Green Deal fiasco revealed in House of Commons report
07-31-2016
MPs savage the government’s scrapped Green Deal scheme for its ’dismal take-up’ and financial failings
A report released by The House of Commons’ Public Accounts Committee (PAC) claims that each loan approved for household energy improvements by the Green Deal Finance Company (GDFC) cost the taxpayer £17,000.
Initiated in 2013, the Green Deal was a flagship government policy intended to incentivise householders to make their homes energy efficient. However, the Department of Energy and Climate Change (DECC) stopped financing the Green Deal programme in July 2015 due to poor takeup.
DECC had forecast that the GDFC would loan in excess of £1.1 billion for home improvements by late 2015. The actual amount of loans totalled just £50 million, causing DECC to have to write off more than £25 million in loans to the finance company.
The committee’s report concluded that DECC had launched the scheme without adequately piloting it with homeowners.
PAC chairwoman Meg Hillier said: ‘Not enough work went into establishing the scheme’s appeal to households, nor to its implementation, nor to examining the experience of governments setting up similar schemes overseas.
‘This blinkered approach resulted in a truly dismal take-up for green deal loans and a cost to taxpayers of £17,000 for every loan arranged.’
Richard Twinn, policy advisor to the UK Green Building Council, said: ’The Public Accounts Committee report makes clear that implementation of the Green Deal was woefully inadequate. The wildly optimistic forecasts about take up were never realistic, and this point was made strongly by many in the industry at the time.
’Most of all the Green Deal simply didn’t appeal to many of the householders it was trying to attract. The interest rate was unappealing and there was - and still is - a fundamental lack of demand for energy efficiency among homeowners which the scheme did not address.
’Calls for structural incentives such as stamp duty continually fell on deaf ears, and ultimately it was the taxpayer who lost out.’
Comment
Steve Sanham, development director at HUB
’As a sector, we’ve got to get real. Buildings are responsible for 40 percent of carbon emissions, with housing being roughly half of that. There’s a lot we can do and as technology evolves, making a difference will get easier.
’Initiatives like the Green Deal are potentially important because existing buildings that are most problematic environmentally. New builds represent a tiny proportion of Britain’s housing stock. The problem with Green Deal, like many initiatives, was that is was drafted by committee and incomprehensible even to qualified engineers and experts.
The Green Deal was drafted by committee and incomprehensible even to qualified engineers and experts
’Clearly, there are cost constraints in upgrading old buildings. But finding tax efficient ways to encourage change is essential. This could include getting developers to sponsor upgrades to older buildings when new ones are built, or ensuring that landlords play a greater role in maintaining housing stock rented out. While no one would require a “one size fits all” solution, we do need more collective responsibility - rather than simply a top down government-driven approach that simply doesn’t work.
‘This means seeing sustainability as more than just a box-ticking exercise or subtitle in a CSR strategy’
The House of Commons’ Public Accounts Committee - conclusions and recommendations
1.Take-up of the Green Deal was woefully low because the scheme was not adequately tested. The Department for Energy & Climate Change (the Department) accepts that it did not undertake enough work with consumers before the Green Deal was implemented to identify how attractive the scheme would be to householders, how it should be marketed, and how to make it easy to apply. The scheme was overly complex with many process steps and excessive paperwork. People were also put off by interest rates of between 7% and 10% on Green Deal loans, particularly when they could access finance independently at lower rates. Marketing focused on the financial benefits of the scheme, rather than emphasising the comfort benefits from having a more efficient home that people may have found more appealing. The Department did not act on warnings about these design weaknesses during, or indeed after, the passage of the Bill through Parliament, including the specific concerns of Members of Parliament. Additionally, the Department did not take account of lessons from international experience, which could have led to these weaknesses being addressed. Consequently, demand for the Green Deal was extremely low, with only 14,000 households taking out a loan resulting in minimal saving in CO2. This meant the scheme cost taxpayers £17,000 for every loan arranged.
Recommendation: The Department must ensure that policy decisions are thoroughly tested and based on accurate evidence that includes a robust evaluation of stakeholders’ views. The Department should be prepared to pull back on plans if it is clear they are unlikely to be successful and risk taxpayers’ money.
2.The Department’s forecast of demand for Green Deal loans in its 2012 Impact Assessment was so wildly optimistic it gave a completely misleading picture of the scheme’s prospects to Parliament and other stakeholders. The Department’s Final Stage Impact Assessment forecast that there would be Green Deal loans worth £1.1 billion after 3 years. In reality, after 3 years the loan book was worth just £50 million, a mere 5% of the figure forecast. While the Department gave some indication in the impact assessment about uncertainty around the forecast, as it was based on consumer testing that did not reflect the final scheme design, it also said that the estimates ‘could be cautious’. While all forecasts are estimates, we are concerned that the scale of the error in this one significantly inflated the likely prospects of the scheme when Parliament came to vote on it.
Recommendation: The Department should ensure forecasts laid before Parliament in impact assessments are based on the most accurate and best available evidence, and are clear about the degree of certainty that applies to the numbers used and the likely outcome. The Department must not leave itself open to accusations of misleading Parliament to achieve its own ends.
3.The Department lacks the information it needs to measure progress against its objectives, including the impact of the schemes on fuel poverty. The Department cannot track accurately whether it is achieving its aims of improving the energy efficiency of harder-to-treat homes more efficiently and getting households that benefit from measures to pay for them, rather than all energy consumers contributing as under previous schemes. Supplier obligations, like ECO, can negatively impact the most vulnerable, as costs are spread across all bills rather than just those of households that benefit from the measures installed. However, the Department is unable to assess the overall impact of the scheme on fuel poverty, because it does not have access to all the information it needs, such as income data. The Department is also unsighted on whether some vulnerable households do not receive measures because they are asked to make contributions they cannot afford to energy saving measures.
Recommendation: The Department should ensure it has means by which to measure progress towards each of its objectives, particularly on those aimed at improving circumstances for vulnerable people and those living in fuel poverty.
4.Despite providing £25 million (36% of the initial investment in the Green Deal Finance Company) to cover set-up and operational costs, the Department had no formal role in approving company expenditure or ensuring it achieved value for money. The Department does not expect the company to repay the £25 million stakeholder loan it provided. But it does expect to recover in full a second loan of £23.5 million it made to keep the company afloat as it is secured against the finance company’s loan book. While the Department attended meetings of the initial consortium and continued to have observer status on the Board once it was formed, it was never formally a member of the Board which was accountable for the objectives, costs and activities of the company. The company spent some £16.9 million on consultancy and legal set-up costs and it signed a contract worth at least £1.5 million a year for its IT system, based on the expectation that it would need to support 3.5 million loans, compared to the 14,000 it actually administers. It paid its 13 members of staff £1.3 million in 2014, including a £400,000 salary for its chief executive.
Recommendation: Departments must ensure that appropriate arrangements are in place to monitor and provide assurance that public funds provided to other bodies are spent with due regard to regularity and value for money particularly, for example, when salary levels are set. The Department should produce an accountability system statement setting out how the Accounting Officer ensures the regularity and value for money of his Department’s spending by the end of September 2016.
5.Any sale of the Green Deal Finance Company must secure the best deal possible for the taxpayer. The finance company is negotiating with a preferred bidder over the sale of its loan book and the pay-as-you-save IT infrastructure, which taxpayers’ money has partly funded. The finance company and the Department believe the sale has the potential to recover some of the Department’s impaired stakeholder loan if the sale price is greater than the total future value of loan repayments, although this is by no means certain. Including the intellectual property of the pay-as-you-save system in the sale could prove costly should the government wish to launch a similar scheme in the future. The Department told us that while the finance company’s systems for administering and processing its book of loans will be sold, the core mechanism for collection of loan repayments via energy bills will remain in the public domain.
Recommendation: The Department should fully consider these concerns during negotiations and write to us once the sale is completed setting out the terms of the sale and how taxpayers’ interests have been protected. In particular, it should explain its actions with regards to the intellectual property of the pay-as-you-save IT infrastructure. It should also monitor the recovery of the £23.5 million loan it made to keep the company afloat and report back to us on progress.