Draft Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2018

Stephen Crabb Excerpts

Monday 14th January 2019 General Committees

[The Minister for Energy and Clean Growth (Claire Perry)]

I beg to move,

That the Committee has considered the draft Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2018.

Good afternoon, Mr Davies. It is a pleasure to serve under your chairmanship. I am very pleased to open this debate. As it says on the tin, these regulations will amend the domestic minimum standards provision in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. If approved by the Committee, they will take effect from April 2019 and will introduce a new landlord funding element to the existing provisions, ensuring that they actually deliver the energy efficiency improvements that we set out in our clean growth strategy.

For hon. Members who are unfamiliar with the private rented sector minimum standards, I will give some background on the sector and the 2015 energy efficiency regulations, before discussing the need for, and the effect of, these regulations. The 2015 regulations established a minimum energy efficiency standard of energy performance certificate band E for privately rented properties in England and Wales. There are about 4.5 million such homes across England and Wales; it is the second-largest form of tenure after owner occupation, comprising about one fifth of domestic housing stock. Many of those private rented properties already have an EPC rating of E or above, which is very welcome, but about 290,000 properties—6% of the total—have an EPC rating of F or G. That means that they are particularly energy inefficient and are costly to heat. On average, it costs about £1,000 more per year to heat an F or G-rated home, compared with one rated band D. Many of those homes are occupied by people living in fuel poverty.

The 2015 regulations were designed to drive energy efficiency improvements to the least efficient privately rented homes. Subject to a limited number of exemptions, landlords of F and G properties are required to use available third party funding to improve their homes to a minimum of EPC band E before they can be let out. The third party funding could have included energy company obligation funding and local authority grants, but it was primarily intended that it would come from the green deal finance scheme. I was very proud to sit on the Committee that considered the legislation—[Interruption.] Excuse me while I rummage for a tissue. That scheme was intended to provide a cost-effective, appealing way for owner-occupiers and landlords to borrow to upgrade their homes or the properties they were letting out. It is a source of great regret that the scheme did not work—I can answer questions about it later. That essentially meant that we were targeting a pool of homes without the scheme with which we were intending to deliver the changes. [Interruption.] Thank you to my Parliamentary Private Secretary for the tissue provision—excellent PPSing.

Where a landlord of an EPC F or G-rated home cannot improve the home to band E, either because funding is unavailable or because there are legitimate technical barriers, such as those often associated with listed homes, the regulations permitted them to continue to let the property so long as they registered an exemption on the new minimum standards exemption register.

By targeting the least efficient properties, we hoped to improve the living conditions of tenants, many of whom live in fuel poverty. In fact, about 45% of that cohort are classified as fuel-poor. The regulations were a crucial lever in our work to meet the fuel poverty strategy and the Government’s decarbonisation targets. As we know, the green deal mechanism did not work as intended, and that led to many landlords being able to file exemptions on the exemptions register. We have taken a reasonable amount of time to consult carefully on how we should amend the original legislation with new regulations.

These regulations place a requirement on landlords to invest or co-invest in energy efficiency measures where third party funding is insufficient or cannot be secured. We have capped that investment at £3,500 per property to avoid placing an excessive burden on landlords. Consequent to that, we intend to introduce several ancillary amendments, such as the cancellation of existing “no cost” exemptions by April 2020.

Let me turn briefly to the choice of the £3,500 cap. Several numbers were consulted on, and our analysis is that this one strikes the best balance between ensuring that a meaningful number of properties are improved to EPC E and that those improvements are affordable, particularly for small landlords. It is striking that the majority of landlords in this country do not have a large portfolio; they are often families with one or two properties, which are often let out in the hope of generating some additional income for the landlord’s retirement. Our analysis shows that, with the cap set at this level, approximately 48%, or almost half, of EPC F and G-rated properties can reach band E, with an average cost of only £1,200, which is well below the cap. The remaining 52% of properties will be able to receive at least one improvement and make some progress towards that target, with an average cost of £2,000.

That is beneficial in two ways. First, improvements made under this cap, whether to get to the E level, or to progress from the worst properties, will save tenants an average of £180 a year on their energy bills—of course, the savings could be very much more substantial. The improvements are also estimated to increase the capital value of a property by £8,500. There is a real sense that it is an absolute win-win situation for both tenants and landlords alike. That is alongside the energy price cap, which has come into effect with cross-party support, saving consumers an estimated £1 billion on their bills annually.

We obviously consulted carefully on these numbers and exemptions. Some 84% of consultation respondents supported the proposal to introduce the landlord funding component, and they made the point that, alongside the obvious cost-saving benefits to tenants, landlords will benefit from the improved energy efficiency of these properties in the form of reduced maintenance costs and an increase in property capital value. That will make a meaningful contribution towards our overall carbon dioxide reduction targets, support our clean growth and support our agenda of creating more routes to market for energy efficiency technologies.

[Stephen Crabb (Preseli Pembrokeshire) (Con)]

My right hon. Friend makes an important point about the potential benefit to landlords, but she will know that those are perhaps not strong enough to incentivise landlords to invest proactively in the kind of improvements to properties that tenants need to see. Will she take a moment to outline the precise mechanisms whereby the obligations on landlords will be activated? We know that far too many tenants live in substandard property from a fear of raising difficult issues with landlords or of their own insecurity. How can she be sure that the regulations will lead to the positive outcomes she hopes for?

[Claire Perry]

My right hon. Friend makes a very important point that gets to the nub of the issue: how will we ensure that these regulations are enforced? Enforcement is a power given to local authorities, which have a range of powers to support effective enforcement. To understand what that requires and what the best levers are to drive enforcement, my Department is funding seven 12-month longitudinal enforcement studies this year, which will work out what is the best enforcement toolkit.

There is now more data across Government on home standards and on which households live in fuel poverty, so there is more data available to target the enforcement work. We will have evidence from right across the UK, although not, I believe, from any constituencies in Wales—I apologise for that. We will have at least a sense of what we need to do to enforce the regulations.

The other point worth touching on is that someone might be renting a property where they could save themselves between £200 and £1,000 a year, but that information is currently not readily available to renters. Generally, agents list properties simply on the basis of aggregate rent per week or month. They might also show broadband speeds or local school quality. I would very much like—we are doing some work on this—estate agents and rental agents to put the whole question of cost to rent and cost to operate into the metrics that they show to tenants. If something looks affordable on paper, is it affordable to occupy? That is a piece of ongoing work. I hope that my right hon. Friend is satisfied with that response.