Energy Company Obligation

Jonathan Reynolds Excerpts

Tuesday 11th March 2014 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship once again, Ms Dorries. I pay tribute to my hon. Friend the Member for Nottingham South (Lilian Greenwood) for securing this important debate. She is passionate about this issue and she was eloquent about what the Government’s changes to ECO have meant for her area. She was kind enough to invite me to visit the work in Clifton that she described today, which was a brilliant scheme. It was cross-tenure and cost-effective, it looked beautiful and it created local jobs. The only problem was that it was ending, owing to the decision the Government took before Christmas to cut back on ECO. At a time when so many people are concerned about rising energy bills, Minister, how can it make sense to cut back on insulation and energy-efficiency measures?

I welcomed the Minister’s earlier intervention. We should be clear that people who signed contracts in good faith but who have had those revoked owing to changes in Government policy should get that work done. Either the energy company should honour the obligation that it signed up to, or the Minister should step in to ensure that that work is done.

However, we know that the green deal for communities, or whichever funding pot the Government wish to use, simply cannot plug all the gaps created by the announced changes. A number of extremely good speeches today have highlighted the problem. I am sorry to hear that the hon. Member for Southport (John Pugh) is feeling depressed, although I note that there was a Liberal Democrat conference at the weekend that is almost certainly to blame for that. He raised a crucial issue: the functioning of the brokerage. That is slightly beyond the remit of the debate, but if the brokerage is providing prices to do a boiler job for less than £1,000 and, if at present, the rate is at 6p per £1 saved, that work cannot be done without either a contribution coming from the person receiving the work, or the work simply not being done to the requisite standard.

My hon. Friend the Member for Southampton, Test (Dr Whitehead), with his customary expertise, traced the fingerprints of blame to the notorious Prime Minister’s Question Time and the review of green levies. There is no doubt that this is one of the worst examples of policy being made on the hoof, with serious ramifications for people up and down the country.

My hon. Friend the Member for Hyndburn (Graham Jones) raised in particular some of the innovation in hard-to-treat cavities and the work of Isothane, a company with which I am also familiar. The Minister often says that he wants to create a market to end energy efficiency being generated simply by subsidy. I say to him that the innovation is taking place but will be undermined by the changes that are going through.

My hon. Friend the Member for Bristol East (Kerry McCarthy) talked about job losses and the impact of the changes on SMEs. She articulated well the genuine sense of desperation that now exists because of the changes. Following the autumn statement I was disappointed by how the Minister and others in Government defended the changes, which have undoubtedly caused thousands of people to miss out on work that they were promised, and many people to lose their jobs, as well as causing consternation to businesses that have taken investment decisions based on Government policy. I would like the Minister at least to acknowledge the hardship that has been created. Selling the changes as a simple extension of the policy or a way of offering greater certainty to industry is, frankly, an insult to those people who have been adversely affected.

The only people who seem happy about the changes are some of the energy companies—I say some, because there are some that have been extremely good on reaching their obligations under the scheme. In the main, however, the changes are poor and short-sighted. In the brief time available, I will use the Government’s own impact assessment to outline just how bad the changes are.

The biggest change the Government have announced is on solid-wall and hard-to-treat properties. I think this information will answer the questions raised by the hon. Member for Warrington South (David Mowat). The Government have not just reduced the CERO target, but have allowed cheaper measures to fulfil that obligation and added a permitted carry-over from over-delivery on previous schemes. The result is that ECO will not now deliver much at all for hard-to-treat homes.

I find it baffling that the Government have decided to make changes to the part of ECO that was beginning to show signs of progress, and that covered schemes such as the area-based scheme in Clifton, to which my hon. Friend the Member for Nottingham South introduced us. I ask the Minister to think back to our early exchanges on ECO. It was those sorts of schemes, surely, that he was citing in its defence. I know he is a fan of area-based schemes. There are obvious advantages in delivering energy efficiency on that scale—the costs are lower and more people take up schemes when they see the scaffolding go up. What is his assessment of how the changes will affect schemes such as those?

[Huw Irranca-Davies]

My hon. Friend makes an important point. There has been a great deal of talk about large-scale, area-wide schemes, but there are other aspects that the Government ought to be supporting, such as the co-operative approach. I recently visited south Staffordshire community energy scheme, which worked in concert with the Energy Saving Co-operative and Lichfield district council. It focused on four properties initially but had a plan to roll the work out. There was tremendous success for the initial four properties, but that group is waiting for the Minister to give clarification before it can do any more, and so has stopped. The stability has gone.

[Jonathan Reynolds]

I absolutely agree with my hon. Friend. I know that when the Minister responds he will say that the minimum target set for solid-wall insulation is just a minimum and could be exceeded, but, quite frankly, if we look at the cumulative impact of the changes, no more than that statutory minimum of solid-wall jobs will be done. I raised that point with him when we considered the Lords amendments to the Energy Bill and also at the most recent Energy questions. The impact of the changes means that the number of solid-wall jobs that are done will not be anywhere near what is needed.

As many Members have said today, that is a major problem for the UK, and no one will solve it for us. The Minister modestly suggested that he was responsible for the boom in the solar industry, and I agree that what has happened on domestic solar installations is absolutely brilliant—I am trying to get some solar photovoltaic panels on my own roof. He would surely admit, however, that part of that success has been the drop in unit costs that has come from other countries getting involved in manufacture, particularly China. That will not happen with solid-wall insulation or any hard-to-treat insulation. That is a problem for which we have to find a solution in the UK.

If the Committee on Climate Change wants us to do 200,000 solid-wall jobs a year, 25,000 a year is simply not good enough. My hon. Friend the Member for Southampton, Test hit the nail on the head when he said that if we look at the objectives, the key issue is that ECO was created to do that hard-to-treat work. The policy is constructed around starting to meet that challenge, yet mid-programme the Government have now changed the objectives, leaving us with a bit of a mess.

[David Mowat]

I cannot let the hon. Gentleman go much further after his comments on solar. We have heard so much today from the Opposition about fuel poverty yet every time there is a Division in the House on whether we should take an option to reduce or increase energy bills, Opposition Members always vote for higher bills. Solar PV was a great example of that: when the Minister tried to reduce the solar tariff from six times grid parity to four times grid parity—something we did two years ago—to a man and woman the Opposition voted against the measure. Yet now they stand up and talk about fuel poverty. It is not rational and it will not do.

[Jonathan Reynolds]

If we got into an extensive debate about the solar industry I am sure you would rule me out of order, Ms Dorries. If the hon. Gentleman is concerned about affordability of energy bills, one way that we can guarantee that bills will come down is if people use less energy. That objective is delivered through energy efficiency measures, insulation and the kind of work that was going on in Clifton until the Government made the changes. To withdraw from that work in order to deliver cheaper bills is surely illogical.

[David Mowat]

I completely agree that greater energy efficiency is the best way of reducing energy bills. We are an outlier in terms of the efficiency of our housing stock—although not in terms of our energy costs, which makes the Opposition’s freeze proposal even more opportunistic. The point I was making is that whenever we vote on energy costs the Opposition vote for them to be higher and as a result are not credible.

[Jonathan Reynolds]

I completely disagree. We could and should have a lengthy debate about energy companies overcharging as that issue is obviously there—people can see that and our policy is designed to rectify it. That makes the changes to ECO even more illogical. The Government have reacted to our policy, which is sensible and which a lot of people like a great deal, by trying to cut back on energy efficiency, to try to claim that energy bills will be cheaper. If the Government are serious about lowering bills, surely the obvious way to do that is to continue with energy efficiency measures. It is illogical for them to cut back on efficiency to claim that they are saving people money on their energy bills.

In the time available I will address two further points. My next point is about the impact the changes to ECO will have on jobs. The impact assessment predicts that there will be between 7,000 and 14,000 fewer jobs as a result of the changes. That has already begun to happen and a lot of companies have already contacted me about the measures they have had to take. In particular, apprenticeships have suffered a great deal—that is certainly the case in Nottingham. When I visited a scheme there, the apprentice I saw was working on his own property—a marvellous bit of PR from the scheme, but it was brilliant to see such work taking place. Those people should have lengthy careers ahead of them, given the amount of work we need done by the industry they have gone into. For them to miss out or lose their jobs because of Government changes to policy is extremely unfair. So far, the Government have not acknowledged the impact on jobs at all, despite the fact that the impact assessment does. I hope the Minister will comment on that.

The changes severely reduce the Government’s commitment to tackling fuel poverty. When CERO was predominantly concerned with delivering solid-wall and other hard-to-treat measures, the funding would naturally have gone to low-income areas, in particular social housing estates built at a certain time to certain construction standards. However, now that low-cost measures are to be included, will the Minister say what safeguards will be put in place to make sure that the funding does not go to households that could afford to pay? That would be incredibly disappointing, given that one of the already disappointing features of ECO was its modest ambitions for reducing fuel poverty.

The Government are simply not ambitious enough about energy efficiency. The energy companies know that the Government will not hold them to account for failing to meet their obligations. I note in particular that whereas before the changes a fine could be levied on energy companies for failing to meet their targets, they will now no longer face a fine, but simply a rule-based system for increasing targets. It seems that the energy companies will be let off the hook again.

The changes to ECO are poorly judged and fatally undermine much of the original purpose of the policy. I do not accept or understand the Government’s claim that they will lead to a bill reduction of £35. The changes will have severe ramifications for the green deal. The failure of the green deal and ECO to dovetail as they were intended to—their “limited blending”, as the impact assessment puts it—serves only to highlight that further. The Government have again caved in to the energy companies when instead they should be rectifying the serious problems in our energy market, and ensuring that we meet the challenge of improving the UK’s dreadfully insulated housing stock.

The people losing out from this decision by the Government, whether in Nottingham or Southampton, or the other examples given by hon. Members today, are often those who need help the most, and who have been told they were going to receive it, only to learn that the Government have let them down again. The figures are stark: 14,000 lost jobs, 440,000 fewer homes insulated and 2.2 million tonnes in carbon savings forgone. The ECO is this Government’s policy, the changes are this Government’s changes, and the consequences, be they in lost jobs, work that now will not take place or the decimation of the solid-wall supply chain, are also the responsibility of this Government. Ministers have got it badly wrong. They need to accept that and think again.

--- Later in debate ---

[Gregory Barker]

I think we are talking slightly at cross purposes. Let me correct the idea that the ECO target has been obliterated, killed or put to bed, as anyone who listens to the Opposition could be forgiven for believing. The fact is that ECO has not reduced certainty; it has increased it. Labour’s CERT programme was year on year. It ran for 12 months, and was then extended for another 12 months. It was a hand-to-mouth programme. ECO now offers unprecedented transparency and long-term certainty for the insulation industry because we have extended it and guaranteed it up to 2017.

We have not simply stretched the target from 2015 to 2017. From 2013 to March 2015—27 months—we expect to deliver a saving through the scheme of around 14 megatonnes of carbon. In the period April 2015 to March 2017, to which we have extended the scheme, an additional 12.4 megatonnes will be saved, a cumulative total of 26.4 megatonnes, not 14 megatonnes. It is wrong to say that we have not extended ECO or that we are not offering long-term certainty against which companies in the supply chain can invest and set their business model.

We have given a clear message to companies in the supply chain that we cannot simply install the measures regardless of cost. We cannot reach our ambition to install solid-wall insulation at current prices, which is why we are trying to create a competitive market and to introduce new private sources of finance. We are trying to introduce greater competition and innovation to drive down the cost of the measures.

Although it is very early days for the green deal and ECO market, we are seeing real pressure on costs, not from the big energy companies but from the disruptive new entrants—the small and medium-sized enterprises, family business and entrepreneurs that are coming into the market. We should celebrate the fact that prices for solid-wall insulation are coming down. I have seen companies that are not only bringing down the cost of these measures but increasing the quality of the product, and the quality and choice of the offer to consumers. [Interruption.] The fact is that I have seen a lot of solid-wall insulation where what people end up with is homes that look like they have been airlifted from East Germany. The people who do it take out all the character and just put on some uniform fascia. In fact, what people increasingly want is choice. They do not want to see character obliterated from their home. They want to see improvements. I am glad to see that we are getting that sort of innovation into the scheme.

I understand where the Opposition are coming from in their desire to retrofit homes. I understand their ambition to improve the efficiency, warmth and comfort of homes, but unless they can cost that out and be honest with the electorate about how much it will cost and how much of the burden will fall on the fuel-poor and on hard-working families, they are just a pressure group; they are not worthy of being considered the Government. We are making those choices and laying out the whole picture for the electorate. We have to balance the costs to hard-working families with the benefits to the few that will receive ECO.

[Jonathan Reynolds]

The Minister is saying that solid-wall and hard-to-treat measures cannot be economically funded through this programme. Given that this policy is his own policy, when did he become aware that it was unworkable to try to deliver those kinds of measures under the scheme?

[Gregory Barker]

No; I obviously did not explain this properly. What I am saying is that we could not do the whole lot, the 7 million or so—I think that that is the figure, off the top of my head—properties that need to be done at this price, so what we are doing, as we work with other technologies, is getting the market going, using the green deal communities subsidy and the cashback that we have announced to jump-start the market and to fund the amount that we judge we can afford. That is in order to get the market working and to bring forward innovation; and as the market gets going, so we will see the price come down. We should use Government policy as a lever to drive down the cost, just as we have used Government policy in support of feed-in-tariff technologies as a means of driving down cost; and as costs come down, that should not be passed across in inflated profits to installers. It should come across in benefits to consumers, whether they are bill payers or people who are purchasing the technology. That is at the heart of the green deal.

We are trying to move away from the model that was used under Labour, in which there was 100% subsidy. Basically, what that meant was a glorified lottery. Millions of homes were substandard, and each year a lucky few thousand would win the lottery of insulation and get every single measure fully funded. I do not begrudge those home owners or people in the rented sector who had their homes upgraded, but that is not the fairest way of doing it. Yes, there are those who are fuel-poor who will never be able to make a meaningful contribution. We must accept that, but most people who fall into this category are capable of making a meaningful contribution to something that will add considerably to the value of their home.