Energy Efficiency (Domestic Private Rented Property) Order 2015

Baroness Worthington Excerpts

Thursday 19th March 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I am pleased to open the debate on the order and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

The energy-efficiency regulations will drive improvements in the least energy-efficient privately rented properties in both the domestic and the non-domestic sector, and provide domestic tenants with a right to ask for consent to cost-effective energy-efficiency improvements to their property. The energy-efficiency order is designed to ensure that those tenants living in the majority of domestic agricultural properties can benefit from the energy-efficiency regulations, in addition to those tenants already defined under the Energy Act 2011. As the order is relatively straightforward, I propose to focus my introduction on the regulations themselves.

I will first give some background on the private rented sector to provide context to these regulations. There are around 1.2 million non-domestic rental properties, which make up approximately two-thirds of the non-domestic property market. Around one in five of the non-domestic private rented stock falls within the lowest two energy-efficiency bands, which have an F and G energy performance certificate rating. In the domestic sector there are around 4.6 million private rented sector properties in England and Wales, making it the second largest tenure after owner-occupation, at around one-fifth of the total domestic housing stock. Around 6% of all domestic properties have an F or G EPC rating, but the percentage of F and G-rated properties in the privately rented sector is almost double this at around 10%.

Although newly built properties in the domestic privately rented sector tend to have higher energy-efficiency ratings, there remains a stock of older properties, many of which have poor energy efficiency and are difficult and costly to heat. The high proportion of older, untreated properties results in lower energy efficiency. This means higher tenant energy bills, and, for domestic tenants, the likelihood of living in fuel poverty. Living in private rented accommodation is an independent risk factor that significantly increases the likelihood of a household being fuel poor, so much so that around a third of all fuel-poor households in England live in the private rented sector, despite the sector accounting for only around a fifth of all households in England and a seventh of the households in Wales. Put simply, the PRS has a disproportionate share of the UK’s least energy-efficient properties and fuel-poor households. That nearly one in five non-domestic properties falls below an E EPC rating also shows the huge potential for energy and carbon savings that remain untapped in our country’s non-domestic stock.

Much of the reason for the slower change and poor energy efficiency in the private rented sector is the split incentive, where the costs of installing energy-efficiency measures traditionally fell to landlords while the benefits of lower energy bills and a warmer property usually fell to tenants. Various approaches have been tried in the past to improve the energy efficiency of the private rented sector. These include voluntary approaches, information services, tax breaks for landlords and subsidies for the installation of energy-efficiency measures. The success of these actions has been limited. The Government have therefore concluded that well designed regulations targeted at the very worst properties, and signalled to the market well in advance of coming into effect, will help drive action to improve the building stock and benefit the wider UK.

The regulations are game-changing and have been hailed by the UK Green Building Council as,

“the single most important piece of green legislation to affect our homes and buildings that has been introduced in the whole of this Parliament”.

This is the first time the Government are directly targeting energy efficiency in the existing private rented sector building stock.

I turn to the key aspects of the energy-efficiency regulations. The regulations fulfil a duty in the Energy Act 2011 to implement regulations so that by 1 April 2016 private domestic tenants have a right to request consent for energy-efficiency improvements where that consent may not be unreasonably refused by the landlord. By 1 April 2018, privately rented domestic and non-domestic property which falls below a minimum energy-efficiency standard, based on the energy performance certificate rating, cannot be let.

The regulations will reduce the UK’s carbon emissions, which is essential to meet the UK’s statutory domestic carbon budgets and the long-term 2050 goal set by the Climate Change Act 2008. By targeting the worst properties, they will improve the state of some of UK’s least energy-efficient building stock. By reducing the winter peak demand, the regulations will also improve the UK’s energy security, but not at any cost. The regulations have been shaped with significant input from the sector to work with the grain of existing practice. They will encourage cost-effective investment in energy efficiency. But the regulations will not demand landlords reach an E EPC at any price. In the domestic sector, a landlord will not be required to reach an E EPC by installing measures which are not cost effective. Provided that a landlord has carried out all the energy-efficiency improvements to the property that could be funded through a Green Deal, under the energy company obligation and any available grant funding they may continue to let their property. My department’s analysis suggests that 73% of domestic F and G EPC-rated properties will be able to reach an E EPC using measures that meet the Green Deal’s golden rule, and another 10% can make some improvement, even if they cannot reach an E.

Non-domestic landlords are provided with similar protections; they will be required to carry out all the energy-efficiency improvements that can be funded through a Green Deal if it becomes available, or that cost the same or less than their expected energy savings over a seven-year period. My department’s analysis suggests that 85% of non-domestic properties can be brought up to an E EPC using measures that meet the Green Deal’s golden rule.

We are also taking care that the regulations do not drive inappropriate interventions, or force landlords or tenants to take decisions that are not in their best interests. The regulations set out specific exemptions for not installing improvements in listed buildings, where they will negatively impact on the value of the property by more than 5%, and where a landlord cannot get third-party consents, such as planning consent. Landlords will also be able to claim an exemption from installing wall insulation where it could negatively impact the fabric of the building.

We have made the regulations fair and the key message simple to understand: landlords will need to get their properties to an E energy performance certificate rating where they can do this cost-effectively, safely and in accordance with existing legal obligations. Tenants have the right to ask for consent for energy-efficiency works, and for that consent to be not unreasonably refused. Clear regulations, signposted in advance, mean higher compliance rates, and less need for enforcement. We will work with tenant groups, landlord groups, local authorities, local weights and measures authorities, and estate agents to ensure that all parties are aware of their rights and responsibilities, and we will endeavour to use innovative channels to warn tenants and landlords. However, where landlords choose to ignore their responsibilities, we have designed an enforcement regime that we believe will be clear, simple and effective. Landlords will either need to reach the minimum standard, or register an exemption on the central PRS exemptions register—a database to be set up and maintained by my department. Local authorities and local weights and measures authorities can choose to take action to enforce compliance.

The economic case for these regulations is also clear. They will provide overall benefit to the UK of £2 billion in net present value terms over the life of the policy. By encouraging co-investment, and decreasing search costs to install ECO measures to eligible householders, the minimum standards will also reduce the cost of delivering the energy company obligation. They will facilitate the delivery of the third and fourth carbon budgets at lower cost, and with greater certainty, by providing over 1 million tonnes of carbon dioxide savings between 2018 and 2022 and nearly 2 million tonnes of carbon dioxide savings between 2023 and 2027.

Furthermore, compliance with the minimum level of energy-efficiency provisions of the regulations will provide significant benefits to non-domestic SMEs, providing them with over £2 billion net bill savings, and over £3 billion net bill savings to the non-domestic privately rented sector overall.

In conclusion, these regulations will drive significant change to the energy efficiency of the worst properties in the private rented sector, improve the lives of tenants living within them, reduce the UK’s carbon emissions, and provide a net benefit to the UK economy of around £2 billion in present value terms. I commend the order and regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing these regulations. Here we are, one week before the end of this Government’s term in office and here we find, finally, the one piece of energy legislation that they can be proud of. All I can say is: what has taken so long?

This is a very sensible piece of policy. It is a crying shame that so many people still live in very poorly insulated, unhealthy homes—those F and G properties—with such poor energy-efficiency ratings. It is high time that we took action to address this and I am therefore very pleased to see these regulations being brought forward. I particularly welcome the fact that tenants will now have some legal back-up when they enter into negotiations with their landlords so that they will not be able to turn down measures. For a long time this split incentive has been a real barrier to change and it has trapped people in a cycle of fuel poverty where they do not have the means to improve their own situations. This is a very serious and welcome intervention.

Of course, as was outlined, the measure has not just fuel poverty benefits but economic benefits for the country, and indeed carbon benefits in terms of us meeting our climate change objectives. Perhaps the only point on which we differ is that we think we could go further and we would like to see a commitment from the Government to further increase the requirements on landlords to move properties out of the E category into the C category. In the document that we published at the party conference last year, Caroline Flint launched a comprehensive set of policies to wage war on cold homes. Within that, we committed to phasing in a much higher standard for properties by 2027. We think that that is what the industry needs. We need to send a long-term signal that this is not just a stop-start process; this is going to be an ongoing process of improvement, and we will force those people currently profiting from the rent of substandard properties to keep improving those properties so that everybody can benefit from the measures available.

The one thing we will need to keep under careful review, as we always do with these policies, is the extent to which the exemptions that are provided are tied to the Green Deal. We have had discussions about the success or otherwise of the Green Deal. We hope that more and more people are taking measures to improve their homes but we are not convinced that that policy is completely fit for purpose. We would like to explore the rationale for allowing exemptions based on Green Deal availability. There may be some things that fall outside the Green Deal’s current offer that landlords and tenants may wish to pursue and we would not want to limit unnecessarily the efficacy of these regulations by tying them to another policy too strictly.

However, that is a small point compared to the bigger point, which is that finally we have a very good piece of regulation coming forward from the Government, which addresses a critical issue. We support these regulations.

[Baroness Verma]

My Lords, I thank the noble Baroness, Lady Worthington, for her full support for these regulations. Of course, I do not agree that this is the only piece of legislative work that has gone through this House in the past four and a half years that the coalition Government can be proud of. Much of the legislation that I have delivered has been to ensure that we have more efficient homes, lower energy costs and energy security, as well as looking very much at reducing carbon emissions. So I think she was being slightly disingenuous about the progress we have made. Given that we have spent many, many hours during the past four years or so, particularly in this Room, discussing the work that this Government have undertaken, we dispute that we have not achieved a great deal.

Of course, as with all things, we want to make sure that those who need more efficient homes, particularly vulnerable people in the private rented sector, are able to enjoy a much better living environment. The noble Baroness referred to a C rating. Of course everyone is ambitious, and we are equally ambitious to get the properties to be far more efficient than they are today. We have achieved a lot but there is a lot more to do. My consistent line to the noble Baroness has always been that we must not do this at any cost; there has to be a cost-effective way of being able to deliver what I think, and the noble Baroness has agreed, is the key policy of being able to help to improve our homes. There is a lot of work to be done and I look forward to debating for many more hours, particularly in this Committee.