Written evidence submitted by Citizens Advice (ENE0032)

Written evidence to the Business, Energy and Industrial Strategy Committee from Citizens Advice

1. About Citizens Advice

1. The Citizens Advice service provides free, independent, confidential and impartial advice to everyone on their rights and responsibilities. On 1 April 2014, the Citizens Advice service took on the powers of Consumer Futures to become the statutory representative for energy consumers across Great Britain.

2. The service aims:

●        To provide the advice people need for the problems they face

●        To improve the policies and practices that affect people’s lives

3. The Citizens Advice service is a network of nearly 300 independent advice centres that provide free, impartial advice from more than 2,900 locations in England and Wales, including GPs’ surgeries, hospitals, community centres, county courts and magistrates courts, and mobile services both in rural areas and to serve particular dispersed groups.

4. In 2017, Citizens Advice Service helped fix 163,000 energy problems through our local network and 61,000 through our Consumer Service Helpline. Our Extra Help Unit specialist case handling unit resolved 8,367 cases on behalf of consumers in vulnerable circumstances, and their Ask the Adviser telephone service handled 2,593 calls from other advice providers in need of specialist energy advice.

5. Since April 2012 we have also operated the Citizens Advice Consumer Service, formerly run as Consumer Direct by the Office for Fair Trading (OFT). This telephone helpline covers Great Britain and provides free, confidential and impartial advice on all consumer issues.

2. Reason for submitting evidence

6. Citizens Advice has statutory responsibilities under the Consumers, Estate Agents and Redress Act 2007 to represent consumers’ interests in the energy sector.

3. Executive summary

7. Citizens Advice supports government’s strategic targets for energy efficiency: we think they are set at the right level. However, the government needs to provide much more support for delivery if they are to be achieved. More funding is needed to meet the 2030 fuel poverty target. We support calls from the Committee on Fuel Poverty for a £1 billion fund between now and 2020 to address shortfalls in the short-term.

8. The current model for delivering fuel poverty support through targets on energy suppliers leads to poor targeting and provides no guarantee of support for vulnerable households. The government should look at moving responsibility to other bodies post-2022, like energy network companies, and guaranteeing support to those in most need.

9. In the private rented sector, the £3,500 cost cap in the minimum energy efficiency standards will leave many renters still living in sub-standard conditions. The government should raise the cost cap, and regulate to gradually increase the minimum standard in future.

10. There is currently a policy gap for the majority of households owner-occupiers who are not in fuel poverty. The government needs to  learn from how consumers think and behave and introduce a package of measures to encourage them to make energy efficiency improvements.

4. Submission

Who should have responsibility to pay for energy efficiency?

11. Our response to this question and the subsequent questions relates to energy efficiency in residential buildings.

12. Meeting the government's two main targets for improving the energy efficiency of homes[1] will require new or expanded policies across different types of household:

●        Households in fuel poverty

●        Private rented homes

●        Social rented homes

●        Owner-occupied homes.

The policies required, and who has responsibility to pay for improvements, will differ between these sectors.

13. Funding from government (and government-mandated) schemes should be focused on households in fuel poverty and on social housing. By definition, fuel poor households are unlikely to be able to afford to fund energy efficiency improvements. It would be unreasonable and counter-productive to ask them to contribute to costs. Improvements in the social housing sector will also require government funding[2].

14. The main national energy efficiency scheme, the Energy Company Obligation (ECO), is funded through targets on energy suppliers. Compared to schemes funded through taxation, funding through consumers’ energy bills in this way is regressive, and its costs can fall disproportionately on the low-income customers the policy aims to support. A policy paper, published by the UK Energy Research Council in 2018, found that shifting low carbon levies off bills into general taxation would reduce costs for 70% of UK households, saving the poorest households £102 per year[3].

15. In the private rented sector, landlords should be responsible for paying for energy efficiency improvements. Private landlords are operating a business and should be obligated to provide homes that are affordable to heat, especially when they can  benefit from making these improvements, due to increased property value and reduced maintenance costs[4].

16. This leaves a considerable gap in encouraging owner-occupiers who are not in fuel poverty to part- or fully fund energy efficiency improvements. This is discussed under the question on the 2030 target, from paragraphs 20.

Should energy efficiency be considered a national infrastructure priority?

17. Yes. A report by Frontier Economics for E3G, a think-tank, shows that energy efficiency meets the criteria of an infrastructure priority, including return on investment[5]. However, designating energy efficiency as an infrastructure priority will only be significant insofar as it brings tangible benefits, for example through access to funding or lower-cost finance.

Existing housing stock: Are the Government's targets to improve the Energy Performance Certificate (EPC) ratings of our existing housing stock ambitious enough?

18. We think the targets are at the right level. According to the National Infrastructure Commission, a more ambitious approach may be needed in future, but this depends on decisions on low-carbon heat technology.[6] We support this view.  For now, the main challenge for the government is putting in place policies to meet these targets.

19. The Fuel Poverty strategy has additional milestones, that all fuel poor households should reach:

●        Band E by 2020

●        Band D by 2025.[7]

Is there sufficient support in place to deliver targets for all homes to be EPC band C by 2035?

20. No. We do not think that there is enough support to deliver this target. Meeting it will require a step change in support. According to the National Infrastructure Commission (NIC), it will require an increase from around 9,000 improvements delivered per week under current policies, to around 21,000 improvements a week[8].

21. For social housing, the NIC identifies that a further £3.8 billion is required between now and 2030 to deliver the required improvements[9]. We discuss support needed for the private rented sector and for fuel poor households in the relevant questions below (paragraphs 48-57 and 34-47).

22. The rest of our response to this question focuses on the remaining households: those who are both not classed as fuel poor and own their own home. Despite recent increases to the number of people renting their home, this group continues makes up a majority of households[10]. They include many households on relatively low income who fall just outside fuel poverty. This group were relatively more likely to take up the Green Deal[11].

23. Since the Green Deal, there has been no significant policy in England and Wales to encourage non-fuel poor households to make energy efficiency improvements.

24. It has been widely acknowledged, including by the Department for Business, Energy, and Industrial Strategy (BEIS)[12] that the Green Deal failed because it did not provide an attractive enough proposition for people. Building a market for energy efficiency will require new policies that better reflect how people really think and act[13]. In 2016, Citizens Advice carried out qualitative research to better understand the attitudes of owner-occupiers towards energy efficiency and the policies required to encourage uptake of energy efficiency[14].

25. Encouraging these households to take up energy efficiency improvements is a significant challenge. Our research found that awareness and understanding of energy efficiency measures is low and, for people who are not in fuel poverty, savings on energy bills are generally not enough of a motivation to change behaviour in the face of inertia and other barriers[15]. Households also have a host of secondary concerns about installing energy efficiency measures: lack of trust in companies involved, unwillingness to pay for previously subsidised measures, and concerns about disruption to the home.

26. We recommend the government consider how to work with industry and other stakeholders to create a package of support which will:

Inspire trust

●        A clear vision from government

●        A consistent offer to consumers

●        Trusted information

●        Independent assessment

●        Better sales and advertising practices

Motivate consumers

●        Incentives beyond bill savings

●        Rewards and penalties

●        Testing delivery channels to increase impact

●        Framing schemes as fair

Help people to pay for energy efficiency measures

●        Improved pay-as-you-save options

Ensure high-quality delivery

●        A trusted delivery body

●        A role for local delivery

●        Work delivered to a high standard

●        Easy access to redress

27. Motivating these households will require incentives over and above the benefit provided by bill savings. Pay-as-you-save loans (like the Green Deal) are on their own unlikely to deliver mass uptake of energy efficiency measures. Tax-based incentives, like variable council tax, are likely be most efficient and effective at driving action. However, financial support (at reasonable rates of interest) will be necessary to ensure lower income households are not penalised.

28. Testing and adjusting policies will be an important part of developing policies that effectively motivate people[16].

29. People are likely to respond better to incentives if they are part of a wider story about why, when and how they should be making improvements to their home. The 2035 target is an important part of this. We recommend the government consistently communicate this expectation to people, for example by including this information in the EPC[17].

Quality and consumer protection

30. For support to be effective, households need to have trust in companies and organisations delivering energy efficiency advice and improvements. Householders’ trust and confidence in energy efficiency has been undermined in recent years by substandard work[18].

31. Calls to our national consumer helpline highlight serious problems people face when standards fall short[19]. For example, we get calls from people who have suffered from damp in their property where cavity wall insulation has either been installed badly, or shouldn’t have been installed in the first place. Householders have been put off by energy efficiency firms taking what they see as a ‘hard sell’ approach. Scams related to the Green Deal have exacerbated this[20]. EPCs, which are increasingly relied upon as a prerequisite for energy efficiency policies, are often unreliable[21]. The Each Home Counts review identified problems throughout the energy efficiency consumer journey[22]:

●        in sales and marketing, including cold-calling and pressure-selling

●        installation and quality of work

●        redress for consumers if things go wrong.

32. Addressing these issues is a prerequisite of encouraging take up of energy efficiency measures. To support this the government should:

●        make sure that the Each Home Counts process delivers effective consumer protection at each stage of the customer journey

●        design energy efficiency schemes that are clear and consumer-friendly

●        work to better understand the scope of the consumer issues with energy efficiency.

33. Citizens Advice will be working with TrustMark and BEIS to feed in our insights from our consumer helpline to the development monitoring of the Each Home Counts quality mark.

Is the Energy Company Obligation (ECO) an adequate mechanism to ensure fuel-poor homes are upgraded to EPC band C by 2030?

34. No. We have consistently held the view that ECO in its current form is not an adequate mechanism to meet the fuel poverty target.

●        It does not provide the funding required to meet the target

●        ECO’s supplier delivery approach is mismatched to the aim of delivering fuel poverty support.

35. The size of the scheme has been progressively reduced since 2010. In 2010, the three predecessor schemes to ECO (CERT, CESP and Warm Front) totalled £1.57 billion funding per year. In 2013, ECO replaced them, providing £1.12 billion funding per year. It now provides £0.64 billion funding per year[23]. Currently, funding to help households pay their bills every winter is 4 times that spent on improving the efficiency of homes.

36. Poor targeting further hinders the progress this funding can make towards the fuel poverty target. Currently, only around 30% of those eligible for ECO are in fuel poverty[24]. But, despite its purpose being to tackle fuel poverty, the scheme has no target for numbers of fuel poor households helped.

37. According to research by IPPR, carried out for Citizens Advice, relying on the current take-up rate of ECO would result in meeting the 2030 fuel poverty targets over 60 years late[25]. In its latest annual report, the Committee on Fuel Poverty estimated that an extra £8.1 billion funding is needed between now and 2030 to meet the target[26]. Better targeting of ECO and more effective private rented sector regulations would decrease this gap. In its 2017 report the CFP gave a £3.8 billion gap, based the assumption that stronger policies would be introduced in these areas in early 2018[27].

38. In the near-term, the government is on track to miss the first fuel poverty strategy milestone of band E by 2020. It is predicted that in 2020, 160,000 fuel poor households will still be in the lowest F and G EPC bands. The Committee on Fuel Poverty calculates that an extra £1 billion of funding is needed over the next 2 years to meet the milestone.

39. Other issues stem from the supplier obligation approach, which encourages suppliers to deliver at the lowest possible cost.

40. Suppliers’ incentives are not well-aligned with the delivery of an energy efficiency scheme. The National Audit Office (NAO) think this could either increase the costs of delivering the fuel poverty targets and/or reduce the chance of meeting them[28]. The supplier delivery approach has led to a volatile market. Over the course of ECO2, ECO brokerage prices under ECO2 ranged from 7p to 24p for the same unit of work[29].

41. Suppliers understandably want a wide pool of eligible households to target, to limit the time and cost of searching for specific households. But this leads to poor levels of targeting that cannot be sustained if the government is to achieve the fuel poverty target cost-effectively.

42. Even households who are eligible for the scheme are not guaranteed support. Within the eligible group, suppliers can choose which customers receive what type of support to meet their targets in the most cost-effective way. Suppliers are more likely to deliver to households who are easiest to engage, where the installation is simple and there is no additional maintenance work needed. In practice this means that, after a consumer has been through a relatively complex application process, suppliers can either refuse measures on the basis of value for money or ask for a contribution - regardless of individual circumstances.

43. In a survey of our local advice offices[30], we found that over half of advisers (54%) who had helped clients with ECO in the past year had experienced problems with the scheme. Among these, 41% said clients had found the application process too complicated, while 11% reported clients having their applications rejected.

44. These are significant and entrenched issues with the current scheme. We do not think they can be resolved while maintaining supplier obligation to deliver fuel poverty support. This will become particularly key as the fuel poverty target increasingly demands helping hard-to-reach customers and installing complex and expensive measures like solid wall insulation. 

45. Energy networks and local authorities would be better suited to deliver support in future[31]. Energy efficiency aligns well with network companies’ incentive to reduce demand on their network and with councils’ wider aims in health and regeneration. Many councils run referral services for those vulnerable to the health effects of a cold home[32]. Both have a geographic remit, which would help deliver the coordinated street-by-street approach often required with measures like solid-wall insulation.

46. We also support the Committee on Fuel Poverty’s recent recommendation for a new £1 billion Clean Growth challenge fund[33]. We agree with the Committee that this is required to deliver the first fuel poverty milestone between now and 2020. This fund could help trial innovative ways of delivering support, as an alternative to the supplier obligation approach.

47. To better meet the needs of consumers in vulnerable situations, a future scheme should give a clear guarantee of support to households that need it most. This should include households which:

●        include someone vulnerable to the cold (an elderly person, a young child or someone with a long-term health condition)

●        have a low income

●        are in in the least efficient homes (band E-G).

Private rented sector: Are the Government's private rented sector regulations for energy efficiency for both residential and commercial buildings ambitious enough?

48. Our response to this question focuses on the private rented sector regulations for residential buildings.

49. The private rented sector has relatively more properties with the lowest energy efficiency ratings than other types of housing[34]. There is often little incentive for landlords to improve the energy efficiency of their stock. As a result, fuel poverty rates are higher: 21% of private rented households in England are in fuel poverty, compared to 11% of all households. They also tend to have a higher fuel poverty gap (the extra annual income required to adequately heat their home). For private tenants in fuel poverty, the average gap is £410 per year.

50. As a result, regulation of the private rented sector has a key role in meeting the strategic energy efficiency targets. Meeting these challenges will require further ambition in terms of:

●        the level of the cost cap

●        the future trajectory for increasing standards.

51. The current regulation has a cost cap of £3,500. Landlords are not required to meet the minimum standard where it would cost them more than this. This will leave around 300,000 (52% of private rented properties covered) below EPC E, although they are all expected make some level of improvement[35].

52. F and G rated properties are:

●        twice as likely to experience damp and mould

●        unlikely to have central heating

●        unlikely to have wall insulation (nearly two thirds)

●        unlikely to have modern condensing boilers (less than half), which have been mandatory for any new or replacement installations since 2005[36].

Because of the resulting risk of dangerously cold temperatures, many F and G-rated homes are classed as a serious health and safety hazard. Across the private rented sector, every year homes with this kind of hazard bring in around £2.9 billion in rent for landlords[37].

53. A cost cap of £5,000 would better achieve the objectives of the regulation without adversely affecting viability of the sector, either in terms of landlords exiting the market or raising rents to cover costs[38]. BEIS’ final impact assessment on the regulations says that, even with a £5,000 cap, a majority of landlords would be unlikely to introduce significant rent rises[39]. Economic research carried out for Citizens Advice shows that, even if a landlord could increase rents, any rise would be outweighed by the benefits for tenants through reduced energy costs[40].

54. To deliver the government’s strategic energy efficiency targets, the minimum standard for private rented properties will need to be gradually increased to EPC Band C by 2030[41]. The government’s Clean Growth Strategy commits to looking at this trajectory. The government should introduce regulation setting out this trajectory as soon as possible, to provide certainty to landlords and help them minimise their costs of complying.

b) Are there implementation and enforcement challenges that need to be remedied?

55. Yes. Research indicates that many local authorities may have no new resources to monitor and enforce the regulation and will be unable to carry out proactive enforcement activity[42].

56. Local authorities need to have the resources to enforce. They will also need clear guidance, due to the complexity of enforcement issues. Enforcement could also be improved by better links the minimum standards and the Housing Health and Safety Rating System (HHSRS)[43].

57.Enforcement would be improved by wider measures to tackle problems with disrepair and rogue landlords in the private rented sector. The Committee on Fuel Poverty recommends that the government consults on developing a nationwide landlord licensing scheme[44]. Other measures we recommend include[45]:

●        giving local authorities the power to ban landlords who repeatedly fail to fix disrepair​

●        requiring certification of properties against all national minimum standards before they can let out

●        following other consumer sectors, introduce Alternative Dispute Resolution (ADR) for disputes between landlords and tenants in the private rented sector

●        if their landlord fails to uphold their legal responsibilities, allow tenants to leave a fixed-term contract early without a penalty.

Regional disparities: Are there regional disparities, including in off-grid areas, in the delivery, costs and uptake of energy efficiency measures? If so, how could these be overcome?

58. Yes. ECO has generally delivered proportionally more to urban areas (not including London) and accessible rural areas, despite remote rural and off-gas households having higher rates of fuel poverty[46]. In ECO 3, just 2% of measures are expected to go to households using oil heating, who make up 8% of the population at large, and an even greater proportion of those in fuel poverty[47].

59. Under ECO suppliers have incentives to make improvements where they are cheapest and easiest to deliver. Delivering to rural and off-gas households tends to be more expensive and difficult:

●        because of the diversity of building types and their geographical dispersion

●        because they are more likely to require more expensive measures like solid wall insulation and renewable heating systems.

60. The government could address the imbalance between urban and rural areas by:

●        tightening the definition of rural used in energy efficiency schemes, so it better reflects the unique characteristics of rural areas. The definition currently used in ECO is likely to promote delivery to accessible rural areas, many of which are on the gas grid, rather than remote rural areas.

●        Providing more support for solid wall insulation. The current ECO scheme reduces support for solid wall insulation to only 17,000 per year[48]. Rural consumers and those in the deepest fuel poverty are more likely than average to live in a solid-walled property[49]. Support for innovation in products and processes should give priority to solid wall insulation[50].

●        Moving away from a supplier obligation, with its focus on lowest cost delivery. The Clean Growth Challenge fund could trial innovative alternative approaches to improve delivery in rural areas.

Submitted January 2019