My Lords, over the past year the Green Deal has been steadily growing in momentum. Around 130,000 Green Deal assessments have taken place. Nearly 500,000 energy-efficiency measures have been installed through ECO, cashback and the Green Deal. One company alone says that it has installed Green Deal measures in nearly 10,000 homes so far.
The financing mechanism, allowing customers to pay through their electricity bills, is only one way of paying for the Green Deal. We now have more than 1,600 Green Deal plans in the system. The Green Deal Finance Company is handling around 130 new plan applications a week, totalling nearly £6 million in funds offered. Forty Green Deal Providers are now able to offer Green Deal finance, and 19 of these are actively writing plans for consumers.
One area where we believe the Green Deal could be particularly effective is the rented sector. Action to improve the energy efficiency of private rented properties is, as we know, badly needed. This sector has a disproportionate number of fuel-poor households—21% overall—and a high number of F-rated and G-rated properties: 13% of the stock, almost twice the national average of 8%. To date, energy-efficiency investment in the rented sector has been constrained by split incentives. The landlord pays for the energy-efficiency measures but the tenant benefits. The Green Deal pay-as-you-save model helps to address this split incentive.
The electricity bill payer, who is normally the tenant, meets the cost of the measures through savings on their overall energy bill. The Green Deal repayments will appear on the tenant’s electricity bill and will be collected by their electricity supplier in exactly the same way as their charges for electricity consumption. However, the cost of these repayments should be matched by the savings in overall energy costs that a tenant is likely to benefit from as a result of the Green Deal energy-efficiency measures. A tenant will pay for the Green Deal instalments only while they occupy the property and are therefore benefiting from the measures. The result is that the tenant will live in a warmer, more
comfortable home. When the tenant leaves, the responsibility for making the Green Deal repayments passes on to the new tenant, or to the landlord if there is a void period.
The only situation in which a tenant will have any liability to pay anything in relation to the Green Deal after they have left the property is if they have built up arrears, which include Green Deal instalments, on their electricity bill. When they move out, their electricity supplier will send them a final bill. If there are arrears on the bill for electricity consumption and Green Deal instalments, the supplier will seek the tenant to pay. This is exactly the same process as exists now for tenants.
When a Green Deal plan is first set up, the existing tenant will receive detailed information about the plan and must give their written consent. The Energy Act 2011 provides that they have 14 days in which they can withdraw their consent if they change their mind. The new tenant moving into the property will be made aware of the Green Deal through specific disclosure requirements. For example, the energy performance certificate, or EPC, which is already a legal requirement in the rented sector, will show the presence of a Green Deal plan at the property, the energy savings that will arise and the level of the repayments. A new tenant will therefore have all the information that they need before they decide to rent the property. They also have the right to request a full copy of the Green Deal plan from the landlord or the Green Deal provider.
We expect to see real demand for the Green Deal in the private rented sector, both from tenants who want to live in more energy-efficient and comfortable homes and from landlords who wish to improve their properties. This provides a real win-win. We expect this to increase as a result of the minimum energy efficiency standards that we are developing for landlords. The Green Deal provides a mechanism that did not exist previously for tenants to work with landlords to improve the energy efficiency of their homes. We want to make sure that tenants do not live in cold, damp and draughty houses for which they end up paying too much on their energy bills.
Among the reasons cited by landlords for their caution towards Green Deal finance was that they needed greater clarity about how consumer credit legislation worked with the Green Deal to have confidence to lend at scale. The amendment to the Consumer Credit Act, provided by the order we are debating today, will give that confidence. We have thoroughly reviewed the consumer credit legislation to ensure that it will work effectively with the Green Deal. Although this analysis has taken long than expected, the amendment will now allow the same Green Deal plan to be offered to all customers, irrespective of what type of property they live in.
I turn to the details of the order. The credit arrangement introduced by the Green Deal, otherwise known as a Green Deal plan, is a new form of unsecured credit. In owner-occupied properties the customer arranging the energy efficiency improvements will generally pay the repayments as they are paying the electricity bill. However, as I have mentioned previously, in the rented sector the landlord is likely to arrange for the
improvements while the tenant makes the repayments. This has given rise to some uncertainty. When is a Green Deal plan regulated by the Consumer Credit Act, and who is entitled to the protection of the Consumer Credit Act for a Green Deal plan? Is it the tenant or the landlord?
To help to address these uncertainties, the order that we are debating today makes specific amendments to the Consumer Credit Act. The order does not change existing Green Deal policy or its legal framework. The amendments will, however, give Green Deal providers greater clarity and confidence when issuing Green Deal plans. In turn, that will encourage more people to take up the Green Deal.
In particular, these amendments resolve two key issues. First, to address concerns relating to the difficulty in determining whether or not a particular Green Deal plan is regulated, we have now provided that almost all domestic Green Deal plans will be regulated by the Consumer Credit Act, regardless of those who are making the improvements. Tenants moving into a domestic property can be reassured that they will receive the protections afforded by the Consumer Credit Act. Non-domestic Green Deal plans will be regulated only if the person arranging the improvements is an individual, not a business. This approach will greatly simplify the process for Green Deal providers and ensure that in all appropriate cases Green Deal plans are regulated under the Act—including, for example, where a Green Deal plan is set up by a corporate landlord during a void period.
Secondly, while our key policy concern has always been to ensure that consumer tenants receive all appropriate protections under the Consumer Credit Act, we received feedback that the landlord, or the person making the improvements, should be entitled to certain rights and protections, so we carefully analysed this Act to determine which protections would be relevant to them. Following this analysis and discussions with a wide range of stakeholders, our amendment provides that both the bill payer and the person making the improvements are given the protections of a debtor, but each for specified sections of the Act. This ensures that tenants and landlords receive the specific rights and protections that are relevant to their roles under a Green Deal plan.
To make it clear for Green Deal providers which sections of the Consumer Credit Act will apply to a particular person, our amendment sets out whether a reference to the debtor in the Act is to be read as a reference to the bill payer at the time when the plan is made, the current bill payer, any previous bill payers who have arrears outstanding or the person making the improvements. Our approach is that the bill payer, who has liability to pay instalments under a Green Deal plan, will receive all material and appropriate consumer protections. There will be no reduction in the level of customer protection that a tenant can expect. However, the person making the improvements, for as long as they are an owner or occupier of the property, will also receive a number of protections.
Our amendments will not alter the principles, provided for in the Energy Act 2011, that whoever is the bill payer at a given time is liable for making repayments
under the Green Deal plan. As mentioned previously, a new bill payer automatically becomes liable for instalments from the time when they assume responsibility for the electricity bill—for example, when a new tenant moves into the property. Landlords will become liable for Green Deal instalments if they become the bill payer—for example, during a void period.
As the Committee may be aware, the regulatory regime for consumer credit is changing on 1 April. After that date, lenders will need to be authorised by the Financial Conduct Authority rather than the Office of Fair Trading. In the next couple of months, we therefore also intend to introduce some small amendments to the FCA’s legislation to reflect the approach set out in this order.
In conclusion, I firmly believe that the amendments to the Consumer Credit Act brought about by this order will ensure that consumers and tenants who pay money under a Green Deal plan receive all the appropriate protections. It will give the clarity that Green Deal providers are seeking and give them the confidence to offer plans to consumers across all property sectors. This will allow them to access the untapped demand and to press ahead with rolling out the Green Deal across the country at scale, delivering warmer homes for us all. I commend the order to the Committee.
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