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Energy Efficiency Inquiry response

Thursday 17 January 2019

Brexit aside, energy efficiency is high on the Government's agenda with targets getting progressively stricter in the run up to the 2030, when private rented properties must have an EPC rating of C or better. This week we've submitted our response to the Government's inquiry on energy efficiency which asks - are the targets too ambitious?

The inquiry headed up by the Business, Energy, Industrial Strategy Committee asks if energy efficiency targets, part of the clean growth strategy, are too ambitious, whilst also considering the Energy Company Obligation (ECO) and implementation and enforcement challenges.

We argue that the Government's targets are too ambitious and will result in landlords having to spend serious amounts of money refurbishing properties to bring them up to an EPC rating of C by 2030. This is at a time when landlords with buy-to-let residential properties face hits to their net profit through a series of recent government policies such as cutting mortgage interest relief, stamp duty surcharges and other tax changes. Little funding assistance is offered to landlords to help them spread the cost of remedial work, meaning that money needed for improvement has to come from their own pockets. 

We proposed that the Government should take an alternative approach and move towards a property MOT system that encompasses many elements of property standards, including energy efficiency and safety checks. The MOT approach would mean that tenants could be confident in the standard of their home, and rogue landlords would be deterred from remaining in the sector. It would also give landlords greater clarity on their responsibilities and be able to deduct the cost of the MoT from Income Tax. 

Whilst we believe the 2035 target for all homes in the UK is achievable for the social housing sector as Government funded initiatives exist to help social landlords improve homes, for the private sector it's a different story. The private rented sector is the second largest tenure type, making up approximately 20% of the total market and is growing, but the sector lacks the the funding pots that benefit the social sector, which makes up 17% of the total housing stock by tenure. We argue that all future ECO funding should be stopped and all future funding from energy suppliers should be dedicated to the private rented sector, redressing the imbalance of previous years. 

A recent survey with members of ARLA Propertymark indicated that many landlords with properties in the lower EPC bands would be advised to sell up rather than spend a considerable amount of money bring them up to standard. Furthermore, recent research from the RLA indicates that the real cost of improving properties rating below an E is nearly £6000, rather than the £1200 suggested by the Government. If more landlords were to sell up, it would mean that tenants would have less properties to choose from, which in a growing market is likely to drive rental prices up, leading to hardship. This would also go against the Government recent policies aimed at tackling homelessness. 

We argue that Energy Company Obligation (ECO) funding aimed at tackling fuel poverty and reducing carbon emissions is ineffective because of the criteria which applies, which is different for social housing than it is for private rented sector housing. Therefore it's more difficult for private rented properties benefit in the same way as their social conterparts. It would be fairer is the property's EPC rating was the main criteria for accessing funding, not the income of the occupier. Also, in the PRS, the tenant/s must first ask permission of their landlord before work funded by the ECO. We argue that Government should instead prioritise funding to the private rented sector and through a new Affordable Warmth Scheme.  

We'd like to see the Government make it easier for landlords to access funding whilst also reversing its decision to introduce the 'landlord contribution' element to bring properties up to the target EPC ratings. If they don't do this, more landlords will sell off part or all of their portfolios and the problem will instead be transferred to a different housing tenure. 

Support should be provided to private landlords by reintroducing the Landlord’s Energy Saving Allowance (LESA). Further, the Government should extend the LESA to include anything contained within the Recommendations Report of an Energy Performance Certificate (EPC). By reintroducing the LESA, landlords will then be able to offset the costs of energy efficiency improvements against income tax for the financial year in which the costs were incurred rather than having to wait until the property is sold before being able to offset the energy efficiency costs against Capital Gains Tax. This will significantly assist landlords with the costs of the improvements and their financial planning.

Read our response in full