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Get the Green Deal right before offering cashback

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Profile photo of Pete Moorey Pete Moorey Director of Advocacy and Public Affairs
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Would a cashback offer of £150 encourage you to take out a £10,000 ‘loan’? That’s what the government is speculated to offer homeowners so that they take up its Green Deal for energy efficient home improvements.

Before Euro 2012 kicked off, I was watching TV and an advert came on promising £10 cashback for every goal England scored in tournament, if I bought a new telly or laptop worth £549 or over.

Now, I don’t need a new laptop or TV. But if I did, would such an offer really encourage me to buy one? Of course, in this case, the cashback offer also relied on me being confident about England’s ability to score goals. So an element of gambling (and national pride?) is thrown into the mix.

But are these cashback offers really worthwhile? Or are they persuading us to buy the wrong products – when there might be a cheaper and better alternative without the cash thrown in.

Incentives to take up the Green Deal

Now, perhaps you’re relaxed about cashback for TVs – but what about a cashback offer encouraging you to take out a £10,000 ‘loan’?

Because this is exactly what DECC are currently considering for the Green Deal. This is the government’s flagship policy to encourage us to make our homes more energy efficient. You get a new type of long-term finance upfront to fund the measures needed to insulate your home – and then pay it back through your energy bills over the next five to 25 years, depending on the size of the ‘loan’.

Sounds like a good deal? Well, we have lots of concerns about how this will work in practice and whether the Green Deal really will be good for consumers. And the government’s own research suggests that only a small number of people are expressing a strong interest in the Green Deal (although this is understandable when it hasn’t been launched yet).

This has led to a number of organisations, including the Committee on Climate Change in a report today, calling on the government to do more to encourage people to take up the Deal. The government put £200m aside a few months back for Green Deal incentives, and yesterday there was speculation that £30m of this would be used this year for ‘generous cashback offers’.

Is cashback a good use of our money?

But is offering cashback a good use of taxpayers money? Surely if the Green Deal is a good deal, then it should stand on its own two feet? And, bearing in mind we think it’s a flawed product, the worst case scenario is that consumers are being incentivised to take out a ‘loan’ that’s not right for them.

Finally, there is always the danger with cashback offers that they look initially tempting, but might not necessarily leave you better off in the long run. We have seen this with some energy tariff offers that provide £100 cash on top, but over a year are more expensive than other offers from the same energy supplier.

We don’t know what the rate of interest will be yet on the Green Deal but DECC estimates in the range of 7.5%. So the cost of finance, even with a cashback offer, would still be high.

So wouldn’t it be better for the government to focus on getting the fundamentals of the Green Deal right, rather than focus on cashback? Shouldn’t it put the £200m towards something that really would make a difference – like promoting loft and cavity wall insulation?

Comments
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Chris, Gloucester says:
29 June 2012

I’ve read all I can find about the “Green Deal” and to be honest I’m not sure about it. Especially unsure because in many cases it will replace an existing grant structure where people are helped with improvements costs (or even get it free), with a system where eventually, even if not upfront, full price is paid, and with interest.
This sales stunt of offering cashback has if anything made me less confident about the merits of the “Green Deal”. I’d have thought that if the “Green Deal” really is a good way forward this way of selling it to the public isn’t really necessary. This leaves me wondering even more if the “Green Deal” really is the way forward?

Now to be fair the Green Deal might be right for some people who for whatever reason are without access to cheap credit but to be honest I think anyone else would do just as well if not better by going their own way on financing energy efficiency measures.
Remember installers who are Green Deal Providers (GDP’s) won’t be the cheapest and there is serious potential for mis-selling, especially if the “Green Deal Advisor” (GDA) is in anyway tied to the installation company.
It’s is a good long term idea to become more energy efficient, the stuff won’t be getting cheaper anytime soon, but remember “the only free cheese is in a mouse trap”.

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JD says:
29 June 2012

I think it will be a massive success. This is especially the case if firms that sell energy efficiency get involved. They’ll market it and people will take up the offers or get hit by energy price rises that could double their bills every 8 to 10 years (i.e.7% per year price rises). Which? need to get something else to do with their staff, like looking into TV licences. Why do we have to pay them when the BBC provide rubbish programmes?

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Carol Hall says:
2 July 2012

Stay on subject, if you choose not to watch the BBC that is your choice, some people do not and can not afford the Sky, Bt Vision packages and are left with the basics and if you did take the time to watch you would find some really good programmes.

As to the Green Deal, I beleive that nobody should be incentivised to take out a massive loan in this economic climate, whatever the reason.

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James, London says:
2 July 2012

I’m glad Which? is asking these questions, as a lot of people seem to be blindly accepting that this a good thing, without looking at the detail.

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John Ward says:
8 July 2012

I am also very glad that Which? is challenging the Green Deal.

A point that worries me is that, “if you move home, the Green Deal charge stays with the property and the repayments pass to the new bill payer” [this is a quotation from an Energy Performance Certificate]. This could be a bit of a drawback in the sale process. We would not want to take on board somebody else’s financial commitments when buying a house. Factoring it into the purchase price [?further discounted for nuisance value] would be a messy way of dealing with it; best to clear the debt from the proceeds of sale and make a clean transfer.

I also wonder how it will apply in the case of tenanted properties. Obviously, the landlord’s permission would be required – but might not be forthcoming – for major works like double glazing or floor or loft insulation, but fitting better heating controls like thermostatic radiator valves will also be included in the Green Deal. Since the Green Deal repayments [through the electricity bill] “would be at a level no greater than the estimated savings to energy bills” this could still take up to ten years to clear. And presumably the recovery of the Green Deal advance will have to be transferred from one company to another every time the consumer switches to a new supplier; not a huge problem with computerised billing but another niggle to check to make sure there isn’t either a duplicated payment or a gap in the repayment record.

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Chris, Gloucester says:
8 July 2012

John Ward,
You have identified some of the aspects of the “Green Deal” which I believe will make people think twice about going for it, and also make make houses saddled with a “Green Deal” loan possibly harder to sell.
Could be a seller will have to reduce the asking price to allow the new owner to settle the “Green Deal” loan from the resulting saving. I know if I moved into another house I’d want to start “clean” and not be lumbered with repayments on a loan someone else took out.

As for rented accommadation likewise a new tenant will continue paying off the loan. It will no doubt be a requirement that any potential tenant will be made aware of this beforehand, but I still can’t see any of them being very happy about continuing to pay for improvements to a property owned by someone else (and the benefits of which the tenant might never see).

But perhaps we’re looking at the “Green deal” in the wrong way?
Really it is an alternative method to finance energy efficency improvements. It will suit those without the where with all to pay cash for improvements and those who’ll find it difficult to secure credit. It is clearly more appropriate for people who will stay in their property long enough to reap the long term savings on their energy bills which will eventually (hopefully) result from the improvements.
However I’m starting to think that despite all the hype about this Government flagship energy policy most people would do better going their own way. Green Deal Providers won’t be the cheapest, if the Green Deal Advisor is in anyway tied or linked to the Green Deal Provider there is the potential for mis-selling and the Green Deal loan I doubt will be the cheapest.

Still a very good idea to be more energy efficient and to install “appropriate” energy efficiency measures, but it may not be the best idea to do this via the “Green Deal”. It depends on your circumstances.

Of course what would be a good idea, and make the Green Deal the success I don’t think it will be, would be to offer incentives perhaps in the form of subsidies on the cost of the efficiency measure installed so people can actually see a saving on their energy bills within a reasonable period (rather than at the very least ten years down the road, and even then only maybe).
If there is no clear energy bill saving on offer within a reasonable period of time why would anyone bother?
I don’t think the warm feeling that you’ll be doing your bit to save the planet will be enough somehow.

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John Ward says:
11 July 2012

I share your opinions Chris. In my experience every silver lining has a cloud in front of it.

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Andy C says:
22 October 2012

Some very valid points raised in the above comments. I have trained to become a green deal advisor and no one seems to know where this initiative will take the consumer. I dont feel that I will be able to offer a difinitive answer to any potential consumers when asked challenging questions and dont intend to complete a green deal report until i’m in a postion to do so.

The government have announced today that they plan to pay upto £1000 in cash back incentives to early entrants to the scheme???? why not utilise the same money to offer interest free loans to the home owners via the green deal providers and actually get the tax payers money back into the pot once the loan term is over rather than just giving it away.

In my eyes this is the government passing their headache onto the supply chain and hoping that the providers drive the market well enough to hit their carbon reduction targets with little to no investment from them.

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