Financial Services and Markets Act 2000 (Regulated Activities) (Green Deal) (Amendment) Order 2014
Baroness Verma
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Regulated Activities) (Green Deal) (Amendment) Order 2014.
Relevant document: 2nd 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, I am pleased to open this debate. Since its launch in spring 2013, the impact of the Green Deal has been steadily growing. At the end of May, more than 230,000 Green Deal assessments had taken place, and almost 24,000 of those took place in May alone. More than 800,000 energy efficiency measures had been installed in almost 700,000 homes through ECO, cashback and the Green Deal by the end of April. That is a great achievement and I look forward to seeing that momentum continue.
On 9 June 2014, we launched the Green Deal home improvement fund. The fund will help even more people to install energy efficiency measures in their homes by providing them with money back on the contributions they have made towards their improvements. People in England and Wales can now get up to £7,600 back through this new fund so that they can take control of their energy bills and have warmer, greener homes. This includes up to £1,000 for installing two energy efficiency measures from an approved list, up to £6,000 for installing solid wall insulation and up to £100 refunded for their Green Deal assessment.
Those who have bought a property in the 12 months prior to application can also receive up to an extra £500 when they carry out energy efficiency improvements. We have already made it clear that by learning lessons from the Green Deal cashback scheme we will strive to improve it, so we have simplified the customer journey even further and expanded the range of companies that can participate. More than 800 companies have already registered.
DECC is working hard to improve the energy efficiency of the private rented sector. Action to improve the energy efficiency of private rented properties is badly needed. The high proportion of inefficient properties in the sector contributes to the high level of private rented-sector households in fuel poverty: an estimated 21%, or one in five households, compared to 8.5% of households in the owner-occupier sector.
We expect to consult shortly on our proposals for the implementation of new energy efficiency standards in the private rented sector using powers in the Energy Act 2011. 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, draughty houses and still pay too much for their energy.
The Green Deal’s pay-as-you-save principle creates a win-win for both landlords and their tenants. Landlords will benefit from having an improved property, and the electricity bill payer, who is normally the tenant, will contribute towards the cost of the improvements through instalments collected via the electricity bill while also benefitting from a warmer house. Green Deal repayments will appear on the tenant’s electricity bill and will be collected by their electricity supplier.
The amount that can be borrowed to pay for improvements using Green Deal finance is protected by the golden rule, which limits repayments to the level of savings that a typical household can expect to make on their energy bills.
Tenants will only pay Green Deal instalments that fall due while they are paying the bill for the property—that is, while they occupy the property and are benefiting from the improvements. When a tenant leaves the property, the responsibility for repayments will pass to the new electricity bill payer—or the landlord if the property is not re-let.
At the end of February, my department made important amendments to the Consumer Credit Act 1974, introduced by the Consumer Credit Act 1974 (Green Deal) (Amendment) Order 2014. Those amendments clarified who was to be treated as the “debtor” and “creditor” under a Green Deal plan, to help Green Deal providers to write Green Deal plans in the rented sector.
The amendments resolved two key issues. First, to address concerns relating to the difficulty of determining whether a particular Green Deal plan was regulated, the February amendments provide that almost all domestic Green Deal plans will be regulated by the Consumer Credit Act, regardless of who is making the energy efficiency improvements to the property. Tenants moving into the domestic property can therefore 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, and not a business. That approach greatly simplified the process for Green Deal providers and ensured that in all appropriate cases Green Deal plans would receive statutory rights and protections under the Consumer Credit Act— including, for example, where a Green Deal plan is set up by a corporate landlord during a void period. Secondly, the amendments also ensure that landlords and tenants signing up to the plans will receive the statutory rights and protections that they need under the Consumer Credit Act at the right stage. The Green Deal Finance Company and the landlord organisations have welcomed these changes.
I turn to the amendment that we are debating today. On 1 April 2014, responsibility for consumer credit regulation transferred from the Office of Fair Trading to the Financial Conduct Authority. As a result, the consumer credit regulatory regime was also transferred to a different legislative framework—that established by the Financial Services and Markets Act 2000. To ensure that the new regulatory regime for consumer credit remains consistent with the changes that were made to the Consumer Credit Act in February, we need to make some consequential amendments to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, known as the RAO for short. The RAO sets out which activities are regulated for the purposes of the new regime.
The order that we are debating today puts these important consequential changes into effect. The amendments to the RAO mirror the policy approach that was taken in the Consumer Credit Act. The drafting of the RAO amendments has therefore been kept in the same terms as the amendments that were made to the Consumer Credit Act in February as far as possible. The order clarifies who is to be treated as the “borrower” and “lender” for the purposes of the Green Deal under the RAO. The definition of “borrower” follows the same approach as was introduced for the definition of “debtor” as part of our February amendments. The “lender” for the purposes of the RAO will be the Green Deal provider, again reflecting the definition of “creditor” introduced in February. The order also explains which Green Deal plans are to be treated as “credit agreements”, and therefore regulated under the new regulatory regime. Our amendments to the RAO will therefore ensure that Green Deal plans will continue to receive Consumer Credit Act protections in line with the policy introduced in February.
The order makes transitional provision to ensure that—for plans which have been entered into since 1 April and which, but for the amendments made by this order, would not have been regulated—the CCA applies in a way which is appropriate. That balances the Government’s desire to ensure that consumers are protected and receive adequate information about their credit arrangements, with the need to ensure that Green Deal providers are not subjected to unfair requirements.
The amendments brought about by this order do not change Green Deal policy; they are important in consequence of consumer credit regulatory changes that were introduced on 1 April. They ensure that the Green Deal plans will continue in a manner that was agreed by noble Lords in February. These changes will ensure that Green Deal providers will continue to have the clarity and confidence that they need to issue plans to consumers across all sectors. I commend this order to the Committee.
Baroness Worthington (Lab)
I thank the Minister for her introduction of this order and for her very comprehensive explanation of what it achieves and why it is needed. We fully support it and have very little to say other than it is purely a technical amendment to maintain continuity and to keep things functioning in the light of consequential amendments arising from changes to another piece of legislation.
We still hope that the Green Deal will succeed in its intended aims. It got off to a slow start but there are now signs that it might be picking up a little. In general, we are fully behind the Government’s attempts to bring about a successful policy that encourages consumers to undertake energy efficiency improvements under the pay-as-you-save model. It is important to keep it under review and there will obviously be a point when fundamental changes will have to be assessed to show whether enough people are coming forward.
We are concerned that if this policy is only ever taken up in a small pocket of households it will not become normalised, and there is a risk that people who want to sell property with a Green Deal might have to take a penalty and be unable to realise the true value of their house because of fear over this mechanism. It is likely that that will be the case in the early days of the policy. Therefore, it is important that we have cross-party consensus to try to ensure that we do not see a class of stranded consumers. We will come back to that general point in the future when we have the opportunity to discuss other technical amendments in policy-related debates, but for now we have no problems with this order.
Baroness Verma
My Lords, I am pleased that the noble Baroness welcomes the order. I absolutely agree that these policies must be kept under review. We have done that, so we have been able to improve and simplify the measures and mechanisms needed to go out there and reach a greater number of people. I accept what the noble Baroness says about wanting to normalise the Green Deal into every home where improvement is needed.
I shall finish on a positive note. Assessments are going on. There were 234,050 assessments made up until the end of May 2014, which shows that we are on an upward trajectory. We cannot be complacent. We must make sure that we are reaching out to the very people who need to have their homes improved. I am very pleased that the noble Baroness welcomes the amendment and I commend it to the Committee.