Consumer Credit Act 1974 (Green Deal) (Amendment) Order 2014
Baroness Verma
That the Grand Committee do consider the Consumer Credit Act 1974 (Green Deal) (Amendment) Order 2014.
Relevant document: 18th Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, over the past year the Green Deal has been steadily growing in momentum. Around 130,000 Green Deal assessments have taken place. Nearly 500,000 energy-efficiency measures have been installed through ECO, cashback and the Green Deal. One company alone says that it has installed Green Deal measures in nearly 10,000 homes so far.
The financing mechanism, allowing customers to pay through their electricity bills, is only one way of paying for the Green Deal. We now have more than 1,600 Green Deal plans in the system. The Green Deal Finance Company is handling around 130 new plan applications a week, totalling nearly £6 million in funds offered. Forty Green Deal Providers are now able to offer Green Deal finance, and 19 of these are actively writing plans for consumers.
One area where we believe the Green Deal could be particularly effective is the rented sector. Action to improve the energy efficiency of private rented properties is, as we know, badly needed. This sector has a disproportionate number of fuel-poor households—21% overall—and a high number of F-rated and G-rated properties: 13% of the stock, almost twice the national average of 8%. To date, energy-efficiency investment in the rented sector has been constrained by split incentives. The landlord pays for the energy-efficiency measures but the tenant benefits. The Green Deal pay-as-you-save model helps to address this split incentive.
The electricity bill payer, who is normally the tenant, meets the cost of the measures through savings on their overall energy bill. The Green Deal repayments will appear on the tenant’s electricity bill and will be collected by their electricity supplier in exactly the same way as their charges for electricity consumption. However, the cost of these repayments should be matched by the savings in overall energy costs that a tenant is likely to benefit from as a result of the Green Deal energy-efficiency measures. A tenant will pay for the Green Deal instalments only while they occupy the property and are therefore benefiting from the measures. The result is that the tenant will live in a warmer, more comfortable home. When the tenant leaves, the responsibility for making the Green Deal repayments passes on to the new tenant, or to the landlord if there is a void period.
The only situation in which a tenant will have any liability to pay anything in relation to the Green Deal after they have left the property is if they have built up arrears, which include Green Deal instalments, on their electricity bill. When they move out, their electricity supplier will send them a final bill. If there are arrears on the bill for electricity consumption and Green Deal instalments, the supplier will seek the tenant to pay. This is exactly the same process as exists now for tenants.
When a Green Deal plan is first set up, the existing tenant will receive detailed information about the plan and must give their written consent. The Energy Act 2011 provides that they have 14 days in which they can withdraw their consent if they change their mind. The new tenant moving into the property will be made aware of the Green Deal through specific disclosure requirements. For example, the energy performance certificate, or EPC, which is already a legal requirement in the rented sector, will show the presence of a Green Deal plan at the property, the energy savings that will arise and the level of the repayments. A new tenant will therefore have all the information that they need before they decide to rent the property. They also have the right to request a full copy of the Green Deal plan from the landlord or the Green Deal provider.
We expect to see real demand for the Green Deal in the private rented sector, both from tenants who want to live in more energy-efficient and comfortable homes and from landlords who wish to improve their properties. This provides a real win-win. We expect this to increase as a result of the minimum energy efficiency standards that we are developing for landlords. The Green Deal provides a mechanism that did not exist previously for tenants to work with landlords to improve the energy efficiency of their homes. We want to make sure that tenants do not live in cold, damp and draughty houses for which they end up paying too much on their energy bills.
Among the reasons cited by landlords for their caution towards Green Deal finance was that they needed greater clarity about how consumer credit legislation worked with the Green Deal to have confidence to lend at scale. The amendment to the Consumer Credit Act, provided by the order we are debating today, will give that confidence. We have thoroughly reviewed the consumer credit legislation to ensure that it will work effectively with the Green Deal. Although this analysis has taken long than expected, the amendment will now allow the same Green Deal plan to be offered to all customers, irrespective of what type of property they live in.
I turn to the details of the order. The credit arrangement introduced by the Green Deal, otherwise known as a Green Deal plan, is a new form of unsecured credit. In owner-occupied properties the customer arranging the energy efficiency improvements will generally pay the repayments as they are paying the electricity bill. However, as I have mentioned previously, in the rented sector the landlord is likely to arrange for the improvements while the tenant makes the repayments. This has given rise to some uncertainty. When is a Green Deal plan regulated by the Consumer Credit Act, and who is entitled to the protection of the Consumer Credit Act for a Green Deal plan? Is it the tenant or the landlord?
To help to address these uncertainties, the order that we are debating today makes specific amendments to the Consumer Credit Act. The order does not change existing Green Deal policy or its legal framework. The amendments will, however, give Green Deal providers greater clarity and confidence when issuing Green Deal plans. In turn, that will encourage more people to take up the Green Deal.
In particular, these amendments resolve two key issues. First, to address concerns relating to the difficulty in determining whether or not a particular Green Deal plan is regulated, we have now provided that almost all domestic Green Deal plans will be regulated by the Consumer Credit Act, regardless of those who are making the improvements. Tenants moving into a domestic property can be reassured that they will receive the protections afforded by the Consumer Credit Act. Non-domestic Green Deal plans will be regulated only if the person arranging the improvements is an individual, not a business. This approach will greatly simplify the process for Green Deal providers and ensure that in all appropriate cases Green Deal plans are regulated under the Act—including, for example, where a Green Deal plan is set up by a corporate landlord during a void period.
Secondly, while our key policy concern has always been to ensure that consumer tenants receive all appropriate protections under the Consumer Credit Act, we received feedback that the landlord, or the person making the improvements, should be entitled to certain rights and protections, so we carefully analysed this Act to determine which protections would be relevant to them. Following this analysis and discussions with a wide range of stakeholders, our amendment provides that both the bill payer and the person making the improvements are given the protections of a debtor, but each for specified sections of the Act. This ensures that tenants and landlords receive the specific rights and protections that are relevant to their roles under a Green Deal plan.
To make it clear for Green Deal providers which sections of the Consumer Credit Act will apply to a particular person, our amendment sets out whether a reference to the debtor in the Act is to be read as a reference to the bill payer at the time when the plan is made, the current bill payer, any previous bill payers who have arrears outstanding or the person making the improvements. Our approach is that the bill payer, who has liability to pay instalments under a Green Deal plan, will receive all material and appropriate consumer protections. There will be no reduction in the level of customer protection that a tenant can expect. However, the person making the improvements, for as long as they are an owner or occupier of the property, will also receive a number of protections.
Our amendments will not alter the principles, provided for in the Energy Act 2011, that whoever is the bill payer at a given time is liable for making repayments under the Green Deal plan. As mentioned previously, a new bill payer automatically becomes liable for instalments from the time when they assume responsibility for the electricity bill—for example, when a new tenant moves into the property. Landlords will become liable for Green Deal instalments if they become the bill payer—for example, during a void period.
As the Committee may be aware, the regulatory regime for consumer credit is changing on 1 April. After that date, lenders will need to be authorised by the Financial Conduct Authority rather than the Office of Fair Trading. In the next couple of months, we therefore also intend to introduce some small amendments to the FCA’s legislation to reflect the approach set out in this order.
In conclusion, I firmly believe that the amendments to the Consumer Credit Act brought about by this order will ensure that consumers and tenants who pay money under a Green Deal plan receive all the appropriate protections. It will give the clarity that Green Deal providers are seeking and give them the confidence to offer plans to consumers across all property sectors. This will allow them to access the untapped demand and to press ahead with rolling out the Green Deal across the country at scale, delivering warmer homes for us all. I commend the order to the Committee.
Lord Teverson (LD)
My Lords, I thank the Minister for that excellent explanation of this rather technical document. I have to disappoint the Committee by saying that my comments will not be immensely profound today, except to say that I welcome the statutory instrument because it helps to clarify to a number of the parties involved in the Green Deal exactly what happens and when. That has to be a good thing, and I thank the Minister for updating us.
Although a number of us have been slightly frustrated at the rollout of the finance, what the Minister said about the stimulus that the Green Deal has given to a number of people to really investigate getting better insulation for their homes was very important. It is obviously one of the big challenges for our nation in terms of meeting carbon targets, let alone in terms of addressing fuel poverty, that we increase the thermal efficiency of our housing stock, and the programme is at least doing that.
One thing struck me as the Minister was speaking, but I am sure that the answer is that it is no problem at all. With the increased amount of switching that is now going on—much as the Government have encouraged and been quite successful in stimulating—I presume that there is still no difficulty in terms of where the liability goes, arises or follows through after a number of switches of accounts by tenants when they come in, because I hope that that will be an increasing feature of the market in terms of competition.
Baroness Worthington (Lab)
I thank the Minister for introducing this debate and for speaking to this statutory instrument. I also thank the noble Lord, Lord Teverson, for his comments and his quite pertinent question about switching; I had not thought of that and would be interested to hear the response.
If the Committee will bear with me, I want to make a few general comments about the Green Deal and then some specific comments about the statutory instrument. I agree that if the impetus behind the instrument is to create clarity about the protections that exist for tenants and owners under consumer protection legislation, it must be a good thing and we support it.
It is interesting to see how the Green Deal more generally is playing out. We have seen 130,000 assessments undertaken but, from those, fewer than 700 financial deals being taken out. The Minister in the other place has been keen to point out that what we want is measures undertaken, and that is a good thing, but the low take-up of the financial aspects points towards something about the scheme that may need to be reviewed. It is clear that it is not as popular as we might have hoped. We look forward to further announcements from the Government on how they are going to change that. A very low take-up of the financial package creates a very small pool of people carrying a liability with them that never becomes normalised or well understood in the wider populace. It can disadvantage those early adopters if it does not ever take off. They will carry liabilities on their properties that few people understand and may instinctively dislike. So the take-up of the financial package is important. It is good that measures are being taken on personal finance and other financial mechanisms, but the Government cannot simply point to the assessments and say, “Oh, it’s all fine”. The financing was always a key part of this and we have to assess why it is not being taken up with more vigour and enthusiasm.
The other question that arises is around monitoring. The assessment of the Minister in the other place was that 80% of people who undertake an assessment go on to fit measures. That sounds great, but I am afraid that I do not know how that number was calculated or where those numbers are recorded. Perhaps we could hear more about that number. If the numbers are to be a mechanism, but outside the financing mechanism, that tips or nudges other people into action, we perhaps need to think again about how we record and monitor what is actually happening. The figure should be not a guesstimate but a hard number that we can publish and have confidence in. Perhaps it is simply a matter of requiring the companies that undertake the measures to report to an agency. Perhaps the Landmark Group, which currently monitors the EPC, could be that group; it could keep a record. I would be interested in the Minister’s comments on that.
I turn to the rented sector, which is the focus of this new clarification. This is an important issue. The Minister has stated, and it is clear, that a disproportionately large number of people live in fuel poverty in this sector, and the housing stock, with 13% of properties rated F or G, is not being invested in. A lot of people in the private rented sector are living in cold, damp homes. We must address this.
I take the point about the split incentives: it is very difficult to get this right. If it is left on the landlord, they do not feel the benefit of the reduced bills. If the bill payer carries the entire burden, they do not get the same benefit as the landlord whose property has been improved and made more attractive. The Government might say, “Well, that’s the way the balance has to tip and we’ve now tipped it back in favour of the tenant”, which is probably a good thing, but it raises a few questions. One is that, while landlords will presumably get some protection under the Consumer Protection Act, what will happen to a property where the tenant leaves but it is then left vacant for a lengthy period? Is it simply that the financial deal is suspended? What happens during that period? There could be properties that are vacant for quite a long time. What then happens to the creditor who is expecting payments that are not being made? Is the time frame extended? What happens in those cases?
There may also be landlords—this will probably not happen frequently—who decide to stop renting and to sell their property for development or demolition. What happens in those circumstances? If it is sold on as a house or as a dwelling that can be lived in, I can understand that it would pass, but if it is demolished, who then makes good the debt owed to the energy finance company?
There are questions around the rented sector that need to be looked at. The Minister mentioned an existing legal requirement to produce an energy performance certificate if a property changes hands between tenants. This is, I believe, poorly enforced. In the publication Energy in Buildings & Industry of November-December 2013, it was revealed that DCLG is currently forced to pay compensation to Landmark, the body that collects the certificates and does the administration, to the tune of £6 million because too few people are complying with this legally binding requirement from the European Union. This seems crazy: taxpayers’ money is being spent to make good a contract signed with a private company because of a failure to enforce a legally binding requirement. That needs to be sorted out. If the uptake of energy efficiency in the rented sector is insufficient, we should look first at why we are not enforcing the use of legally required energy performance certificates. The statement that new tenants will have all the information necessary to decide whether they want to move into a property sounds slightly hollow when the evidence is that the uptake of the legally binding EPCs is not present. The bedrock of enforcement seems not to be in place. Could the Minister come back to me on what we are doing to enforce EPCs in the rented sector?
My final point is that it is good that this statutory instrument is addressing the issue of uncertainty and consumer protection. That is one uncertainty too many, and it is good that it is being resolved with this change in the law. However, this policy continues to be affected by a range of uncertainties. We know that the poor take-up of the financing package is going to lead to changes. We expect it to be continually updated and changed as we find out more about how people are taking it up. That is good if it finally leads to a successful scheme. However, it has been mentioned that the golden rule may change.
If the golden rule changes, and the payback necessary to comply with the golden rule changes, you may edge into the situation where a tenant takes on a lot of debt, knowing they are going to be moving on quite soon, and the incoming tenants are then facing something quite unattractive. In those situations, I suspect that landlords are left with potentially unrentable properties. That is something that no one wants to see. It could act as a disincentive for landlords to embrace this scheme, if they fear that there will be a low take-up, high risk and the potential for their properties to be priced out of the market through measures that do not comply with the golden rule. As this policy is being modified, we need to think carefully about the detailed implications. On that point, however, we support this clarification.
Baroness Verma
My Lords, I thank my noble friend for his warm and supportive welcome for the order. He asked a question on switching to which I will refer in a moment. I also thank the noble Baroness, Lady Worthington, for her comments and her general support of the order. She has raised a number of questions. I will try to answer as many of them as I can. Those that I fail to answer I will get into writing and see that the noble Baroness and my noble friend are copied into those responses.
Coming back to the noble Baroness’s opening comments about the take-up of the Green Deal, we tend to assume that everything has to be done through a particular type of finance scheme. We have found that the Green Deal finance is only one payment option for getting Green Deal measures in place. We have found that self-finance—people going out, taking on measures and paying for them themselves—has been a much more popular way of getting these measures in place. The noble Baroness mentioned the numbers. We know that 500,000 measures have already been put into around 400,000 homes, whether through ECO, self-finance or Green Deal finance. To reduce the issue to being seen only through the success of Green Deal finance distorts the real picture of the Green Deal, which is that it is a long-term programme to ensure that we get real energy-efficiency measures put into homes. Those measures may be financed in a variety of ways.
I say to the noble Baroness that we need to take heart. Feedback has come back from one company that has managed to install Green Deal measures into 10,000 homes. The picture is not always as clear cut as measuring it only against Green Deal financing, which slightly distorts the programme’s actual success. Yes, it is slow, but it is a slow-but-steady-progress programme; we would expect that, because it is a long-term programme.
My noble friend Lord Teverson asked whether switching would have an impact on the rights of the customer. The customer is able to switch suppliers exactly as he or she can currently do. What they cannot do it switch to smaller suppliers that do not service the Green Deal programme. That is obviously something of which consumers will be made aware.
The noble Baroness, Lady Worthington, asked what would happen when a property was demolished or ceased to exist. The owners would still be liable to pay because the Green Deal would still be in place. She also asked about the regulations for the private rented sector. We plan to consult shortly on new regulations to require landlords to improve their homes from 2018. From 2016, landlords should not really be able to refuse measures if the regulations make them put the measures in. We ultimately want housing stock with energy-efficiency measures, to reduce energy usage and ensure that tenants in those buildings do not end up paying over the odds for energy use.
Baroness Worthington
I thank the Minister for her response. Just before she sits down, I want to reiterate the point about the measurement of these measures. There is a danger here that we are seeking slightly to rewrite history. When the Green Deal was launched, it clearly was all about the finance package, and that was meant to be what was going to unlock it. My concern is that if we move the goalposts and now say, “Well, it was always about assessments; that’s the main thing”, or, “Self-financing is the important thing”, that creates a problem where early adopters are taking on a mechanism which, if it does not become well understood or commonplace, will mean that we see people not wanting those properties. That disadvantages people who implement the measures because the understanding of the package and the liabilities—this weird thing that never becomes mainstream—stays niche. That is the issue.
On the EPC, I am encouraged to hear that the Minister’s department is working with the DCLG. This is an important issue; after all, it is a legal requirement, so it is very basic. Before we make new requirements, could we perhaps look at thinking about more public information for tenants? That could include advertising, making sure that tenants are aware of their rights to request a new certificate, and maybe adverts that are being placed should carry EPC certificates, as they often do now when you buy a house. Perhaps tenants need the same. I am encouraged by that and I look forward to hearing more about it.
Baroness Verma
My Lords, I am extremely grateful for those comments. I go back to my point that, while it is important that Green Deal finance is an important part of the programme, we do not seek to make that the only method by which people can access measures. Overall, we have seen that people who want to go out and get these measures done are actually doing it through their own self-financing. The Green Deal finance is available, but if they choose to find an alternative way, it is their right to do so. The suppliers make it very clear, through their installers, what measures will work and how they will be reported. We are also working with the Council of Mortgage Lenders to ensure that we educate them on the Green Deal as well, to prevent it becoming a barrier to people wanting to access mortgages.
I am extremely grateful to the noble Baroness and my noble friend. I commend this amendment.