Get the Green Deal right before offering cashback

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?