Energy Bill [HL]

Lord Dixon-Smith Excerpts

Monday 24th January 2011 Grand Committee

[Lord Davies of Oldham]

The Minister is doing her best in what we all appreciate is a very difficult area. We all understand that the tenant’s response is optional. We discussed this in the previous sitting of the Committee. We cannot have a situation where a tenant exercises an absolute veto, because one person might operate a veto on 400 fellow tenants, all of whom agreed to the change. We all recognise that there is no veto. However, there is an issue about a tenant's consent and subsequent payments. The Minister is leading us down some strange paths. Are we saying that the holiday could last for the whole period of their tenancy, however long that might be? Who makes the judgment on the right to opt out of an agreement that admittedly may have preceded their arrival in the tenancy? How do they exercise the opt-out, for how long, in which circumstances and who is the adjudicator?

[Lord Dixon-Smith]

My Lords, I feel provoked to intervene. We are making the subject far too complex. I thought that I heard, a few minutes ago, that the golden rule of the Green Deal would be that the energy savings would equal the cost increases. If I did not hear that, I am mistaken, but I am fairly sure that I did.

If that is the case, let us consider a situation where one tenant leaves and a new tenant comes in. Provided that rule applies, there is no disadvantage or, indeed, advantage to the new tenant in saying that he does not want to be part of the deal. If the deal is cost-neutral, why is he likely to refuse to participate?

I also think we need to bear in mind that word of mouth is a very powerful force. Once the scheme begins to operate on any sort of scale, I suspect that there will be a great deal of support from those who initially participate in it. They will all be telling their friends that they have a warmer house; that their energy bills are at a new level; and that the improvements apply to both tenants and landlords. I suspect that we will get to the point after a time where tenants start to demand their landlord to make the improvements if they cannot themselves. I am therefore optimistic about the way this scheme will go, and we should not raise too many potential difficulties. The difficulties are there, I admit, but in reality, once the scheme begins to take off, it will develop its own momentum and the nightmare scenarios being portrayed will not in fact exist.

[Lord Deben]

My Lords, I do not think we ought to take it quite as simply as that. One of the things we learned from the Warm Homes operation—which I had the privilege of introducing—was that many people live, as far as their heating is concerned, to the level that they can afford. If their house becomes better insulated, what happens is not that they have a lower bill: they merely warm the house better than they were able to do before. In other words, this is not as simple a mathematical equation as one might think.

I am worried about the concept of a sort of holiday. If someone enters a tenancy where the agreement has been made already, they will know the terms of the tenancy: it will be part of what they are offered. It does not seem possible that anyone can have a holiday in those circumstances, because that is what they joined in the first place. I realise that we have chosen to concentrate on people at the bottom end, with perhaps little choice in the tenancy they have. I very much agree with the comments made about some landlords. However, in my experience of having had a lot of landlords in my former constituency, a good number were decent. In those circumstances all I am suggesting is that when people enter into an agreement, they know what the situation is, and there certainly should not be a holiday.

The only circumstance seems to be the first one, where people are actually able to control the heating bills. If you have better insulation, you can decide whether you are going to continue with the amount of heating you had before—in other words the price you had before—but get more benefit from it because the house is better insulated. Alternately, you may decide—and many people do—that you would prefer to get even warmer. I am sure people who have gone canvassing know that there are certain houses where you bang on the door and cannot stop yourself stepping back from the wave of heat that hits you. It is not always true that we are sensible about our heating. The fact is that these things are within the control of the tenant, and I find it difficult to understand why we are going down this line. Tenants have a good deal here, paid for by the state, and it is absolutely right; but do not let ourselves get into a position in which we find that tenants are able to turn up the heat and then ask for a holiday because it does not work out as they thought it would.

--- Later in debate ---

[Baroness Smith of Basildon]

My Lords, I speak to Amendments 20RA and 20YA, which, in the new groupings list, are in this group. When I spoke to the previous group of amendments I mentioned the scale of the work that needs to be undertaken to improve the energy efficiency of our private rented sector and how many homes are affected. If we look at the information we have got from our own impact assessment report, from fuel poverty groups, from Friends of the Earth and from the Residential Landlords Association, we see that all are agreed that this is an enormous sector with enormous problems. The scale of the work that needs to be undertaken is huge. It is important that we discuss these amendments to ensure that we get it right.

Amendment 20RA seeks to take on board comments made last week on the issue of “shall” and “must”—that the Minister “must” make energy efficiency regulations. As the clause stands, it pushes back any intervention on private rented stock. I am not clear about when the timescale will start. I know when the review will start and how long it will roughly take, but we will not see any regulations in place until 2015. It is difficult to ascertain when the regulations will become effective and when that will come into play. We are talking about beyond the next election—four or five years away—before we see any significant improvements in the private rented stock.

One of my concerns is that that does not create the certainty for those involved to prepare to undertake the necessary work. At this stage, landlords do not know what is required of them. They do not know if and when, or to what level, they might be required to undertake work. In an earlier debate, the Minister talked about giving clarity to the private rented sector, but these regulation-making powers do the exact opposite. They give very little clarity because of the conditionality on them.

If the industry is to meet the needs of the Green Deal, it needs clarity, probably on the scale of the take-up, although I appreciate that that will not be easy at first. The industry will need to know what skills, training and employment will be required. Local authorities will need to know what is required of them. It is so far down the road that that will be very difficult and the conditionality will add to it. It could mean that this will have little impact and the worse properties—that is, the bands F and G-rated properties—being with us for many years to come. I am sure that that is not what the Minister intends. However, the wording of the Bill would have that effect.

There are a number of reasons why we might want to move more quickly. If we continue to have so many F and G-rated properties, the impact will be higher bills for those tenants and health issues. The Chief Medical Officer has estimated that the annual cost to the NHS of winter-related diseases due to cold housing is in the region of £859 million. That is a significant cost to the NHS and the Government.

I take on board the comments of the noble Baroness, Lady Maddock, about minimum energy efficiency standards. I have some sympathy with them. I would be grateful if the Minister would look at this. The costs of improving properties in bands F and G to raise them into band E are well within the Green Deal. That would give the critical mass needed for it to take off; it would give certainty to those involved; and a significant number of people in F and G properties—something like 40 per cent of tenants in these properties are in fuel poverty—could be moved into E-rated properties for less than £5,000 for each property. That is a significant issue.

I am unclear also about how the Minister can make regulations—it would be helpful if he would explain this to me, because I may have missed something—unless he knows what he is aiming for in terms of the kind and level of improvements that need to be made to those properties that are not energy efficient. How does he know that the correct regulations are in place? Owners will need to know what standard their properties must be brought up to. It may be a missed opportunity if we just look at the golden rule, which is arbitrary and will change over time—it is guidance more than anything else—and in two or five years find that those properties are still rated F and G because the work that has been undertaken has not been to the required level.

The Committee on Climate Change has recommended to the Government that there should be mandatory energy efficiency standards in the private rented sector. I do not often quote the Mayor of London, Boris Johnson, in support of proposals that I am putting forward. He stated:

“I agree that requiring landlords to meet energy efficiency standards when properties are re-let could be an important tool in improving the energy efficiency of the private rented sector in London. How these standards are communicated and enforced would be key to their success”.

There is a lot of sympathy for the view that landlords should know what is expected of them before they start on the process. It will be difficult for them to embark on it if there are no changes to the Bill before it passes into legislation. I am not clear what message that would send to landlords. Will they think, “This may happen later” or, “There will be changes. I should prepare for them now. What can I do?”? The issue is about giving certainty to landlords about whether they need to take action and, if they are to take action, what level of action they should take. The proposals point in the right direction, but are rather weak. If we are to see this critical mass, certainty must be given to those who rent out properties, to those who pay to rent them and to local government.

I will speak briefly to Amendment 20YA. I tabled this as a question to the Minister because I was confused. The amendment refers to Clause 38. I looked for an explanation of what it meant in the Explanatory Notes, which state that,

“the Secretary of State could provide that a landlord is not required … to make improvements if he cannot obtain consent which is required to be given by his freeholder”—

that is understandable—

“or if the property is likely to be worth less as a result of the improvements being installed”.

I cannot envisage what improvements to energy efficiency in the home would make the property worth less. Who would make the judgment that the property is worth less? This could be a get-out clause for the landlord to say, “If I do that, I won't get so much rent in” or, “If I do that, I couldn't sell it”. Will the judgment be made on rental income or the price that the property would fetch if it were sold? It would be helpful if the Minister would give us more information.

[Lord Dixon-Smith]

I feel compelled to intervene because I am not quite sure whether we are going in the direction in which this Bill should be aimed. I go right back to Clause 1(2),

“An energy plan is an arrangement made by the occupier or owner of a property for a person to make energy efficiency improvements to the property”.

The occupier of a property may well be the tenant. We have made a great deal of the efficiency or inefficiency of certain landlords. They do not just occur, sadly, in the private sector; there are good and bad landlords in the public sector. There are good and bad tenants in both sectors. The essence of this scheme, however, was that if the landlord did not want to do something the tenant could. I thought that the essence of the scheme was that it was voluntary but if I listened to my noble friend Lady Maddock correctly, and I am not sure that I did, she seemed to be thinking that perhaps local authorities should be in a position to compel.

I am not sure I agree with that because that is not within the original purpose of the Bill. But maybe I have misunderstood the Bill or maybe I have misunderstood the noble Baroness. I am not sure which; I am becoming rather confused. That is why I am speaking. I thought that this Bill was designed to give the property occupier—if the owner happened to be there, that would be fine and good—the right to take action which is in his own interest. If that is so, it is perfectly true that he would probably have to get the consent of his landlord because almost all tenancy agreements that I have seen say that any alterations to the property must be made with the consent of the landlord. I cannot conceive, as the noble Baroness, Lady Smith of Basildon, has said, that any landlord is ever going to refuse to have this sort of action taken in a property in their ownership. She is absolutely correct to say that action like this must enhance the value of the property one way or another.

That is not the bit that concerns me. It is that we seem to think that we should be giving local authorities powers to compel landlords to take action, but they are landlords themselves very often. I am quite happy that they should be compelled to take action for themselves, but I thought that the essence of the Bill was that this was an arrangement essentially between the consumer of energy and the energy supplier. If that is the case, I am very concerned about these amendments because they seem to imply something else.

I am anxious to see homes having their energy efficiency improved as soon and as rapidly as possible. However, it seems to me that the process suggested, and which I thought lay behind this Bill, would be likely to achieve that faster than any action implying that compulsion might come from somewhere else would be likely to do.

[Earl Cathcart]

My Lords, I have not spoken on this chapter before but I welcome provisions in the private rented sector. I am not attacking the noble Baroness, Lady Smith, but I recall it being said that nothing would happen in the private rented sector until 2015 when the regulations can come in. That is assuming that landlords do not allow all this to happen, as my noble friend said. There are many landlords and, as the noble Lord, Lord O’Neill, said, not all of them are unscrupulous. I like to think that a lot of good landlords will want their tenants to use these provisions because, as my noble friend Lord Dixon-Smith said, it will increase the value of the property; it will make the tenant warmer; it will increase the well-being of the tenants; and it will make them want to stay longer. A lot of landlords and tenants will want to do this deal well before regulations have to come into place.

I want to play devil’s advocate here, following what my noble friend Lady Noakes said in her Amendment 20M, which talked about,

“consideration of the willingness of tenants”.

Clause 37(2) requires local authorities to issue notices to the landlords of each domestic private rented property,

“(c) which falls below such level of energy efficiency … as is provided for by the regulations”.

Subsection (3) states:

“The notice is one requiring the landlord to make to the property such relevant energy efficiency improvements as are identified by the notice”.

I might be splitting hairs, but should not subsection (3) read:

“The notice is one requiring the landlord”,

to allow,

“such relevant energy efficiency improvements”,

to be made to the property,

“as are identified by the notice”?

My thinking is that it could be the tenant who wants this done and the landlord who is dragging his heels, and that therefore one needs this notice to make sure that the landlord allows the tenant to sign up to the Green Deal.

--- Later in debate ---

[Baroness Noakes]

It is my understanding that you cannot just throw tenants out nowadays; it is a rather more complicated process.

[Lord Dixon-Smith]

My Lords, my noble friend has a serious point. If the tenant seriously objects, it is completely wrong to hold the landlord responsible for that individual decision. It may be uncomfortable, but that is the reality. Otherwise, we have a form of compulsion that is wholly inappropriate.

[Lord Marland]

The point that I am making is that the landlord, if he has a tenant who will not agree, will continue the tenancy. When the tenancy changes, the landlord will have to change his plans. No one can force a tenant out, unless it is done legally—and, as the noble Baroness, Lady Noakes, says, tenants are strongly protected. But what would one do? One cannot force people into this Green Deal; one has to encourage them. The Green Deal is a market-led product. We are saying that once the tenancy ends, the new tenant will have to have the Green Deal. I am afraid that that is as far as we can legitimately go at this stage. No doubt during the review we will find out whether this has operated voluntarily or whether we need to find other ways to encourage people.