrated that by changing the focus of the WFP and WHD programmed to assist those most in need, £0.8 billion/year of funds could be transferred from supporting paying energy bills, to supporting installing energy efficiency measures in fuel poor homes (Tackling fuel poverty, reducing carbon emissions and keeping household bills down: tensions and synergies) [8]. The main changes modeled were:
- Winter Fuel Payments made to those on Pension Credit and state pensioners with a limiting long term health condition or disability.
- Warm Home Discount provided to those on Pension Credit or those eligible for a Cold Weather Payment.
On the basis of this research, we recommended:
The Winter Fuel Payment budget should be re-focused to help those most in need to pay their energy bills and the balance of funds (circa £0.8 billion per year) be used to upgrade the energy efficiency levels of fuel poor homes.
No action to date has been taken by either BEIS or by DWP on this recommendation. In our opinion the economic impact of the Covid-19 response will be harder on non-pensioners than on the pensioners who mainly benefited from the lowering of infection rates. The issue of intergenerational fairness will therefore be exacerbated and we would hope that all parties revisit moving away from using universal benefits for all state pensioners. Some may argue that moving away from universal benefits to a means-testing approach is very costly. However, these arguments are outdated and do not recognise the powers of using data from the Digital Economy Act, together with modern analytical approaches such as advanced statistics/machine learning to identify those who are most in need.
Conflicting departmental priorities
The PRS MEES requires private landlords who own properties with energy efficiency levels Band F or Band G to improve the energy efficiency level to a minimum of Band E by 2020. BEIS are accountable for setting this regulation. However, as it places a financial burden on private landlords, Treasury and the Ministry of Housing, Communities and Local Government (MHCLG) had an interest to ensure that the regulation does not deter landlords from the market. Of the options for landlord expenditure caps to reach Band E presented in the consultation, we recommended the highest cap of £5,000. 42% of all Band F and Band G PRS properties are rented to fuel poor households and they have energy needs of nearly £1,000 per year above the national median level.
However, a low cap of £3,500 on landlords’ expense was selected which is forecast to only upgrade 48% of privately rented Band F and Band G homes to Band E. Failure to set a higher cap on landlords’ expense has therefore neither delivered the commitment to deliver the Fuel Poverty Strategy 2020 milestone, nor the commitment to deliver net zero.
There is additional tension between BEIS and MHCLG on the low enforcement levels of the PRS MEES which is carried out by local authorities.
Given our concerns, we commissioned research in 2019 from RSM UK Consulting to look at enforcement levels and to understand the barriers to enforcement (Enforcing regulations to enhance energy efficiency in the private rented sector: research report and CFP’s recommendations[9]). The study identified that current PRS MEES enforcement levels in England are low, and that local authorities do not have access to accurate data on PRS properties and landlords which is necessary for efficient enforcement. Local authorities said they need easy to access to up-to-date data on PRS landlords and the EPC ratings of their properties. Although data is available, the research found that it is in disparate sets of data and is not always up to date, accurate or complete.
The research concluded that a nationwide landlord register for England is the only means by which PRS properties and their landlords can be efficiently and systematically identified.
National landlord registration schemes in Scotland, Wales and Northern Ireland show that national schemes can gather accurate data on a high percentage of PRS properties and can be funded by landlords at reasonable costs.
By adding a small additional levy, a national scheme could also be used to fund enforcement by local authorities and provide education to those landlords who are unaware of all their regulatory responsibilities.
We recommended to the MHCLG that they set up a national landlord licensing scheme to help enforcement of the PRS MEES by local authorities, but they could not see a need and were more focused on enforcement of regulations on the minority of the so called ‘rogue landlords’. However, we still recommend:
If the PRS MEES is to be extended to raise minimum energy efficiency standards to Band C by 2030, it is important that MHCLG see that enforcement of the standards is critical for delivering net zero and the Fuel Poverty Strategy ambitions.
Improving the focus on prevention, rather than on the cure
One of the guiding principles of the Fuel Poverty Strategy is to ‘Reflect vulnerability in policy decisions’. It is widely accepted that living in a cold home can cause or exacerbate poor health conditions such as respiratory diseases (bronchitis, asthma and pneumonia).
There are multiple examples of where this is recognised by plans in the health sector, but there is limited coordination between those in the health sector and those responsible for making homes warmer by installing energy efficiency measures.
To maximise the benefits on those who are fuel poor and/or vulnerable to living in cold homes, we recommend:
Government should better utilise current planning and investment tools (such as NHS Long Term Plan, local Health Inequalities Commissioning Plans, Better Care Fund guidance, Health and Wellbeing Board winter resilience duties) to act on the plans, guidance and programmes that are already in place to substantially boost the level of coordination to reduce the levels of fuel poverty and the number of excess winter deaths and long term health conditions that are related to living in cold homes; and
Any redesign of the ECO flex programme should include local systems scrutiny and accountability for meeting integrated health and fuel poverty targets (perhaps via Health and Wellbeing Boards)
As mentioned, the CFP is publishing and launching our fourth Annual Report next week, Tuesday 30th June, and attached is an embargoed copy, which will further explain and evidence our views outlined above.
Yours sincerely,
David R Blakemore
Chair, Committee on Fuel Poverty
Members: Liz Bisset; Jenny Saunders, CBE; Anuradha Singh; Paul Massara; Lawrence Slade
Attachment: CFP’s 4th Annual Report (embargoed until 30th June 2020)
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