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The Green Deal must not be a licence to mis-sell

The government’s flagship energy policy – the Green Deal – has been in the news a lot lately. Today we’re telling them that the Deal needs to change to stand a chance of appealing to consumers. Will they rescue it?

Plans for the Green Deal are still in development so there’s still time – just – for the government to change it for the better. That’s why we’ve issued the Energy Secretary, Ed Davey, with five challenges. If the government wants the Green Deal to be a good deal for you and I, then these changes are essential.

How much will people really save?

1. It’s vital that savings estimates are accurate. The way the Green Deal works is based on a ‘Golden Rule’ designed to ensure (as far as possible) that the savings you make from installing energy efficiency measures exceed the monthly repayments.

But the current plan is that a Green Deal company can give you a loan based on average figures about your home. This will assume things like how many people live in your property, but it won’t take into account your actual energy use – although you will receive a separate personalised assessment.

Why does this matter? Well, this could lead to people being mis-sold Green Deals on the basis of higher savings estimates than they can actually get. A much more detailed assessment of your circumstances and energy use is needed.

2. We’re worried about fees for repaying your Green Deal loan early. The Consumer Credit Act is being amended to allow Green Deal lenders to penalise early repayment with hefty fees – that’s just not right.

Ban unwanted sales tactics

3. The Green Deal shouldn’t become a licence for companies to cross-sell all kinds of products consumers don’t want or need.

If a Green Deal advisor is in your home he or she should stick to advising you about energy efficiency measures. The government’s been open about the Green Deal opening doors to companies wanting to sell further home improvement measures, but unless express prior consent has been given we think selling goods on credit during the Green Deal process should be banned.

Make sure it’s value for money

Alongside the Green Deal the government will launch the Energy Company Obligation which we’ll all pay for through a levy on our energy bills. This will subsidise energy efficiency measures – in a similar way to the current CERT scheme, where energy companies install free or subsidised loft and cavity wall insulation.

4. We’re concerned that the ECO is designed in such a way that it won’t do enough to tackle fuel poverty. Bearing in mind that this comes out of our bills, it’s also worrying that the government is focusing the funding on high cost measures like solid wall insulation – that will only reach a small number of households – rather than low-cost, high-impact measures like loft insulation – which still hasn’t been rolled out to everyone who needs it.

5. Our final concern is about the way Green Deal quotes will be communicated. They all need to be in a standard format so that people can compare one quote with another, and consider whether other sources of finance might be more appropriate. A jumble of multiple formats presents a real risk that people will be bamboozled by a completely new and complicated financial product.

Energy efficiency is really important. Without it too many of us will continue to pay over the odds for our gas and electricity. It’s great  the government wants to tackle this but, as it stands, the Green Deal doesn’t look like a good deal for consumers. And they’ve got to get it right.

Comments
Guest
Darryl Croft says:
18 May 2012

Would agree with most of this Josh.

The problem is while implementing points 1 or 2 would have benefits, they would also increase costs: certainly allowing early repayments makes the Green Deal product less attractive for the sorts of investors the Green Deal Finance Company is looking to attract. These investors would want compensation for their lost income: either the household needs to pay a penalty or the costs of finance are increased across the board. Neither is ideal.

Ultimately I think the vanilla Green Deal finance should represent one of many options open to households within a wider Green Deal umbrella. Options should include a more conventional loan with a basic (low cost) assessment with measures installed by GD accredited companies; the provision of Green Mortgages at lower interest rates; and a ‘savings guaranteed’ offer that uses a more thorough assessment of your home and your usage, but which might cost more to implement.

The key is flexibility. Utilising energy savings to finance efficiency measures is a good thing. But households should have a choice over how they go about it.

Guest

Surely the point of the green deal is that it is a charge on the property and not the person who took out the loan. The loan stays with the property and therefore it is a dissinsentive to purchase a house with a Green Deal.

There MUST be a requirement that if the savings do NOT meet that on which the loan was taken out there MUST be compensation.

Guest
Darryl Croft says:
21 May 2012

It’s a real worry if Green Deal does make it harder to sell a home. This really shouldn’t be the case (these homes will be warmer, more comfortable, and [hopefully] cheaper to run) though for many people a visible charge outweighs an invisible (but larger) saving.

Government should look at applying reduced rates of Stamp Duty to efficient properties. Reducing the rate payable by half a percentage point for each EPC band above a D should be more than sufficient to make Green Deal homes attractive.

Guest

Darryl,
Interesting points regarding the saleability of homes carrying a “Green Deal” loan and the rate of stamp duty reduction to make homes more saleable.

The way I’d look at it is, if I was interested in buying a house and found it had a Green Deal loan on it I’d be thinking, well I’ll be buying the house but I’ll be continuing to buy the Green Deal boiler or the insulation or whatever. So I’d reduce any offer by the amount of Green Deal loan outstanding as a matter of course. Otherwise I’m buying the boiler twice, once in the buying price and once in the Green Deal..
I wouldn’t expect for one moment any estate agent valuation to take that into account so I’d make my own adjustment and pay off the Green Deal loan straight away out of the money saved.

Your second point regarding stamp duty rates for more energy efficient homes is valid but I’d do it a little differently.
To encourage energy efficiency (and saleability) I’d reduce council tax by a modest percentage the higher up the EPC rating scale a house achieves. I’d start with the D60 rating which is the national average being the bench mark with reductions for every say 5 points above.
It might even be an idea to increase council tax for every 5 points below D60. Bet we’d see some insulation and new boilers going in then, but the Green Deal will be there to facilitate this at no upfront cost if the occupant chooses to make use of it..

I’m sure some people will be dead against this idea on the basis that it might be seen as almost forcing people to make improvements, but overall I think it might well reduce costs for everyone through reduced energy bills and council tax bills. It might be the incentive apathetic people need to become more efficient, and it would be for their own financial good in the longer term.

What do you all think?

Guest
Darryl Croft says:
23 May 2012

Thanks Chris.

I’d be in favour of an energy efficient council tax. It has several advantages in that it is paid by almost everyone (whereas many homes are exempt from Stamp Duty), and would act as an incentive to the present occupier to improve their efficiency, as well as making such homes attractive when on the market.

[I would argue that Stamp Duty can act in these ways as well, albeit indirectly, but that’s another story…]

My understanding is that at present councils are penalised by central Government (in the form of a lower central grant) if they offer council tax discounts, and that they would require new powers to be able to charge higher rates for inefficient properties. All the same, an option worth pursuing if Government wants Green Deal to be a success.

Guest
JonoIn says:
20 May 2012

In the UK we say licence not license. Can you not get a simple thing like that right?

Guest

In the UK we have a reputation for being polite . Is that not more important? 🙂

Guest

My understanding is that in British English we use license as a verb eg. I license this pub. and we use licence as a noun eg. I have a driving licence.

In this case, we used it as a noun and so you were quite right to point it out. Though it’s not quite as simple as using it or not in British English. Anyway, back on to the topic of the Green Deal…

Guest