Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2016
(8 years, 6 months ago)
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Lord Bourne of Aberystwyth
That the draft Regulations laid before the House on 13 April be approved.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, these regulations will make a minor amendment to the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, postponing the date by which the Secretary of State must establish the private rented sector minimum standards exemptions register. I will first give some background on the private rented sector and the 2015 energy efficiency regulations, before discussing the specific effect of this amendment.
There are around 1.2 million non-domestic rental properties in England and Wales, making up approximately two-thirds of the non-domestic property market. Around one in five of these non-domestic properties falls within the lowest two energy efficiency bands—namely, the F and G energy performance certificate ratings. In the domestic sector, there are around 4.6 million privately rented properties in England and Wales, making it the second-largest tenure after owner-occupation, at around one-fifth of the total domestic housing stock. Up to 10% of properties in the domestic privately rented sector have an F or G energy performance certificate rating.
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, when they bite, will drive improvements in the least energy-efficient privately rented properties across the domestic and the non-domestic sectors. They will do this by requiring landlords of F and G rated properties to improve those properties to a minimum energy efficiency rating of E if they wish to relet them after 1 April 2018. By targeting these worst-performing properties, the minimum standards regulations will improve the living and working conditions of tenants, many of whom—principally those in the domestic sector—are among the most vulnerable. By reducing the winter peak demand, the regulations, particularly the non-domestic provisions, will also help improve the UK’s energy security.
However, the minimum standards regulations recognise that there will be instances where it will not be cost effective, or indeed practical, to improve particular properties. Therefore, a number of temporary exemptions are provided to protect landlords. For example, landlords will not be required to improve a property to an E rating where planning consent is required and cannot be obtained. Landlords will also be exempt where there is independent evidence that installation of a recommended measure would damage the fabric of their property or reduce its value by more than 5%.
In the non-domestic sector, landlords will be required to install only those measures that cost the same as, or less than, their expected energy savings over a seven-year period and will be eligible for an exemption if the improvements do not meet that payback test. Similar cost-effectiveness tests exist for the domestic sector, which I will discuss further in a moment.
In all cases where a valid exemption applies, the regulations will require the landlord to register that exemption on a centrally held register, the exemptions register, which my department is required to establish for this specific purpose. The minimum standards regulations give 1 October 2016 as the date on which the register must open. This is a full 18 months before the minimum standards come into force—in other words, 18 months after 1 October 2016, on 1 April 2018. That date will remain the same after these regulations amend the primary regulations in the 2015 set.
We are now seeking to amend that date for two reasons. First, the establishment of the register, while not a significant technology undertaking, will require time to design, build, and user test with landlord groups and local authorities and local weights and measures authorities, which will enforce the minimum standards. Given that a majority of landlords are unlikely to seek to register an exemption until much closer to the date at which the minimum standards come into force, because the five years will run from the registration rather than the date of the regulations coming into force, we believe that postponing the launch of the register by six months until 1 April 2017, will provide us with reasonable extra time to fully user test the database, without negatively affecting landlords’ plans to register a valid exemption.
Separate to this, we wish to postpone domestic landlords’ access to the register for a further six months, until October 2017. I noted a moment ago that the minimum standards regulations contain a cost-effectiveness test for domestic landlords. This provides a five-year exemption for landlords where they are unable to undertake improvements without up-front cost, specifically when measures cannot be wholly financed, at no cost to the landlord, with funding from central government, a local authority or any other source.
Noble Lords will be aware that, since mid-2015, the Green Deal Finance Company has not been funding any new Green Deal plans. While obligated energy company funding will continue to be available after 2018, and while local authority grants may continue to be available in specific areas, the current absence of Green Deal finance leaves a gap in the operation of the regulations as currently structured. We are clear that this should not be allowed to affect the delivery of the minimum standards adversely, and are working with the sector to determine what amendments we need to make to the scheme rules to allow the domestic standards to work. Invariably this work will take time, both to agree policy and to consult effectively on any proposed amendments. In the mean time, it would not be sensible to allow landlords to register five-year exemptions on the basis of a lack of Green Deal finance, which would risk significantly reducing the impact of the regulations over that period. By postponing domestic landlord access to the register until October 2017, we are ensuring that we will be able to consult fully and make any amendments which may be necessary before landlords can begin to register valid exemptions.
In conclusion, these amendments seek to postpone the launch of the private rented sector exemptions register by six months to April 2017, with an additional postponement for domestic landlords until October 2017. The amendments are being made for both technical and policy reasons and, while minor in themselves, will help to ensure that the minimum standard operates effectively, in line with its original intention—that is, to deliver significant improvements to the energy efficiency of the least energy-efficient properties in the private rented sector. I beg to move.
Baroness Jones of Whitchurch (Lab)
My Lords, I thank the Minister for his introduction. It is important that we are clear that the changes being proposed will not impact on the ultimate aim: that there should be a widespread prohibition on private sector landlords granting a new tenancy on substandard properties after 1 April 2018, and for existing tenants by 2023. Keeping to those ultimate dates is absolutely crucial. The Minister referred to that, but it would be useful if he could put on record his absolute determination to stick to those original deadlines. I have some questions about the process in the meantime and the timetable for reviewing Part 3, which is what we are looking at now.
The Explanatory Notes and the Minister say that the department assesses that, as things stand under Part 3, a significant proportion of landlords would be eligible for an exemption. That would clearly make a mockery of the programme we are trying to achieve. I am concerned because the notes state that the department is merely considering whether changes to Part 3 are required. Is it not clear that Part 3 has to be changed, and soon? I would like a more definitive answer from the Minister on that issue.
I say that because unfortunately, the Government have form on dragging their feet on this issue. From the passing of the Energy Bill in 2011, they took four years to come up with the original set of regulations in 2015. Even then, they bent over backwards to give private landlords the maximum time to take action on substandard properties. At the time, we argued they could have been implemented by 2016, but we have ended up with a much longer timetable despite the urgent need for action. Indeed, when the then Minister finally introduced the regulations in 2015, she described them as game changing and went on to talk about their importance in reducing the UK’s carbon emissions. That underlines the significance of these changes.
As the noble Lord acknowledged today, the number of properties in the private rented sector has increased significantly in the past few years and now totals more than 4 million, yet this is also the sector with the highest proportion of energy-inefficient homes: around 11% are in bands F and G. It is fairly obvious that this is not only a waste of energy but a major potential contributor to fuel poverty.
When the original regulations were debated in 2015, my noble friend Lady Worthington, not surprisingly, welcomed them as a sensible policy. However, she also emphasised the importance of sending a long-term signal to the industry that this was part of an ongoing process of improvement. Rather presciently, she raised concerns about linking the process too closely to the Green Deal. Clearly, the Government should have paid more heed to what she said because only a couple of months later, they pulled the plug on the Green Deal, causing the CEO of the UK Green Building Council to say:
“Government’s strategy on dealing with high energy bills through home efficiency is now dead in the water”.
This comes at a time when the funding for the ECO scheme, which provides grant funding for energy-efficient upgrades, has been cut from £1.3 billion to £800 million with more cuts expected. Inevitably, this has reverberated through the industry, with jobs lost and investors pulling out of the sector, and has caused uncertainty where uncertainty was not necessary.
I have several questions. First, when did the Government first consider pulling out of the Green Deal? Presumably, the future of the Green Deal was at least under review before the initial regulations were laid in March 2015. Why did the Government’s risk register not flag up the dangers of regulations allowing exemptions to energy-efficiency measures to be based on the availability of the Green Deal? What is the latest thinking about a replacement for the Green Deal? Could it form the basis for a revised version of Part 3 of the regulations? Will the Minister clarify whether the Government intend to take action on the 1 million-plus units in houses in multiple occupation which I understand are currently exempt from the regulations? They probably represent the most energy inefficient properties in any housing sector. The Minister has been quoted as saying that there will not be a new energy efficiency strategy until 2018. Is that the case? What will be the estimated impact on employment and businesses in the sector?
Lastly, I want to pick up on a separate point that is covered by the Explanatory Memorandum: why there is a delay in introducing the provisions for non-domestic landlords, which the Minister also referred to. The memorandum says that the delay is for,
“additional time to procure a third-party to design, user test, and implement the Register, ensuring an optimal customer experience”.
Is the Minister really happy with that explanation? The department has already had over a year to prepare for this change, yet it reads as if a designer has not even been procured for the first stage of implementation. Is this not just symptomatic of the lack of urgency the department has shown on the whole issue of energy efficiency?
In summary, we believe that by linking the exemptions to the Green Deal provisions in the first place, the Government have created a problem that they should have foreseen, and they now seem to be showing a distinct lack of ambition for a solution. I very much look forward to hearing what the Minister has to say about the issues I have raised.
Lord Redesdale (LD)
My Lords, we on these Benches also support the regulation. I declare an interest as CEO of the Energy Managers Association and as a landlord. I find it incredible that the landlords are arguing that they cannot afford to upgrade their properties. I know from personal experience that that can be very expensive but they are expecting their tenants, who often are in fuel poverty, to pick up the tab, and they are the least able to pay. Moving forward to a new rating—as quickly as possible—is a very important step. I take on board that this is going to be a complicated register, and it has to work to ensure compliance with it.
However, there is one issue on which I wish to question the Minister, which was brought to my attention by the Country Land and Business Association. If you own a listed property, it is difficult to change it to meet some of the registrations under the EPC rating, especially given the criteria from English Heritage—as was—on double glazing, which should be revised. Not having double glazing in listed properties is ridiculous, given that the standard has improved so significantly. At present, if you want an exemption you have to go through the planning consent process and roll that over for five years, which seems a very clunky way of dealing with this problem.
During the consultation, could a more satisfactory system be looked at, especially for listed properties, to ensure that landlords do not face major costs arising from bureaucracy? I believe that solutions can be found. If owners of listed properties wish to rent them out, they should make them as energy efficient as possible. That said, I have a 16th-century bastle house that is difficult to get even close to an E, even though I have carried out almost every measure I can think of.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords who have participated in this debate. I will endeavour to answer the points that were raised by the noble Baroness, Lady Jones, and the noble Lord, Lord Redesdale.
I reassure the noble Baroness that, as I said, the ultimate deadlines remain the same. There is no question of a lack of ambition; the ambition has not changed. We are determined to tackle the scourge of fuel poverty and to aim for energy efficiency, and this will also contribute towards energy security. The problem, as I exemplified when I set out the case, is that first we need extra time to properly design the register. This is within the ultimate deadline set by the Act. It is important that we get this right. The noble Baroness indicated general approval, in fairness, so I am sure she would approve of that. There is no lack of ambition; we just want to ensure that we get it right.
The second point is specifically about the ending of the Green Deal, which she referred to. The Green Deal came in during the last Government, but early on we said that it was not doing its work, so we are moving away from it. However, we are still determined to ensure that we tackle the minimum standards in the private rented sector, so that we can deliver on improvements up to energy performance certificate E. As I said, the deadlines remain the same.
The noble Baroness asked about HMOs. They are covered by this regulation, and I hope she will welcome that news. In response to what was, if I may say so, a rather dismal litany—our proposals are very sensible—I repeat that there is no delay in implementation. There is a delay in the register coming online but no delay in the deadlines for producing measures that landlords have to conform to. It is right that we take some time to consult to make sure that we have got the provision right and it is workable. We will do that, and that will happen in due order this year. The noble Baroness has my assurance on that, and no doubt she and others will want to contribute to that process.
I thank the noble Lord, Lord Redesdale, for his general welcome and note what he said about the Country Land and Business Association. There are exemptions, which I referred to, with regard to listed buildings and the difficulty of getting planning permission. They are already in the regulations and there is no proposal to change those. If the noble Lord wants to write to the department about specific situations, of course we will look at them.
Baroness Jones of Whitchurch
I am grateful for what the Minister has said, but he did not answer the critical question of why the Government did not foresee this. They created regulations that were predicated on the Green Deal, in the knowledge that they were already questioning the future of the Green Deal. It would have made sense to anticipate that when the original regulations were drawn up in 2015. We would not be in this situation now, had the Government had a little more foresight. Will the Minister respond to that?
Lord Bourne of Aberystwyth
Indeed, my Lords; I apologise for the lack of foresight. With 20:20 hindsight vision, it is possible to say that this should have been foreseen. However, the best thing to do when you can see that a scheme is not working, which Green Deal finance was not, is to end it. We are now seeking a replacement, without any delay in implementing the legislation the noble Baroness referred to. She mentioned lack of ambition but the ambition remains absolutely constant. These changes are necessary for us to deliver on the aim of dealing with the scourge of fuel poverty, to ensure that we are energy efficient and to deal with security of supply.