Oral evidence: Household energy efficiency measures, HC 971

Oral evidence, 11 May 2016.

Witnesses

Jeremy Pocklington, Acting Permanent Secretary, DECC, Stephen Lovegrove, former Permanent Secretary, DECC, Clive Maxwell, Director General, Consumers & Households Group, DECC, and Mark Bayley CBE, former Chief Executive, Green Deal Finance Company, gave evidence.

Chair

Welcome to our second panel today—our main panel. We welcome, from my left, Mark Bayley, the former chief executive of the Green Deal Finance Company, and Stephen Lovegrove, who is permanent secretary at the Ministry of Defence—rather confusingly—but of course he was until recently the permanent secretary at the Department for Energy and Climate Change. I hope you are enjoying Defence, Mr Lovegrove; we will see you with that hat on very soon, I think. We also have Jeremy Pocklington, here as the acting permanent secretary at DECC. Mr Pocklington, I believe your permanent successor has been appointed. Could you just tell us who that is and when they will start?

Jeremy Pocklington

That is right. The permanent secretary will be Alex Chisholm, who is currently chief executive of the Competition and Markets Authority. He will join the Department on Monday 4 July, at which point I will return to being director general of markets and infrastructure group at DECC.

Chair

So, no gap—you’re there for that time. Good. Then we have Clive Maxwell, who is the Director General for Consumers and Households Group at DECC, so he is the director general particularly responsible for this area of policy. You heard my comments at the beginning. You have the privilege, or perhaps I should say the opportunity, to explain yourselves to two former shadow Secretaries of State, who have followed this all the way through, as well as to the rest of the Committee. We hope for some honest answers about what went wrong and about what will happen in the future—perhaps you picked that up from our line of questioning, particularly our last question, to the previous panel. Although we are not a Committee that looks so much at policy, we want to know that lessons have been learned about the financial problems of this policy, so that consumers are not double-charged for the next policy and it doesn’t work as well.

Caroline Flint

Good afternoon, everybody. Greg Barker said, “The Green Deal will be the biggest home improvement programme since the Second World War, shifting our outdated draughty homes from the past into the future, so it’s vital people can trust it.” I understand that the Government originally intended to reach 14 million homes by 2020 and 26 million homes by 2030, based on the Department’s strategy, but only 14,000 households took out a loan. What was the purpose of the Green Deal and the ECO?

Stephen Lovegrove

Clearly the purpose of the Green Deal was to be an important part, but only a part, of a suite of policies designed to improve energy efficiency across what is a poor level of housing stock in the UK. It is important that we bear in mind two things that perhaps did not come out of the previous panel quite as strongly as I would have liked. One is that there is a suite of policies of which ECO was overwhelmingly the biggest—I will go into that in a second. Secondly, there were more objectives in mind for these various policies than merely addressing fuel poverty, or indeed saving consumers money. Important though those were—

Caroline Flint

Could you give us the headline priorities of the Green Deal and ECO so that we can better understand them?

Stephen Lovegrove

The headline priorities of the Green Deal and ECO were to save carbon so that we could be on track to hit our carbon reduction targets, and to be able to insulate more vulnerable homes so that consumers would be able to save money. Those were the main points at issue. The NAO has rightly looked at these various schemes as a package—they were a package. The bulk of them was ECO, with 95% of the money being spent on ECO and 95% of the benefits coming out of ECO. ECO is a very well established type of policy, a supplier obligation. It did exactly what we expected it to do when we set it out in the impact assessment. ECO has been a success. We anticipated that it would save 25 megatonnes of carbon, which is how much carbon it saved. We brought that in at about 4% lower on the budget than we anticipated, and we also managed to get those carbon savings three months earlier than we anticipated. Under any circumstances, ECO was a success.

John Pugh

Isn’t it slightly disingenuous to refer to them as a “suite of policies”? The impression I got from talking to Ministers at the time when I reported to them some problems with the ECO scheme was that the Green Deal was the coming thing that would override many of the deficiencies of other policies and, in many cases, replace them. You seem to be presenting a rather strange historical narrative whereby they were presented almost conjointly as alternative choices.

Stephen Lovegrove

I joined the Department in February 2013 and the schemes had been launched about a month and a half before that. Certainly the narrative that I inherited was that, importantly, these two schemes were going to be working together. The narrative was very much that ECO was going to be a reliable and predictable type of scheme. People have had these types of schemes many times before, so it was a known quantity and we knew roughly how it was likely to perform, notwithstanding that the supplier obligation had changed in some important respects. What was not the case was that anybody really knew how the Green Deal was going to perform. This was a very innovative, ambitious and new type of policy. Nobody had tried anything like it before. There were certainly some ambitious targets, and I am looking forward to talking about some of the things that I think we did get wrong with regards to the Green Deal, but the two things were meant to go together. Certainly the bulk of the savings that we wanted to make, both in terms of pounds and in terms of carbon, were always going to be coming from ECO, which is 95% of the schemes both by value and by carbon savings.

Caroline Flint

I find that very interesting because I thought that one of the drivers for the new policy was to try to get more private investment into this market with a sort of pay-as-you-save scheme, which the Green Deal was meant to do. I don’t think anybody disagrees that we needed to look at ways in which we could offer something for those in fuel poverty, which is a gap that previous schemes had sought to fill, but we needed something more for those who were able to pay in order to incentivise them to do so. So 1% of measures were funded through Green Deal loans—that is 14,000 households—and fundamentally it didn’t work, did it?

Stephen Lovegrove

The Green Deal did not remotely work in the way that was hoped for. I am happy to talk about that, with great pleasure.

Caroline Flint

My original question was what was the purpose of the Green Deal and ECO? I thought you were going to say that it was to get more private investment into the harder-to-treat homes. I notice that in your answer you did not mention the harder-to-treat homes. All the other witnesses did, because they thought that was the driver for ECO.

Stephen Lovegrove

I am very happy to talk about the harder-to-treat homes and the nature of how difficult or otherwise it was to mobilise private investment. At a very high level, these schemes have always been about reducing customers’ bills and saving carbon. There are three key elements of ECO; two of them—the principal success criteria—are about carbon, and one of them, Affordable Warmth, is about money being saved. The Green Deal was clearly less successful—

Caroline Flint

Can I just come back to ECO before we go on to the Green Deal? In terms of CO2 savings, covered in figure 9 on page 25 of the Report the installed measures up to 2015 will save 24 to 25 megatonnes of CO2—that is 29% of what previous schemes under CERT and CESP achieved over similar periods.

Stephen Lovegrove

Yes, that’s right.

Caroline Flint

So you weren’t actually making as many CO2 savings as previous schemes.

Stephen Lovegrove

That was by design. It was a very clear policy decision, supported by evidence that much of the cheap and very effective insulation measures—the low-hanging fruit, as it were—had been taken. The decision was therefore taken to design the new ECO, which was to replace CERT and CESP, with something that was going to have a bigger focus on harder-to-treat houses.

Caroline Flint

Okay. We have established that. I understand that solid wall insulations cost more than loft and cavity wall insulations, but under ECO the average on solid wall properties was 23,500 insulations per year, compared with 83,000 under CERT and CESP at their peak.

Stephen Lovegrove

That is not quite the way I would present those figures.

Caroline Flint

Really? Okay. Well, you tell us how you would do it.

Stephen Lovegrove

That latter figure is absolutely an annual high point under CERT and CESP, and the former one is an average. If you were to take an average against an average, they are very similar. That high number underneath CERT and CESP was right at the end of the period, when the energy companies were rushing to meet their obligations.

Clive Maxwell

It is also worth noting that when you average the number of solid wall installations actually done under the new ECO, it is averaged at something like 35,000 over the period in question, because more have been done than was expected. Firms have been doing slightly smaller houses, so there have been more installations going on. If you track backwards through the previous schemes, the average is about 28,000 or 29,000 a year. As Stephen says, that 83,000 was a peak point at a particular point in the process.

Chair

Can I ask the NAO to clarify the figures so we can be clear what we are talking about?

Michael Kell

Our understanding is that the average under CERT and CESP—the predecessor supplier obligations—was about 36,000 a year, as opposed to an average of 23,000 under ECO.

Clive Maxwell

Okay.

Stephen Lovegrove

The key point is that the 83,000 is not an average. The number that you are quoting—23,000—is the number up to the end of—

Caroline Flint

I did say “at its peak”.

Stephen Lovegrove

As I say, when the schemes were coming to an end, the suppliers had not managed to meet their obligations for harder-to-treat properties and they were rushing to do as much of it as they could.

Caroline Flint

Is it not also the case, Mr Lovegrove, that the Department discovered later that there were more low-hanging fruit than they thought when they were devising the scheme? In figure 1 on page 14 of the NAO Report “Green Deal and Energy Company Obligation”, there is a really helpful outline looking at a typical semi-detached house. We have figures here on what still is to be achieved across the market using different energy efficiency measures, including 7 million homes potentially improved through loft insulation, 4.4 million homes potentially improved through double glazing, and another 1.3 million are easy to treat. Was that not part of the finding that led you to change the terms of ECO so that the suppliers could move to provide cheaper home energy efficiency measures, which led to a reduction in solid walled homes being done, which then affected your overall target?

Stephen Lovegrove

The changes that were made at the end of 2013 and came into effect in 2014 were absolutely about the expense of the measures that we were mandating. You have already touched on the political debate going on at the time about the high cost of energy bills. I do not need to labour the point, particularly in this Committee, that there is always, or very often, a trade-off between value for money and affordability. The approach taken in the original design of ECO was that the long-term, harder-to-treat measures such as solid wall insulation, which would give you much greater carbon savings in due course and, over a much longer period, big savings for the household, were under pressure from a much more keen focus on affordability. It was a policy choice made by Ministers to readjust the scheme so that it would become cheaper for consumers. You will all remember that £50 off was the headline number to be delivered to people through their energy bills. That was done consciously, at the expense of focusing on some of those longer term, more difficult, harder-to-treat measures. That was a policy choice.

Chair

Can I chip in? Paragraph 12 of the summary on page 7 of the NAO Report talks about the lack of clear success criteria. Mr Lovegrove, you have just outlined what you saw when you came to the scheme nearly cooked and ready to deliver. You talk as though there were quite clear success criteria, but that is not the impression we got sitting on the other side at the time. It was very vague. You say it was a success—

Stephen Lovegrove

No, ECO was a success. Green Deal was not a success. I want to be very clear about that. There is no doubt in my mind that there were a number of things we should have done that we did not do on Green Deal at its inception.

Caroline Flint

What sort of things should they have done at its inception?

Stephen Lovegrove

Looking back, the Green Deal was innovative. It had not been done before. If I had to identify two things that we got wrong, they would be as follows. One was that in the market testing that we did—and we did do market testing; the policy had been in gestation for some time—we identified that the absolutely key driver for people paying for these kinds of measures was availability of finance. Actually, although that was an important measure, it was not the key measure. That insight, which I think is a partial insight, drove the design in a probably unhelpful way. The second thing was less about—

Stephen Phillips

Mr Lovegrove, pause there. The finance was always available; it just wasn’t taken up. What were the things that should have been in there? What was the missing bit in the policy as implemented, which was missing because of the focus on finance rather than on something else?

Stephen Lovegrove

For some of the households that we were targeting, and Mr Bayley will talk about this, the finance actually wasn’t there. That was one of the reasons why what seemed like quite a high headline interest figure for those households wasn’t particularly—they wouldn’t have been able to get that finance from any other form. Perhaps Mr Bayley will talk about that later. The other things that we needed to work much better on have actually been touched on by your previous panel—I thought some of the comments were very insightful. We needed to talk about how the house would be more comfortable, rather than merely just thinking about finance, and how the value of the house would go up. We certainly needed to make the consumer—

Chair

You say that about the value of the house going up, and there was some discussion about this. The British property market is a funny thing, but are people really paying more for a home that is a little bit warmer than it might otherwise be? Very, very cold, very draughty and derelict may be one thing, but did you really do an analysis?

Stephen Lovegrove

Probably the answer is that there is a whole bunch of different things that we needed to be talking about at any given moment to try and make the policy and the instrument have much more broad salience to different types of consumers.

Chair

A bit more consumer focus, perhaps.

Stephen Lovegrove

We needed to spend more time on consumer focus. There is no question but that we absolutely understand and accept we did not do as much on that as we should have done. We made some changes to future policies, which colleagues can talk about.

Caroline Flint

I find it interesting because around 97% of all the measures that were installed through these two schemes were delivered under the ECO and they were either free or very subsidised. I thought the Green Deal was meant to be to for those who could afford to pay, to try and incentivise that market to be part of it. Clive Maxwell, were you there at the start of the scheme?

Clive Maxwell

No, I joined the Department in early 2014.

Caroline Flint

Who was there at the start?

Stephen Lovegrove

I am the oldest hand here.

Caroline Flint

Let’s stick with the finance, because you said it was too finance-driven—

Stephen Lovegrove

As a consumer offer.

Caroline Flint

Okay, as a consumer offer, but even the finance offer was complicated and not very attractive to the consumer. So 7.5% interest on these loans, but a lot of people, including me, my hon. Friend and many others were saying that you could go out on the high street for that. I seem to recall that one of the banks at the time was offering 6%—

Stephen Lovegrove

You could get that.

Caroline Flint

Hang on. The other parts of this were that it was tied into the property, there were heavy penalties if people wanted the pay the loan up sooner and it was all, people were saying, not helpful to incentivising people to take up these loans. So even the finance model wasn’t attractive—and don’t tell me it was, because only 14,000 people took it up.

Mark Bayley

Which particular point would you like me to address first? In terms of repayment, we had no charges for early repayment—I should make that clear. On the second point, about the competitiveness of our finance, it is true that there were headline offers for consumer finance that were way cheaper than the average rate we were offering, but advertising rules say that those only need to be available to 51% of successful applicants for the finance and that the rest can be charged really anything. So it is misleading to take the headline and to use that as an assertion about our finance being uncompetitive. We did a lot of research, Frontier Economics did some research and we worked with our credit reference agency, and if you take the average cost of five-year money in personal finance, it ranged between 9% and 10%. Very few of our loans were for over 9%, and most averaged 8%. Credit card debt was twice as much, and people were paying 17%, 18% or 19% for boilers, whereas they could take our finance at half that rate.

Caroline Flint

So why did they not take it up?

Mark Bayley

There was a number of reasons. I agree that the marketing and promotion missed a lot of tricks. Another very important factor was the channels of distribution. This product was only sold in the home by Green Deal providers. One of the things that we wanted to promote was the liberalisation of the framework, so that people could take out Green Deal finance in the ways that many people buy financial products—online or over the telephone, but not through in-the-home selling, which only appeals to a small, niche part of the market. So the channels of distribution need to be regulated, the marketing and promotion as well.

Chair

May I just check on the marketing? The Cabinet Office cut down on advertising and marketing in the first year or so of the last Parliament. Did that have an impact? Or did you do your own marketing as well—DECC or the Green Deal Finance Company?

Mark Bayley

We were not resourced to market and promote the Green Deal; that was the role of the Green Deal providers. What we did was to support the providers in how to market the finance.

Caroline Flint

But as a strategy, before you get to the point of delivery, anybody setting up a business might think, “I’ve got a product to sell. How am I going to go about that? Who is my market? What are the things that are going to be plus points or negative points in terms of what I’m trying to do here?” Who is responsible for that side of it? Is it the Department that should have done more work on the design side and understanding consumer behaviour?

Stephen Lovegrove

That was the Department. I think it is an absolutely legitimate criticism made of us in the Report that we did not do enough consumer work beforehand to work out fundamentally the attraction of the offer, and secondly how that offer could be most effectively made through marketing—various channels and so on—and indeed the ways in which we made the consumer journey rather complicated. We did not do enough work to be able to optimise that.

Stephen Phillips

That was known at the time, Mr Lovegrove. In the 211-page June 2012 impact assessment, in more than one place, the Department wrote: “the ability of the models used in this assessment to project with certainty the likely uptake of measures is limited.”

Stephen Lovegrove

Yes, that is correct. That is at the heart of why the NAO says that the Government did not have success criteria for the Green Deal. This was a very new, very novel, very innovative product. There were some putative sales targets but there wasn’t anything like the same degree of certainty that we had with ECO, which was a very established type of mechanism—

Stephen Phillips

Yet the impact assessment went on: “There are reasons to suggest that…take-up estimates…could be cautious.” They have turned out to be catastrophically wrong.

Stephen Lovegrove

They did turn out to be wrong. I am not denying that at all. We made some in-flight adjustments to this, but did they bring it up to where everybody wanted to be? Absolutely not, although I would say that this is a suite of policies, and overwhelmingly the most important policy in it, which delivered absolutely ahead of time and fully in terms of its carbon and the cost—

Stephen Phillips

You are going to say ECO.

Stephen Lovegrove

—is ECO. ECO was a great success.

David Mowat

This is remarkable. Mr Bayley said that it was a marketing failure and a distribution channel failure—

Mark Bayley

I didn’t say that.

David Mowat

But in my constituency, just to take an example, there were 1,100 assessments, with four finance plans coming out of that. That is not a marketing failure. That implies a structural issue with the product.

Mark Bayley

If I may come in on that, the assessments were also for the majority of the ECO schemes and were a precursor to ECO installs as well as Green Deal finance.

David Mowat

Okay. The fact remains, though, that there were four in a town of 86,000 people. The awareness was there. I suppose what we are left with is that it went on for a long time. When did you realise it was a disaster?

Mark Bayley

I would say that what we have created is a book of £50 million of Green Deal finance plans, which is funding the pay-as-you-save mechanism for many years to come. So although the scheme did not meet the original forecast, we have created something of lasting value that can be used to provide finance on a very widespread basis for the able to pay. I think that is a very important benefit.

David Mowat

That answer implies that you didn’t realise it was a disaster, because it wasn’t.

Mark Bayley

I just believe that there is a positive aspect to what we have created. Yes, the forecasts were not met. It is not the first time forecasts have not been met, but nevertheless we have—

David Mowat

It is not just that they were not met, is it? We were way off. We weren’t close to them, were we? It is not just that they were not met; “not met” implies 10% short of a target, or something.

Mark Bayley

Two things. One is that we have created something of lasting value for the future, which is to develop and implement a pay-as-you-save—

Caroline Flint

What have you created?

Mark Bayley

A pay-as-you-save mechanism that is working, that is fully funded for many years to come and that is attracting private sector interest.

David Mowat

Is it Mr Lovegrove’s view that you have created something of lasting value for the future here as well?

Stephen Lovegrove

Yes, it is.

David Mowat

Right. So when you said at the start that the ECO bit was pretty good and the Green Deal wasn’t, you meant that the Green Deal wasn’t except for this bit of lasting value that has been created.

Stephen Lovegrove

The Green Deal, as a whole, cannot be said to have been a success. Ministers took the decision to shut down the Green Deal in July 2015 and there were very good reasons for that. However, from what was not a success there are a couple of lasting elements that we do not want to lose sight of. There is the working mechanism for a pay-as-you-save scheme, and that is really, in some senses, why we kept the whole scheme going until new Ministers could take a view. The Treasury backed us up on this, and it is in the Report. At that point, all the three then main UK parties—the Labour party, the Conservative party and the Liberal Democrats—wanted to make sure there was a pay-as-you-save mechanism that could be used.

Chair

Could you be clear? You say it is a useful mechanism. How do you see yourselves applying it to anything in the future? I am puzzled.

Mark Bayley

The infrastructure is fully funded for many years, so it is there for any private sector participant to use. The value of that infrastructure is that it can access a much wider demographic and a much wider proportion of the population to finance household energy efficiency than any other type of consumer credit.

Chair

Do you have any interest? Is there anyone coming to you?

Mark Bayley

Yes, indeed. In the written evidence I disclosed that we are running a sale process and we are in negotiations.

Chair

We will come back to that.

Caroline Flint

How did the Department get it so wrong? At 31 December 2014 the Green Deal Finance Company had loans issued worth £17 million. That is less than 3% of the £695 million that the Department forecast in its central scenario of 2012 in its impact assessment. How are you so off track in your projections? Is it not the case that those forecasts set the premise for the business case, which then led to the Green Deal Finance Company determining how it would operate and deliver? It was all based on completely wild forecasts of what would be possible.

Stephen Lovegrove

I am not going to deny or dispute that those forecasts proved to be very, very, very much over the top.

Chair

Isn’t the truth that it was another policy set by Ministers that the civil service had to backfill, with great difficulty?

Stephen Lovegrove

I am not in a position to answer that. The scheme had been launched when I arrived and we knew that it was new. We knew that it had a great deal of coalition Government support. We all felt that generating a pay-as-you-save model was something all parties wanted to see happen. We recognised that there were going to have to be in-flight adjustments, and we did make some; there is no question but that we took some measures that made the scheme easier. But did it live up to anything like the expectations put on it in the first place? Of course it did not.

Stephen Phillips

I quoted this to you earlier, Mr Lovegrove: “the ability of the models used in this assessment to project with certainty the likely uptake of measures is limited.” That is civil service speak for, “The evidence does not actually back up the policy,” isn’t it?

Stephen Lovegrove

I think it is a recognition of the fact that there was very little—in fact, no—historical precedent for this type of mechanism or scheme.

Stephen Phillips

In other words, it was a punt, and the impact assessment was essentially a guess, wasn’t it?

Stephen Lovegrove

I think the impact assessment makes the point pretty clearly—

Stephen Phillips

Again and again.

Stephen Lovegrove

—that the ability to rely on those targets was limited. That, as an assessment, has proved to be the case.

Stephen Phillips

I know you were not the permanent secretary when the impact assessment was written in June 2012 and laid before Parliament, but are you ashamed of that document?

Stephen Lovegrove

No, I am not ashamed of that document. There will always be a degree of risk in new and innovative products, and this was fundamentally a finance product. There are plenty of examples in the private sector and the public sector where people with the best intentions and the right strategic intent attempt to do things that do not work. I think the Green Deal falls into that category.

Stephen Phillips

I will just pick up one point on the impact assessment. Parliamentarians look at these things when we are deciding what we are going to do. It says: “It is estimated that the cumulative volume of Green Deal finance would be between £1.1 billion and £1.3 billion by 2015 and between £3.2 billion and £4.1 billion by 2022.” If we then look at table 5 on page 22 of the Report on the Green Deal and elsewhere, we see £2 million in 2013, £17 million in 2014 and £50 million in 2015. It is so catastrophically out of kilter with what was laid before Parliament that I cannot help but feel that you must be ashamed of the impact assessment.

Mark Bayley

May I—

Stephen Phillips

Let me hear from Mr Lovegrove first and then I will let you in, Mr Bayley.

Stephen Lovegrove

I have not disputed that those forecasts—they did clearly come with a very big caveat—were very much out of line with what happened.

John Pugh

Isn’t there a fundamental flaw here, though, in terms of your Department being able to anticipate or even have a sensible reading of consumer expectation? I am reminded of the instance of the solar panel fiasco, when in a sense you underestimated massively how consumers might react. In this case you have overestimated massively.

Stephen Lovegrove

That is a very interesting question. The overwhelming effect of these schemes was always meant to be delivered by ECO, and it was—and it was very accurately. That is a scheme that is fundamentally different from ECO, and indeed from the solar panel schemes, in that it is effectively an obligation; it is a form of regulation and you can predict it. We did predict it, and we predicted it pretty well. Demand-led schemes, where you are putting out a product—whether it be finance for solar panels or a new consumer finance product such as Green Deal finance—are much, much more difficult to get right. As I have said before, I am not disputing in this case that we got that wrong.

Caroline Flint

Time and again in this Committee we hear from senior officials in Government Departments saying, “We didn’t get it right. We overestimated the cost. We are learning from this,” but at the time you based your business case for the size of the stakeholder loan on the forecast that the Finance Company would need £450 million to £500 million of Green Deal loans to cover its operating costs. This is on page 17 of “Investigation into the Department of Energy & Climate Change’s loans to the Green Deal Finance Company”, at paragraph 2.6. What did you base your predictions of uptake on?

Clive Maxwell

The only thing that I can add to that is that the Department was involved in supporting the Green Deal Finance Company through its stakeholder loan, and so were a lot of private sector investors. Many of them had extensive experience of the way in which this market operated. They put their money into this scheme as well. They were looking at this, in many cases bringing experience as energy suppliers of seeing how this market operated at the coalface, on the ground.

Chair

Can you give us an idea of the range of sizes? Some of those were quite big private investors. I gather there were some smaller ones. What risk were they taking?

Clive Maxwell

Mark will probably remember the list better than me, but it ranges from some of the big energy suppliers all the way through to—

Mark Bayley

One or two small SMEs that—

Chair

Could you tell the Committee how small those SMEs were? What was the risk to them as small companies? For the big companies one can argue it is not such a big risk.

Mark Bayley

I see what you mean. On the smaller end of the investment, the outcome is painful—yes, indeed. They will not recover all their investment, and that is indeed painful.

Chair

It means they might go bust, or—

Mark Bayley

No, not the investors in the company. Some of the Green Deal providers have gone into liquidation since we stopped quoting for the plans, but the investment was not of such a size that it was sort of betting the farm on the company, no.

Chair

That is what I was driving at.

Deidre Brock

Is there any estimate of how many jobs might have been lost as a result of this?

Chair

Yes, there is somewhere in the Report. Can anyone answer that quickly?

Mark Bayley

May I return to a point we made earlier? In establishing this pay-as-you-save mechanism, fully financed for many years, we have a form of consumer finance for household energy efficiency that is very efficient; it accesses over 80% of the population in principle, with a very low default rate. That is the holy grail for consumer finance. The more efficient a financing mechanism you can provide for the able-to-pay market, the less subsidy you need to inject to get people to take up measures, and that is why what has been created is of lasting benefit for bill payers and taxpayers, even if the investors in the company will not see much recovery.

Caroline Flint

But for every Green Deal loan that has gone out it has cost taxpayers £17,000. For 14,000 Green Deal loans it has cost taxpayers £17,000 per deal. How is that good value for money?

Mark Bayley

If we could dwell on that, in my written evidence I set out that I have very significant reservations about that figure because it includes things that were not conditional on Green Deal finance. It includes investment that was made to set up a whole range of things that were not essential for finance, and as a result the figure is, in my view, very unfair and misleading.

Caroline Flint

Perhaps the NAO want to come in on that, since you disagree with their Report.

Michael Kell

The reason we used that figure was, first, because we thought it was important to come up with some simple measure of the cost-effectiveness of the schemes. For ECO, we were essentially able to work out how much it cost for each tonne of carbon that was saved. We were planning to do the same for the Green Deal but, essentially because the Department agreed with us that the Green Deal didn’t save any additional carbon, we couldn’t come up with a cost-effectiveness measure based on the carbon saved—that just doesn’t make sense. So we were looking for another, simple-to-understand, albeit possibly slightly crude, measure of cost-effectiveness. The one that seemed most obvious to us was the total cost of the Green Deal for the total number of plans delivered.

Mark Bayley

But the total cost invested in the Green Deal was not all about Green Deal finance; it was primarily about the implementation of measures. For example, it is like attributing all the costs of the meat counter for the running costs of a supermarket, and then on top of that adding all the costs of building the supermarket. In essence, that is the calculation that has been done. A fair apportionment of the £240 million would result in a much lower cost per plan. The important thing to take away from this is that any new finance using the pay-as-you-save mechanism we have established, financed by the private sector, reduces the levels of subsidy that either bill payers or taxpayers would need to contribute.

Caroline Flint

Even if it was a third of £17,000, it is roughly £5,500, but wasn’t it the case that as you were failing to incentivise people to take up these loans, you were not able to offset the fees and other things you would get from the loans to offset your operating costs, so the Department ended up bailing you out for your operating costs as well?

Mark Bayley

The Department did not bail us out for the operating costs. That is not correct and not borne out by the evidence in the Report.

Caroline Flint

Well, you couldn’t get the loan from the Green Investment Bank.

Mark Bayley

That is a separate issue.

Caroline Flint

How much was the Green Investment Bank loan?

Mark Bayley

What I wanted to come back to—

Caroline Flint

Because they were not prepared to loan when you were not making the moneys on the deals and they were not prepared to pay a loan that was going to go on your operating costs. Isn’t that the case?

Mark Bayley

The loan from the Green Investment Bank and the loans from DECC were never going to our operating costs. If the NAO has given that impression, it is wrong. It was certainly challenged in the correspondence with the NAO.

Caroline Flint

Who was paying for your salary then?

Mark Bayley

My salary has been paid for—I’m no longer working for the company—out of the initial investment made by the investors. The important point is that now the book is in run-off, the book of plans is funding the costs of administering and collecting the debt, but the whole system is fully funded for many years. If we are successful in attracting private sector interest into the company, which is what we are trying to do, any new finance plans that the company funds are at no or minimal cost to the taxpayer, reducing the levels of subsidy that would otherwise need to be contributed to get householders to implement the measures. That is why what’s been created is of lasting value.

Chair

I am going to bring in Clive Maxwell, and then I am going to ask the NAO to clarify this.

Clive Maxwell

I am not going to get into whether or not it is a fair number to use, but I would like to add that if you are going to use the £240 million figure, it is also worth looking at some of the other things that have been achieved with that spending. There have been many other thousands of homes benefiting through some of the support schemes and others—

Caroline Flint

I will come back to the home improvement fund, which was a giveaway to those first in the queue, in a minute.

Chair

Could the NAO clarify the figures? Michael, have you found it yet, or do you need a minute?

Mark Bayley

My I add a clarification to what I said? There were two loans from DECC: the £25 million investment in the company and the loan I was talking about that was being provided by the Green Investment Bank and is now being provided by DECC—the £34 million. None of that was applied, is applied or would be applied to the operating costs of the company.

Chair

Right. Michael, are you able to explain?

Michael Kell

Our understanding is that the operating costs were paid for by around half of the £25 million stakeholder loan.

Mark Bayley

In the discussion, the issue was the loan coming from the Green Investment Bank not being made available, provided by DECC. That loan was not a bail-out; it did not fund the operating costs of the company. That is the point I wanted to make.

Caroline Flint

You do understand that the figures in the Report have been agreed and signed off by the Department.

Stephen Lovegrove

We are not disputing any of the figures. The point that I think Mr Maxwell was just about to make was that within some of those numbers—that £240 million from which the £17,000 is derived—there are lots of other things going on as well. So I think we would accept the NAO’s characterisation of that as a shorthand, which there are other things to unpack out of. Clive, do you want to talk about some of the other things?

Clive Maxwell

As I said, there are a number of other schemes, and roughly half of that £240 million was spent on other types of subsidy schemes and support schemes.

Caroline Flint

Such as?

Clive Maxwell

Such as the Green Deal Communities scheme, for example, Pioneer Places, Core Cities and cashback schemes. So there was a series of things that were intended in part to do some of the things that Mr Lovegrove mentioned earlier about providing, if you like, an extra nudge or support or encouragement for people to think about improving their homes, but also actually achieving things on the ground in thousands of homes across the country and making them better. So there are concrete, real-world benefits from those schemes that I think need to be seen in addition to the number of plans. I am not disputing the figures.

Caroline Flint

Okay, but on the Green Deal Communities scheme you mentioned, I understand that was to pay local authorities and others to help promote and market the schemes. Is that correct?

Clive Maxwell

The purpose of that scheme was to encourage them to help market, but also to achieve things on the ground. You asked some of the earlier witnesses about the benefits of area-based schemes in operation across the country. In many respects the projects across England carried out under Green Deal Communities are exactly what you were asking for. There were 20 or so local authorities making real improvements in people’s homes. I think it is fair to say that the marketing of the Green Deal finance offer through those was less successful, but the actual carrying out of activity on the ground and improving people’s homes is going on at the moment. It is a scheme that is lasting 2.5 years and not all of the results have been seen yet.

Caroline Flint

I don’t disagree with bottom-up rather than top-down schemes. I think it would have been far better if the whole system had been led from communities in the first place, but there were an awful lot of add-ons during the period of the Green Deal and ECO to compensate for failure. To go to your other point, you said the other activity, the home improvement grants—

Clive Maxwell

That is not included in the £240 million; that is an additional scheme.

Caroline Flint

What was the scheme where people could apply for cash for improvements?

Clive Maxwell

That was the Green Deal home improvement fund.

Caroline Flint

Okay. When money was being handed out for that—that is not a loan but a direct grant to people—in what way did that scheme monitor whether people could afford to pay in another way and whether it was adding to CO2 reductions, for example?

Clive Maxwell

The scheme was not focused on particular parts of the population.

Caroline Flint

Is it fair to say the way that the scheme was promoted was basically that if you were ready to make some energy efficiency improvements in your home and you got in the queue, it was first come, first served, so you were going to get a lump of taxpayers’ money free?

Clive Maxwell

This was a scheme which was intended to encourage people to make some difficult to achieve—

Caroline Flint

So I could be a millionaire and apply for that and get some money.

Clive Maxwell

Yes. To run a scheme that would have meant looking at people’s income and to assess all those sorts of things would have been a very different sort of scheme. You asked earlier about the impact of the changes in ECO on the solid wall industry and on the numbers of solid wall installations. In fact, one of the biggest uses of those Green Deal home improvement funds has been to fund solid wall insulation, as was the case with Green Deal Communities. Those two schemes have been responsible for significant numbers of solid wall insulations going on across the UK.

Caroline Flint

Isn’t it the case with some of these cashback schemes and grants that the Department was in turmoil because the Green Deal was not working? Greg Barker was going around saying, “I’ll have sleepless nights if I don’t see millions of these Green Deal schemes taken up. It’s going to be the greatest thing since world war two,” so the Department was desperately trying to find ways to get cash out there to get more homes to do energy efficiency improvements.

Clive Maxwell

The funding for the Green Deal home improvement fund came about at the point when the Government decided to put some more taxpayer funding into these schemes, at the same time that the ECO obligation was amended. There was then an interest in putting that scheme together and the Government had to decide on what to focus it on, what to target it at and what sorts of measures. Solid wall insulation was an area the Government were keen to maintain activity around, because of the benefits and the need to get the supply chain going. We also heard from some of our earlier speakers about the importance of working with the supply chain on some of these very difficult practical construction activities. Solid wall insulation is not a straightforward activity; it is not like easy-to-treat cavity walls. You need to build up skills and a pipeline. What the Department managed to do—building on the experience of its previous scheme, Cashback, which had been equally generous at some points, or nearly as generous, but had not failed to engage the supply chain—around the Green Deal home improvement fund was to work very closely with the supply chain to get suppliers interested and to market it. That is in the same way that we have identified the need for the Department to have looked at marketing things around the Green Deal finance proposition.

Caroline Flint

Why did you not trial the Green Deal finance design with consumers before you rolled it out?

Clive Maxwell

Going back to the design stage of Green Deal finance, I understand that there were about five different trials of pay-as-you-save arrangements that were looked at in the UK. They involved two or three local authorities, some housing associations and a big energy supplier. However, those schemes only covered about 300 or 400 customers and households, so they were very small scale—

Chair

I am sorry, but they were also very different. Doing it through a housing association, which has a captive audience of tenants who it has a landlord relationship with, is very different from someone buying it because you offer money.

Clive Maxwell

Quite possibly, and as Mr Lovegrove said, those trials may have been useful, but they were far from sufficient, and that is certainly something that we, as a Department, are doing better.

Stephen Phillips

But again, those trials were relied upon in supporting the estimates made in the impact assessment. In box 1 on page 40, the impact assessment states, “The results of the model have…been compared against evidence from the evaluation of existing pilots and trials. These show…demand estimates are broadly consistent with what has been observed in practice.” I come back to the point, Mr Maxwell, that the impact assessment is disastrous. It produces estimates, which are taken against these trials and are said to be relatively robust—with the caveat that I have already mentioned. That is laid before Parliament and those of us who are sceptical about the Green Deal look at the impact assessment and say, “All right, we will give it a go, because they can’t be that far out.” I come back to the fact that here we have a policy that has gone through Parliament on the back of an impact assessment—a very long one at 211 pages—prepared by the civil service that has actually led Parliament to the wrong decision.

Clive Maxwell

I can only repeat what my colleague said. When I look back at those impact assessments that were done, clearly they have been proved very wrong. I am also, coming back to my colleague’s importance of ECO—

Caroline Flint

Who is accountable for that?

Chair

Where does the buck stop? Who should we have in front of us, if not you?

Stephen Phillips

I want to know who is responsible for this disastrous impact assessment, which led, in part, to Parliament approving the legislation that effected this policy.

Chair

Mr Maxwell, who is responsible? Then I shall bring in Sir Amyas Morse.

Stephen Lovegrove

The accounting officer is responsible for that and I, as the accounting officer for the vast bulk of the time that the Green Deal was operative—

Chair

You were not the accounting officer when this—

Stephen Lovegrove

I was not the accounting officer when the impact assessment—

Chair

Not at that time. I appreciate you stepping forward.

Stephen Phillips

Who was the accounting officer when the impact assessment was published in June 2012?

Stephen Lovegrove

My predecessor was Moira Wallace. I am sure she was the accounting officer at that time.

Chair

Yes, I am sure she was.

Sir Amyas Morse

A couple of points. First, there is nothing wrong with trying new things; it is quite valuable for me to say that, I suppose. However, it is reasonable to expect that reasonable efforts have been made to preserve value while trying new things, as you would expect, and that there is a reasonable assessment of risk in trying new things. The bit that I find mysterious, if I may be honest, as I listen to all the excellent things that have been achieved—the energetic marketing—is that when you found that this wasn’t working, we went along for a bit, but clearly the numbers must have looked pretty sick, compared with what you were expecting, very early on. You are clearly experienced, Mr Bayley, and so is the Department, so when you realised that it was not being marketed right, I am sure you told them that jolly quickly—I bet you did. What I don’t understand is just what went through your mind, permanent secretary, when you decided, “We can’t fix this; we’ll shut it off.” I am interested in that because at the same time we are hearing that something was generated that was no doubt of great value, and I take it still remains a valuable system development primarily, and that somehow someone will call forth the value from it in future. Without sounding excessively sceptical about it, I want to understand, juxtaposing those two, why you decided not to try and revive this, but to stop it. As far as I hear, the Department is not planning on re-igniting it, but it is a great opportunity for someone in the private sector to try to re-ignite it, but you decided to stop it. I am just trying to understand how all that slightly awkward narrative can be reconciled, if you pardon me.

Stephen Lovegrove

I will answer a couple of those questions and I am sure Mr Bayley will have a couple of observations. Clearly, fairly early on—you are absolutely right—the scheme looked like it was not hitting the targets that had been anticipated. The Report is reasonably complimentary about our tracking measures and the information we had. We did know what was going on. We made some changes to see whether that would improve radically the success of the sale of Green Deal finance plans. We made the IT simpler, we made the description of what was going on simpler, we made the consumer journey simpler and we introduced cashback in Green Deal communities to slightly prime the pump, as I think you mention in the Report. These were obviously of limited success because we would not have ended up where we did if they had been capable of shooting out the lights. The decision then had to be taken on whether to maintain as a sort of option value—I will pass over to Mr Bayley on that—the mechanism for a future Government, because we were running up to the election, to take a view on whether they would want to use this mechanism that had been built. Clearly, if we had shut off the financing at that point, it would all have collapsed and that option wouldn’t have been there. We had long discussions with colleagues in the Department and obviously with Mr Bayley and his board. As the Report says, the Treasury agreed with us that the strategic value of the pay-as-you-save model, although it was disappointing that we found ourselves in this position, was worth keeping alive until new Ministers could come in and take a view. That is what we did. We made available, theoretically, £34 million of loan and I think £23.5 million has been drawn down. As Mr Bayley said, this was not for operational costs; it was to finance plans. We also made it a condition of making the finance available that certain other things happened on operating costs. When new Ministers came in, they took a look at what was there and decided that they didn’t want the Government per se to be using this mechanism and decided to shut down the Green Deal and to sell the mechanism. That was basically the narrative.

Sir Amyas Morse

And you were crucially involved in advising those new Ministers at that point. That was on your watch, wasn’t it?

Stephen Lovegrove

I was involved, obviously, in the advice that was going to Ministers, but ultimately this is a judgment that Ministers have to make. Clearly, Ministers in the coalition Government wanted to preserve the mechanism for Government use. The new Government decided that was not what they wanted to do.

Chair

Mr Bayley.

Mark Bayley

After the decision was made, we had 14 expressions of interest in the company from the private sector and we made available all the information they wanted. We had about half a dozen informal expressions of interest and we had three indicative offers. We then went into a formal process of due diligence resulting in the current situation of negotiation with a particular preferred bidder. We had thought that we would need about two to three years of track record on default to elapse before the private sector could get really interested in this consumer finance, because it accesses a very wide demographic; and if with that financial inclusion it could still get a very low default rate you have something of huge interest; but we thought it would take two to three years before that private sector interest materialised. However, it appears to be more aggressive than that, and may well result in a transaction in the coming month. We will see. If it doesn’t result in a transaction, nevertheless the system is sitting there, fully funded, developing a record on repayment. If that—as in the emerging evidence which I presented in the written evidence—is the case, we have something, as I have said perhaps too often, of real intrinsic value for the taxpayer, created out of the investment being made.

Sir Amyas Morse

Very briefly, just to finish that off, in that marketing there are two elements of potential value—at least two. We are familiar with the fact that the run-off book itself has an intrinsic value—doesn’t it?

Mark Bayley

Yes.

Sir Amyas Morse

Exactly; and then there is the value of the technology that you have developed. Is it your testimony that the range of values under discussion reflects some significant value close to the cost of developing the technology in addition to the value of the run-off book, if you follow me? In other words, the fact that people are interested in buying a run-off book doesn’t surprise me. There are a lot of people who are in that business. I am asking if people are thinking of buying it, attributing real value to the technology as well.

Mark Bayley

Well, we haven’t yet—

Sir Amyas Morse

No, indeed.

Mark Bayley

Closed the deal; but they are interested in taking the technology, taking all the intellectual property, and developing significant business out of it. I am not sure if that answers your question.

Sir Amyas Morse

Thank you.

Mark Bayley

It is not just a run-off deal that is being looked at.

Chair

We have talked here about intellectual property before. I will not go down that rabbit hole today, because, although it is something important, we will probably look at this again once the sale is complete, if it does get to that point. There is the £25 million stakeholder loan; for anyone who wants to look at the figures, page 16, figure 4 highlights the main loans. I am really particularly interested in the Department’s £25 million loan as a stakeholder loan—that part of the £58.7 million. Can I just be clear what is going to happen to that? Is the taxpayer going to get back the £25 million? Is DECC going to get back the £25 million?

Mark Bayley

We have told our investors that the prospects for recovery in run-off of the stakeholder loan are non-existent.

Chair

That is what I understood, but you are absolutely clear. So £25 million of taxpayers’ money went into the Green Deal investment bank—

Caroline Flint

Finance Company.

Chair

The Green Deal Finance Company—I am getting confused about different green investment vehicles—and that is now gone.

Mark Bayley

As things stand in run-off, if we achieve a transaction, there will be an element of recovery.

Jeremy Pocklington

We have impaired the stakeholder loan of £25 million in our accounts, on a cautious assumption that we will not receive the money back. What happens in the end will depend on how events unfold.

Chair

So in spite of the fact that there is intellectual property in this organisation, there is nothing, not a penny piece of that £25 million, coming back to the taxpayer?

Jeremy Pocklington

We have impaired that loan.

Stephen Lovegrove

As, I think, have the other commercial investors who put in another £33.7 million.

Chair

It is just that money was going in; at every stage money was being provided from the fund to prop this up.

Stephen Lovegrove

I have to say I thought this at the time, actually. I think the phrase “stakeholder loan” is a bit misleading. It is much more like risk—it is risk equity. It was the riskiest money that went in to set it up, and it has—

Chair

And you were aware of that.

Stephen Lovegrove

I was certainly aware that it was effectively carrying equity risk, yes.

Chair

So it was very clear, and that was made clear to Ministers, that there was that risk, at the time.

Stephen Lovegrove

Absolutely, yes.

Mark Bayley

The reason being, if I may, it is a not-for-profit company, so we could not issue equity in the conventional sense; so effectively we issued the stakeholder loan, which was equity with a capped return, but taking the same risk as equity.

John Pugh

Can we move on now to lessons learned? I really shouldn’t be critical of the ECO scheme, because I had a look at the constituency data and I have to say my constituency is streets ahead in terms of ECO measures.

Stephen Phillips

That is down to the Member of Parliament.

John Pugh

I was going to say, that is a possible explanation; but I was wondering, as the level of implementation has varied across the country—and clearly implementation is important in any policy—have you learned anything from that?

Stephen Lovegrove

I think Mr Maxwell is probably in the best position to answer that.

Clive Maxwell

Yes. I have to check some of the details, but for the most part energy suppliers can carry out the installations or have those installations carried out where they want. In some cases they work with local authorities and other local partners. If they find them to be useful gateways to getting work done, they may well decide to partner up with local authorities.

John Pugh

So you do not really know why it works better in some areas than others.

Clive Maxwell

I can give you some observations, if you like, because I have spent a fair bit of time over the past year or two talking to local authorities who are involved in working in their local communities to make these sorts of things happen, and I do see a lot of variation. It often comes down to what that local authority is trying to achieve and how it can join up things with other sorts of policies. Can it make links between funding that is maybe coming from ECO with some other sorts of development funding they have? Can they bring it together—for example, at a local housing estate to do some solid wall insulation and to put in a heat network or something—to make other investments on the ground, where they see that as a package of things? It tends to be the authorities with the most ambition that make the most of these things.

John Pugh

Okay, so you have learned that local authorities perform differently and some are better than others.

Clive Maxwell

Very much.

John Pugh

Just going back to issues raised with the earlier panel, you have no assessment of third-party costs. I have heard a lot of anecdotal stories of people having boilers fitted who then have to pay for various other alterations to make their plumbing integrate with the new boiler system. You did not keep any data on that, and you do not have any data on that, I believe. Would you intend to do so in any further schemes?

Clive Maxwell

I think there is a case to be made—it is worth going through why we did not collect that data. We are mindful firstly that by having greater consumer and household contributions, that can reduce the cost to bill payers. There is a tension there. We have talked about bringing in private investment, and that is a form of private investment that gets leveraged in if you get some household contributions. There is a balance to be struck here. On the other hand, as we heard from some of the other commentators, that might be more difficult for some households than others.

John Pugh

The fuel poor and the generally poor, yes.

Clive Maxwell

In terms of collecting data, as the NAO recognises in this Report, the Department is collecting much richer data about the energy company obligation than it is about previous supplier obligations. An area where we did not collect data for cost reasons and because of some of the challenge of gauging people’s contributions was around those household contributions. I have to say that that is probably something that is worth thinking about for the future, if only on a sort of sample-type basis so that we would have a better handle on that.

John Pugh

You are also massively involved with the energy companies themselves. We are told that we cannot have data on who did best on which score. I am told anecdotally that Centrica—British Gas—got ahead of the game and fulfilled their obligations quicker than some others. Others held back for a range of reasons. Do you have data on that?

Clive Maxwell

Most of the data about compliance with the obligation go directly to Ofgem, which administers the scheme through its E-Serve activities. It collects that compliance data. We as a Department get told about the status of the scheme and how it is going. We also, as the Report says, get some data about some of the costs.

John Pugh

What I am trying to get at is: have you drawn any general conclusions or lessons for the future about how you—

Clive Maxwell

The main conclusion I draw is the one that Mr Lovegrove mentioned at the beginning, which is that a supplier obligation is an effective way of getting things done. You set targets in terms of carbon savings or bill savings, and you set those around timetables and they get achieved. That has been the evidence of this supplier obligation. It is also the evidence from previous supplier obligations. There is a striking additional thing in the case of ECO as a supplier obligation, and this comes back to the Department’s impact assessments. If you look at the revised impact assessment that was done for the reformed ECO, the Department has very closely forecast the costs involved in delivering that. If anything, the outcome has been marginally better than the costs that the Department expected to be spent on ECO.

John Pugh

And you would not want to be critical of any particular energy supplier.

Clive Maxwell

No, I wouldn’t.

John Pugh

Okay. The last question I am going to ask you was brought up in the previous panel and is in connection—we have dealt with it all along—with the mixed priorities and dealing with people in fuel poverty. I was party to a meeting not very far away from you in the Department of Energy and Climate Change with Greg Barker. Suppliers in my constituency were telling me that they were more or less giving up on fuel poverty measures because they did not pay them—they were not rewarded effectively or in a timely way. Given that, the previous panel had the view that we need to have, running alongside any scheme, such as Eco or the Green Deal, a specific scheme dedicated and, as it were, ring-fenced to deal with fuel poverty in Scotland and other places.

Clive Maxwell

The first thing I would say is that the Minister has committed to bring forward plans for reforms to the supplier obligation. They announced a little bit about those plans in the spending review, and the fact that the scheme will be focused much more on fuel poverty in future. I think that goes some way to answering your question.

John Pugh

My last question is for the former permanent secretary. Throughout all the schemes that your Department has been involved in, there have been accusations of heavy administrative costs that either fall upon the Department or the suppliers or, in some cases, the person trying to apply for a Green Deal scheme. Do you think it is easy to get it right, and have you learnt any lessons about how to get it right, given that, if you do not, there will be accusations that you are running a lax scheme?

Stephen Lovegrove

The evidence of history tells us that we do not always get it right, that is for sure. We have not always found it easy to get right. We are very conscious of the administrative burden that we place on consumers and companies, and indeed sometimes on the regulator as well. I think that some of the changes that we have made over the last two or three years have been designed to build a degree of simplicity and durability into the administrative arrangements in some of those schemes, in a way that we perhaps should have done a little bit earlier. We can talk, if you would like, about some of the changes that we have made, for instance on consumer panels. We can talk about some of the ways in which we are trying to get a much better sense of what the consumer journey is likely to be for some of these things.

John Pugh

Can I just explain where I am coming from? It is genuinely from a constituency angle. I have had people complain to me in my constituency of two completely incompatible things. On the one side, sometimes organisations are basically fitting the wrong boiler because they have simply got a lot of those sort of boilers, and therefore it looks like a badly-policed scheme. Equally, I have had complaints from installers who said more or less the opposite. They are asked to provide checks not simply on what they are providing, but on things like the quality of the vehicle that turns up and does the job and so on.

Stephen Lovegrove

You put your finger on a tension, and it is a tension that we see in a variety of different places. For instance, the smart meter programme, which is about to start rolling out now.

John Pugh

That’s progress. [Laughter.]

Chair

We started on that. We are back on that one as well. That might not be you, Mr Lovegrove.

Stephen Lovegrove

I don’t know. Call me back from the dead again. There is an active debate about the level of intrusion, not only of the installer going into homes, but about the use of the data that the smart meters give, as opposed to making it simple.

John Pugh

I agree with that. Would you say your Department is getting a better feel for this?

Stephen Lovegrove

Yes.

Chair

Mr Pocklington should take that, I suppose.

Karin Smyth

On that issue of laxness and accountability, your Department does not have an accountability system statement, does it?

Stephen Lovegrove

The fact that we are wondering—

Karin Smyth

From memory, the Cabinet Office Report said you are one of the Departments that does not have an accountability system statement.

Chair

Yes, Karin Smyth is right. The NAO confirms that.

Karin Smyth

Do you think that understanding where the taxpayers’ pound ends up might have helped you to have a better grip on some of these schemes?

Jeremy Pocklington

We have taken a number of steps over the past years to significantly strengthen the governance of the Department, and I think that is helping us to maintain a strong handle on the schemes that we have. I would highlight, for example, our strengthened investment committee, which will play an active role in looking at any reforms to major schemes that the Department is responsible for. That is set up to provide proper challenge to the Department and to check those underlying assumptions. We have a member of that committee who is specifically there to focus on consumer behaviours and whether we have that understanding of the consumer. This is something that we have focused a lot on as a Department and we maintain that.

Chair

How many people are there? You have one person on consumer—

Jeremy Pocklington

That is one—

Chair

Mr Maxwell wants to answer.

Clive Maxwell

We have an investment committee as a Department, like most large Government Departments these days, that considers big changes in policy and investments and things. We decided a year ago that we would strengthen that committee by having one person with a particular background in consumer issues to be checking exactly the sorts of assumptions that I think many people would argue went wrong in terms of the impact assessment the first time round.

Chair

Who is that?

Clive Maxwell

It is a member of one of my teams who comes from a background of dealing with consumer-facing issues in other bits of Government.

Chair

A career civil servant.

Clive Maxwell

A civil servant. In addition, we have as a Department over the last six months or so introduced an energy consumer board, which is another opportunity to kick the tyres of policies that are being developed to make sure they are thinking hard enough about consumers. As Mr Lovegrove said, we have done a number of things to make sure we are bringing in outside expertise to help us in these things, making much better use. We have a standing consumer panel arrangement, which means that a number of my teams, when they are developing policies, do not have to go through a long, off-putting process to bring in that consumer expertise. They instead can test people’s reactions and response to things. They can trial things.

Chair

So the board has outside people.

Clive Maxwell

That involves some outside people.

Chair

From where, for example?

Clive Maxwell

That involves real consumers. To be clear, they are sample consumers. The consumer board brings in somebody who has a background from an energy company who does not work in the Department.

Stephen Phillips

So for the purposes of future impact assessments and modelling, are you now confident that you have the expertise in place so that someone can turn round and point at the modelling that went on here and say, “That’s a pile of hogwash; you need to do that differently”?

Clive Maxwell

I am more confident that the Department can do these things.

Stephen Phillips

Are we ever going to see—

Clive Maxwell

Just coming back, if you are dealing with very innovative, ambitious things, all sorts of organisations make big errors sometimes about those things.

Stephen Phillips

If I may say, Mr Maxwell, rarely this catastrophic.

Chair

I am going to bring Karin Smyth back in.

Karin Smyth

It is slightly concerning that it does not seem to resonate with the panel. What grade of civil servant are you talking about who is holding the ring on this in the Department?

Clive Maxwell

Those major committees are chaired at the level of the executive board members, and I bring in commercial and consumer experts who are at a director or deputy director level.

Chair

How long before they join the structure?

Clive Maxwell

For that particular expertise to come into the investment committee is about a year. One of the things that I did soon after I joined the Department in early 2014 was to look at all of the Department’s consumer-facing policies and the skills and sorts of things that were required in the Department. As a Department, we have long recognised that we need big commercial skills for big complex negotiations, but we also felt that we needed to improve the way in which we were looking at the demand side of things.

Chair

You lost sight of the consumer.

Clive Maxwell

So that was—

Chair

I think our constituents would agree.

Karin Smyth

Thank you for that. We have heard some very concerning things this afternoon about the grip on some of these schemes. My constituents in Bristol are particularly concerned about some of the lessons learnt around the Bristol green capital in terms of accountability for taxpayers’ money. What sort of lessons have you learnt about accountability for taxpayers’ money around the Bristol green capital?

Clive Maxwell

I am afraid I don’t know enough about that to be able to answer the question. I will have to go away and find out for you.

Chair

If you could.

Clive Maxwell

I am aware of Bristol being the European green capital last year, but I’m afraid I do not know much more than that.

Chair

We will be pursuing that further.

Deidre Brock

You mentioned you had been going to various local authorities and organisations and seeing what worked and what had not worked in the past. Mr Smith from Energy Action UK mentioned several examples of good practice that were taking place in Scotland. How much discussion are you having with your counterparts up there?

Clive Maxwell

I have certainly talked to my Scottish counterparts and those from Wales.

Deidre Brock

What lessons do you think might be learnt from both Scotland and Wales?

Clive Maxwell

I think it is worth saying that there are different ways of doing things. I would be wary of jumping to say that the model that happens to be used in Scotland is automatically and necessarily the best for all parts of the UK. For example, finding ways for local authorities that are choosing to get involved in this sort of thing to pool knowledge and so on is very important, and I think that central Government can support that in some cases.

Deidre Brock

Yes, because there was quite heavy reliance on local authorities in Scotland in implementing these schemes, and on additional funding from Government, of course.

Clive Maxwell

Yes. It is worth coming back to the point made by one of your panel members earlier, who pointed to the successes of energy efficiency policies over the time period. Domestic energy demand, perhaps to people’s surprise, has fallen by something like 19% since 1990. Consumption per household is now at the lowest level since the 1970s, and even gas consumption, which is the big cost for many people, has fallen significantly over the last decade or so.

Caroline Flint

But you are not claiming that the Green Deal and ECO are responsible for that.

Clive Maxwell

I am not. I am saying that ECO has played an important role, and the previous supplier obligation has also played an important role.

Chair

I also remember Decent Homes, a scheme that has nothing to do with your Department. It has been one of the biggest energy-saving greening homes schemes not just in this country but in Europe. It has been going on all this time, and is still going on.

Q139Caroline Flint

We have had 20 or 30 years of energy efficiency schemes that have often worked through suppliers, and to which bill payers have therefore paid a contribution. We have had a number of different schemes, such as Warm Front. We have had boiler scrappage schemes and all sorts of things. It worries me when civil servants come before this Committee and we ask about learning, and they talk almost as if they are starting from ground zero. The truth is that there is a whole history of different schemes that have operated to tackle both reducing CO2 and fuel poverty. It is clearly a massive challenge, because by 2050, 80% of the building stock that we have today will still exist. I am trying to understand. Obviously we have got to look to the future, but it does seem that all the learning from previous schemes was not taken on board when the design of the Green Deal and ECO were put together. I just wanted to have a sense of how we can be reassured that what you are learning, not only from this scheme but from previous schemes, will come into being. Having one person on a board does not fill me with confidence about an organisation dealing with the culture of how they develop major projects. We are talking about the Green Deal and ECO, but it is about clarity on outcomes—an evidence base for how you are going to deliver it and data collection to make sure you are on track for what you have said you want to achieve. All those elements seem to have been absent from these schemes. What are you going to do? Are we going to see more data collection? Are we going to see more trialling of schemes beforehand? Mr Pocklington, you are the acting permanent secretary. Is that being thought through at the moment before we come up with son or daughter of ECO?

Jeremy Pocklington

I think we have learned the lessons from the last 20 years or so of schemes. One of those crucial lessons is that supplier obligation schemes can and do work. At the heart of what this Government want to do in the energy efficiency space will be a reformed ECO. We will consult shortly on how we want to target that ECO on the fuel-poor, so that we can work with the supply chain and with industry to make sure that works. We will build in place a transition year so that we can manage that change. More broadly, as a Department, we are very much focused on consumer testing and piloting. A very concrete example might be the electricity demand reduction pilots that we are running for relatively low sums of millions of pounds. That is an innovative scheme designed to encourage energy efficiency measures during times of peak demand. We have talked about what we are doing to make sure the Department is better aware of consumer behaviour. It is a lot more than one person on a board, although good internal challenge and good governance has an important role to play. It is also about having a consumer panel that we can access readily. Before, it used to take the Department weeks, if not months, to come up with a way of engaging consumers. We can now do that a lot more quickly. We have also heard from previous witnesses that the relevant teams in the Department are engaging and working very closely with the sector, as we are thinking about what other options Ministers will want to consider, in addition to the reformed supplier obligation. So we are very focused on learning the lessons.

Stephen Lovegrove

May I add to that?

Chair

Very briefly, Mr Lovegrove.

Stephen Lovegrove

Very briefly, going back to what I said at the beginning, the Green Deal was not a success; ECO was a success. ECO had 95% of the effect of these schemes. It produced savings of over £6 billion for low-income and vulnerable households—

Chair

We know the figures.

Stephen Lovegrove

Which was more than double the cost for the households. It saved 100 TW of energy.

Chair

Mr Lovegrove, we don’t doubt the figures.

Caroline Flint

If ECO was such a brilliant scheme, why in December 2013, following ECO’s launch in January 2013, did the Government announce reductions to the number of households that would receive energy efficiency improvements through ECO, and change the direction in terms of solid wall homes? To go back to an earlier point made by Mr Maxwell about supply chains, one of the things about developing supply chains in innovative areas, whether solar or solid wall treatments, is that you enable the sector to look at how they can devise better ways of delivering, at a more efficient cost, but you basically took the rug from under their feet. If ECO was so successful, who made the decision to change it and for what reason?

Stephen Lovegrove

As I mentioned earlier, the political discussion at the time—you will remember it very well—was about the affordability of energy bills. Ministers took a policy choice at that point. The coalition Government took the view that they wanted to place greater primacy on affordability rather than the longer-term measures.

Caroline Flint

So basically they were coming under pressure. Ed Miliband had announced the price freeze, and the Prime Minister was probably saying to Ed Davey, “Get something done on these bills. We want to have a nice £50 off bills.” Therefore, this scheme, with all its faults of design, was then further changed. It was political pressure.

Stephen Lovegrove

I would dispute that there were faults in the design.

Caroline Flint

It was the politicians who did it?

Stephen Lovegrove

I would dispute that there were faults in the design. The design was extremely effective and extremely predictable.

Caroline Flint

Can I pick you up on the design on the ECO side of things? As we have already determined, the number of properties with solid walls didn’t really match the number of properties with solid walls that were done under previous schemes. That might be because there was that decision to change the scheme at that point—a decision was made in December 2013—but also, there were costs incurred by suppliers of £0.9 billion and £6.2 billion of notional lifetime savings expected from measures delivered by 31 December 2015, and we have no idea of how that impacted on fuel poverty. Despite having a scheme that is basically paid for by suppliers and therefore bill payers—including some of the poorest households in our country coughing up a contribution to the scheme—we can’t even look at whether they actually got something better out of this scheme, in terms of dealing with their levels of fuel poverty, because there is no data or information on that. Is that correct?

Clive Maxwell

It is correct: the Department did not collect data about the contributions from households.

Caroline Flint

So although John Hills was brought in to look at fuel poverty and the definition of it, over the last five years we haven’t really been able to determine how much better off those people living in fuel poverty are through ECO.

Clive Maxwell

There are two aspects to that question. First, as I have said, we did not collect data about the household contributions; the Report makes that clear.

Caroline Flint

So we have no evidence to know.