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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.

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.

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.

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.

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?

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.

JonoIn says:
20 May 2012

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

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

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…

I thought the correct spelling (licence – a noun) HAD been used ?
Of course most people would be used to seeing the word associated with software and probably from an American company where the spelling licenSe is used for both noun and verb.
I would reserve biting comments for the really big important mistakes or issues, though I must admit I have learnt something as a result.

License, licence? Who cares, get back to commenting on the subject in hand.
Yes it’s better to get it right but it is of secondary importance by a long way.
People who spell check a passage of writing before (or worse still instead of) taking meaning and content from it I find really annoying.

The “Green Deal” is not a bad thing but you have to take it for what it is, an alternative finance method for improvements. You have to look at the way it is operated and accept it won’t be the right way to go for everyone.
Key to this is the role of the “Green Deal Advisor” (GDA), and for all the reasons listed above and more.
If the advisor is employed by or tied to a “Green Deal Provider” (GDP) there will always be a thin line between the GDA being an “advisor” and a “sales person”. There will very likely with some companies in some areas be a scenario whereby the GDA is only paid for an assessment in the event of an improvement measure sale. This is a a sure fire recipe for mis-selling.
To ensure objectivity and guarentee the GDA role is purly advisory their independant status must be maintained. I would suggest the rule must be that they are paid at a centrally fixed rate regardless of any final sales outcome. This will ensure they don’t become sales people for the GDP but only act and advise objectively for the benefit of the consumer.

I’m an independant Energy Assessor already, mostly providing Energy Performance Certificates (EPC) for property sales and rentals, completely objective and no sales function at all.
From April 1st people installing Solar PV have been obliged to get an EPC with at least a “D” efficiency rating to qualify for the Feed in Tariff. I’ve completed a few already.
I find however that there is now talk of Solar PV installers training and qualifying to become energy assessors so they can provide their own DIY EPC’s. A potential conflict of interest if there ever was one I’d suggest. We’ll have to see how this goes and I’m sure most installer will play fair, but I won’t be at all surprised if in a few months I find I’m reading about examples of mis-sold Solar PV installations where an EPC audit has down graded (corrected) an efficiency rating and the poor customer ends up with a £8000 PV array on their roof and no feed in tariff, at least until other property upgrades have been completed.
I think this kind of potential for mis-selling needs nipping in the bud and certainly should not be allowed to spread into the “Green Deal” or the whole initiative will lack any credibility at all. If nothing is done many people who might in the longer term have seen the benefit of lower bills won’t go near the “Green Deal”.

@chris, Gloucester-as I understand it if you want to pay off a loan early there could be hefty penalties based on the loss of interest to the supplier.

Stamp duty – interesting, but knowing the predatory nature of councils they are more likely to increase the council tax overall rather than offer any discount based on the efficiency of the home so those that are on the most efficient will be at current rate ( for the year) and anyone less the tax will increase.

Valid points but the rules could be changed.
The Green Deal is still not completely finalised so the hefty repayment penalties could be axed.
And Council tax discounts could be worked in to the council tax central grant to prevent the sort of goings on you quite rightly describe.
All it needs is a bit of central Government joined up thinking.
No, I won’t be holding my breath either.

Sydney Charles says:
15 June 2012

I hope Decc are listening to these points, as the comments are constructively aimed at making the scheme work. We can’t afford a lot of sound and fury resulting in low adoption of carbon saving measures.

To my mind, if the Government wants to reduce as much carbon as possible it needs a holistic approach with ‘GDAs’ who are independent and understand the full range of energy efficiency and renewable energy measures tailored to a home. Although this needs to encompass all types of dwellings from rented flats to mansions we have the techniques to ask a basic set of questions and come up with recommendations. The results should be standard and uncomplicated, allowing the homeowner to access relevant products without undue influence. The cost of sufficient good GDAs could be met from the levy (which would be better called ‘an investment’ which is what it is)

The debate about selling off homes under the deal and penalties for early repayment seems to come together. It would be better to have to settle the debt when the house is sold and even if there is a penalty it is at a point where the seller would not be concerned. Discounting stamp duty at that point would incentivise the buyer (and therefore the concept) considerably. The Council tax idea seemed a bit over complicated and I think would confuse people rather than incentivise them.

As the whole scheme is an investment in cheaper energy in the future it is important to get the Golden Rule to work. Changing VAT to 0% on energy efficiency and renewable energy works would help make the scheme cost in. A tax break for landlords to adopt the scheme would make a good contribution to taking tenants out of fuel poverty, but the repayments do need to be less than the savings for this to happen.

Geoff South Wales says:
19 June 2012

I can see problems with the timescale involved, with regard to installers. We are Gas Safe and MCS registered but we will have to be Green Deal accredited and at the moment there is very little information available about training and qualifications.

David Thorne says:
12 July 2012

Do not understand how the ‘Golden Rule ‘ will work in practice. How do they intend to work out the ‘savings’ on the energy bill, (from which the loan repayments will come)?. Surely, the cost of energy will simply be based on the amount of energy used, which will vary at different times of the year. Am I missing something?

Sydney Charles says:
12 July 2012

David, my understanding is that, instead of any common sense calculation of savings they will take some industry, national averages which necessarily will not reflect an applicants real savings. Hence if the green measures don’t result in savings the applicant is out of pocket. I recently installed LEDs in the lobby of a block of flats and on paper they would have saved their cost in a year. In fact I could not discern any reduction in useage. Buyer Beware!