Time To End Green Levies & Grants

The idea is simple, add a small amount to everyone's energy bill to contribute to a fund which can be used to improve energy efficiency across the country – the bad news is that it does not work and what we really need is something more like the American system.

 How Does It Currently Operate?

Currently, there is a contribution paid by consumers via bills from larger energy suppliers towards various energy policies.

According to the regulator Ofgem, an average direct debit energy customer under the default price cap announced on 1 April would pay £1,971 per year, of which £153 would be environmental and social obligation costs. Based on these figures, the costs account for around 7.8% of the bill

Some of the money from these costs goes towards large-scale renewable energy projects, but they are also used to fund a range of other environmental policies, including improvements to the energy efficiency of homes and business and Feed in Tariffs paid to households for surplus energy generated from renewable sources (like solar panels). All sounds good, doesn't it?

Our issue is that whether it is the Green Deal or the Green Grant or some other scheme – the governments chosen method of distributing these funds is incredibly inefficient and over the past 10-15 years has not made a dent in the need to improve the energy efficiency of homes or to increase their sustainability.

In Practice... 

Central Government (Dept for Business, Energy and Industrial Strategy) has a large pot of money – so sets up a scheme such as the Green Grant, Sustainable Warmth Scheme or the ECO Obligation and then distributes the pot to local authorities around the country and claims credit for investing millions in improvements.

A local authority will get a grant which will be their share of the larger pot, for example, Portsmouth received £3.1m in early 2021 as their share of the Green Homes Grant funding. In this example, they put in place a plan to achieve 1,200 installations within a set time focussed on external wall insulation, solar panels and air source heat pumps.

They then employ an agency to manage the project who will recruit a number of installers, assessors and inspectors to provide all of the component parts of the projects which will contribute to the 1,200 installations. To ensure stuff is done properly, contractors must sign up for various accreditations and installations have to meet certain standards, for example, MCS – the Microgeneration Certification Scheme.

This is all good but one of the weaknesses of this approach is that small traders find the accreditation and certification process too onerous – so do not sign up. Those that do are the 'high volume' contractors who often make their money by cutting corners. We can all remember the cavity wall insulation schemes where a whole house would be insulated in less than 90 minutes, no paperwork would ever be produced or delivered and damp and mould have been a consistent issue because houses that should not have been insulated have been and others have so many cold spots and uninsulated patches, that they were actually better off uninsulated. More recently we have seen solar panel installations where 8 panels were quoted but 6 installed, where panels have been installed by contractors working from a single ladder over a glass roof and worse.

The reason they manage to do this is an accountability issue. The central and local government departments tick the boxes saying they have 'invested' £xM or achieved 'y' hundred installations. The various contractor organisations are all very happy with their 'price the job properly and then cut a few corners to maximise the profit' approach and because everyone focusses on those in fuel poverty, the actual customer is just pleased to get something they did not have to pay for and have no idea whether it is the appropriate installation for them or has been done properly or not.

The other issue, whether you accept the argument about efficiency or not, is that to pay for 1 installation there is the cost of the installation, the profits of the company performing the install, the cost and profit of the agency (typically 2 or 3) that employ the contract organisation and provide the MCS overhead plus the cost of manning, organising and running the scheme at local and national level. Our estimate is that at best 70% of the funding actually pays for what was intended as opposed to the management and organisation of the scheme which delivers it. (And at worst, it could be as low as 20%). Then there is tax and which components of the chain declare / pay what they ought, but that is another discussion. 

  What Is The Alternative 

The American system is simple and focusses the money exactly where it is needed whilst building in a simple safeguard to ensure the money is well spent and it is all done with tax credits.

If you want English landlords to upgrade their properties with better insulation, switch to heat pumps and install solar panels or solar water heating – make it more appealing from a tax perspective. Today, if a landlord thinks about adding solar panels to a property he is faced with a number of facts: it will not increase his income, tenants do not pay for the benefit of reduced energy bills; it will be a real cost of perhaps £7-10 thousand pounds, but it will be classed as capital so cannot be offset against tax until the property is sold in maybe 15 years time… Why would anyone spend £7-10 thousand on something with no benefit whatsoever?

What is needed is a number of focused tax reliefs or credits which actually encourage improvement of property – the stock response from government tends to be 'how would we pay for it' or 'what would it cost us' but there is already a large pot from the green tariff included in domestic energy bills – whilst we believe this tariff needs to be reduced, we argue that those funds could to be better spent.

Give it directly to the person who benefits to spend on their chosen solution, delivered by their preferred contractor and it will be far more effectively spent than the current schemes which encourage the bottom feeders and do little to improve the fabric of the homes we all live in. Whether it be electric vehicle charger grants (the recently discontinued OLEV grants did nothing other than inflate the price of installs) or Help To Buy – all of these schemes where the money goes to the contractor result in inflated prices for the end user and lower overall value - just like any other business, encourage investment with appropriate taxes and we will happily spend what is needed to improve our properties.