Energy Bill [HL]

Baroness Maddock Excerpts

Monday 31st January 2011 Grand Committee

Moved by

[Baroness Maddock]

32: After Clause 67, insert the following new Clause—
“Promotion of reduction of home heating costs: reduced VAT rate
(1) For the purpose of enabling consumers to purchase energy efficient products in order to reduce home heating costs and carbon emissions, the Chancellor of the Exchequer must within 12 months of the coming into force of this section lay before Parliament an order to reduce the rate of VAT to 5% on—
(a) passive flue gas heat recovery systems; and(b) energy efficient windows in specified premises.(2) An order pursuant to this section shall be made by statutory instrument subject to the negative resolution procedure.
(3) In this section—
“passive flue gas heat recovery systems” means technology that can use the waste heat from condensing boilers in order to heat water;
“low emissivity glass” has the same meaning as in Part L of the Building Regulations.”

[Baroness Maddock]

My Lords, this is a new clause concerning proposed reductions in VAT rates and adds to the new clause I moved at the last sitting of this Committee. Members will be aware that most energy-saving materials enjoy the reduced VAT rate of 5 per cent; it makes no sense taxing energy saving more than energy use. There are some exceptions, however, and there are new technologies, as I mentioned last time.

I apologise for the wording in this amendment. As originally worded, subsection (1)(b) referred to “special glass” and not “energy efficient windows”, and when I changed the amendment I regret I did not change the explanatory paragraph below, which talks about the glass. I anticipate the amendment in this form is unlikely to be accepted by the Committee but if the Minister was minded I am sure he could change it.

It is important that we try to encourage people, as we are in this Bill, to spend their money on energy efficiency measures, but we have some that carry rather a high rate of VAT. The supply and installation of this equipment can be charged at a 5 per cent rate and I hope the Minister will look at this favourably. I suspect the Minister will say that this is something he must talk to the Treasury about, and I appreciate that point; but if we are serious about this we need to be consistent across the board on how we apply VAT to energy efficiency measures, products and installation. I beg to move.

[Lord Jenkin of Roding]

I was a member of the Treasury team when VAT was first introduced in 1972. It was one of the principles of the then Government that it should be as simple a tax as possible. There were of course some major exclusions from VAT, for instance all food and children’s clothes, but I well remember my noble friend Lord Higgins, who was dealing with the Finance Bill, saying that it was a simple uniform tax to be extended across the range of products and services, apart from those that were specifically excluded.

Since then Governments, no doubt of all persuasions, have found themselves led down a path of adding more complications to VAT. I have sympathy with what my noble friend has suggested, because these are clearly energy-saving and carbon-saving measures, which one would wish to encourage. However, to use VAT and the tax system to do that seems to me to go against the principle of keeping VAT as simple a tax as possible.

VAT is now substantially higher than it was when it was first introduced, for reasons that we can all understand, although that is not within the competence of the Committee. Wisely, my noble friend’s amendment places this firmly in the hands of the Chancellor of the Exchequer, although it could not be with anybody else, as my right honourable friend the Chancellor is the Minister in charge of the tax system. However, I sound a note of caution on beginning to extend lower rates of VAT to other services and products, notwithstanding that one might have some sympathy with what is being sought. Having said that, I should be interested to hear what the Minister has to say in reply.

--- Later in debate ---

[Baroness Maddock]

My Lords, I apologise to the Committee for jumping the gun and moving my amendment before it had actually been called. I thank my noble friend for her reply. It was anticipated that that might be the case, but I think that it is important to flag up that we are not consistent in this area. A Bill of this nature seems to provide a good opportunity to raise the inconsistency. May I ask the Minister if he will have a conversation with his Treasury colleagues about this to see if we cannot be a bit more consistent? After all, a lot of time and energy is being spent on the green deal and other things. This was particularly aimed at how we might help community buildings and so on. So the message is: please could somebody try to bring a bit more consistency in this area, and could we have conversations about it? In the mean time, I beg leave to withdraw the amendment.

Amendment 32 withdrawn.

--- Later in debate ---

[Lord O'Neill of Clackmannan]

I find this a confusing debate. First, we have an elegant contribution from the noble Lord, Lord Teverson, explaining how there is a failure in the structure of the market and the present pricing arrangements. We then get an endorsement of this from the noble Earl, Lord Cathcart, who, with the greatest respect, is riding one of his hobby-horses. We are all entitled to do that, but half way through the business he changes horses and is not very sure whether he is going one way or the other.

One of the factors in making the Green Deal successful for consumers will be rising gas and electricity prices, because the Green Deal will make the savings that much greater. It will make the savings that much greater that much earlier if the initial block of electricity or gas units consumed is as high as possible; it is then the second tranche from which you may make some savings. That appears to be a recognition of the fact that we anticipate that, certainly for the rest of this decade, energy prices will continue to rise for a variety or reasons—changes in generation, shortage of supply or volatility of supply because of Middle Eastern uncertainties. All these things will, in varying degrees, result in a steady increase. That is one of the attractions—perhaps not the most compelling one—of the Green Deal. The amendment would in many respects undermine the attractive features of the Green Deal.

Equally, the climate change committee has argued that the majority of fuel-poor households have structural deficiencies which require more electricity to be used in keeping the rooms warm. Therefore, the priority must be to get people’s homes improved. The apparent attraction of making the price of the initial tranche lower is complicated by the fact that these people are always going to be the ones who will go into the second tranche to keep their houses warm. There are elements of contradiction in both arguments.

We have mentioned the role of Ofgem as a potential arbiter—a body that could hold the ring. Although Ofgem’s function is in part to protect the consumer, it is also to promote competition. The argument advanced by the proponents of privatisation and subsequent liberalisation was that, after liberalisation, you would have a competitive market in which the players would change the manner in which the old state monopoly had dealt with pricing issues. In fact, as we have seen, while it was apparently in the interests of the state monopoly to behave in a particular way, it is in the interests of these private oligopolies to behave in much the same way, in that they have not radically changed the nature of pricing.

Some of us have sought to introduce arguments about the injustice of the pre-payment meter to many households, although not all, as pre-payment meters suit consumers in a number of households, perhaps because people are there only part-time—the house may be a second home in a rural area, for example. The point that I am getting at is that it was only through the threat of intervention on the part of the last Government that we began to move on this issue. I think that only one company—Scottish and Southern—was prepared to change its pricing structure in relation to pre-payment meters. There may have been others, but that is the one that I remember from the big five or six in this area.

I do not think that Ofgem has the power to do this at the moment and I am not sure that it would want to do it. The argument advanced by the climate change committee is somewhat tentative, but it has some weight. If we are going to try to deal with the question of consumption and price, the speech of the noble Lord, Lord Teverson, provided an elegant solution. I respect him for that, but I am not sure whether it is the ideal solution. We have had a reasonable excuse to have a good debate, but I am not sure whether at this stage this is really the best way in which to deal with the problem. It would be preferable if we gave the regulator powers that it ceased to have some time ago to go in and explore this, if not independently to change it. I know that its powers are being reviewed; it certainly does not have the powers to interfere at this stage, as I understand it. But if it was to be given those powers following the government review, that might be a way in which to deal with the matter.

I am not certain that this amendment will achieve what it is trying to do in respect of the poorer households that spend a fair amount of money heating their homes. It is unlikely that we could get a tariff structure to enable all the heating of the poorest people’s homes in the country to be done on the lowest tariff. If we could get that, we would go some way towards alleviating the problems faced by the disadvantaged. Equally, we might well put ourselves in the position of having disproportionately higher prices for the second tranche, which might reach a level that brings additional people into fuel poverty. So we seem to be damned if we do and damned if we do not.

I am a bit confused and I am sure that other noble Lords are as well. It may be that listening to me has made matters worse. If we are to deal with this issue, we really need to deal with it on the basis of far stronger and more comprehensive evidence than we have at the moment. The present system does not work, but I am not sure whether something as flip as this amendment will necessarily come up with the answers that quickly.

[Baroness Maddock]

My Lords, I support my noble friend in raising an important issue, which has led to rather a long debate. In reply to my noble friend, could the Minister tell us where we are in getting the utility companies to simplify their bills and make them clearer? If the Green Deal is going to work and people are going to understand where their energy savings are, the bills need to be better. In the past, you might try to work out the payback on new technology. We had a condensing boiler and it was really complicated to look back over a year—we had changed suppliers at the time—to work out what we were saving. I think that in the end I did work it out and we had saved at least a quarter of the gas in a year with the condensing boiler, but it was no mean feat. Given that the Green Deal depends on people understanding such things and that we know that we will not all have smart meters in the near future, it would be helpful if the Minister could tell us a little about that.

I support my noble friend Lord Cathcart on what we need to do to help those in fuel poverty, but I cannot agree with him on trying to do it on council tax bands. The banding of your house does not relate to your ability to pay the council tax or any other bill. That is why I have been so against it for so many years. However, I support him in his aim to do something about fuel poverty. I have probably declared my interest before but, like the noble Lord, Lord O’Neill, I am involved with National Energy Action, which is a charity trying to do something about the fuel poor. We have been doing it for over 25 years now.