Clause 46 - Power to make non-domestic energy efficiency regulations: England and Wales

Energy Bill [Lords] – in a Public Bill Committee at 6:15 pm on 14th June 2011.

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Amendment made: 145, in clause 46, page 31, line 4, leave out subsection (1).—(Gregory Barker.)

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

I beg to move amendment 146, in clause 46, page 31, line 13, leave out ‘may’ and insert ‘must’.

Photo of David Crausby David Crausby Labour, Bolton North East

With this it will be convenient to discuss Government amendments 147 to 149.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

The Government amendments in this group deal with the non-domestic energy efficiency regulations. The Committee will note that we propose that the relevant clauses go largely unchanged, because they already provide for a minimum standard, but our amendments do four things. Government amendment 149 makes the date for regulating non-domestic landlords the same as that for domestic landlords: no later than 1 April 2018. That change will mean that all landlords have the same realistic time frame to plan for a minimum energy efficiency standard and to schedule works into their normal maintenance cycles.

Government amendments 146 and 149 also make it a duty, not a power, of the Secretary of State to make regulations no later than 2018. Government amendment 148 gives us the option to create a requirement that bites from April 2018 for all properties at once, or from when properties are re-let after April 2018. Finally, Government amendment 147 makes a technical change, removing a  reference to “tenant” that is legally unnecessary. In summary, these changes make provision in the non-domestic clauses similar to that in the domestic clauses.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

The Minister will be pleased to know that although we have some questions, we are supportive of most of the amendments, with one exception that I will probe a little deeper. Government amendment 146 made me smile a little, as it reminded me of the difficulties that we have previously encountered in putting a duty on a Secretary of State to do any darn thing. I think that “darn” is parliamentary language, Mr Chairman; I was very careful there. The Minister has now tabled an amendment to the effect that the Secretary of State “must”—not “may”—issue regulations preventing landlords from renting properties until they have complied with the obligations. I am sure the Minister will want to explain in his response why that works here but did not work earlier, when we were pushing so hard. The amendment on the definition of a landlord is a technical one that we welcome and have no problems with whatsoever.

Government amendment 148 intrigued us, so I would like to test the Minister further. As we see it, it is important to minimise the impact on tenants and ensure, as we have just discussed, that they are not evicted. That is particularly important in the run-up to the regulations coming into force. If the landlord cannot continue to let, as well as let, the property until they have made energy efficiency improvements, existing tenants might be persuaded or forced out of their tenancies. Would it make more sense for the landlord not to be able to re-let or even to market the property—we have discussed the question of marketing the property, as opposed to letting—to ensure a smoother transition to the minimum efficiency standard, coupled with the tenant’s right to request?

I want to probe a little deeper the thinking behind Government amendment 149, which moves the deadline for energy efficiency regulations in the non-domestic sector from “no earlier than 2015” to 2018. Given the urgent need to improve PRS accommodation, there is a danger that the issue could be kicked into medium length—if not long—grass. That is the issue we are trying to probe by asking the Minister for further thought.

The Minister’s letter to the Committee last week stated:

“We expect widespread voluntary take-up of the green deal by landlords and minimum standards will fall in 2018 to ensure the remainder also improve.”

We understand that, but as we debated earlier, the tenant’s right to request will not come in until 2016, and the power of local authorities to issue a notice to landlords is removed in clause 40. We also discussed the issue of tenants asking for improvements, and the need for them to have certainty of protection against eviction.

Amendment 149 raises concerns not about the level of ambition in the Minister’s rhetoric—which we share—or what he has said to the Committee, but rather about the level of ambition in reality. I have asked the Minister to address my questions on earlier amendments, but Opposition Members will need particular persuasion to support amendment 149. We see the possibility of slippage, rather than a measure that has been bolted down firmly.  We should be looking at the issue sooner and more rigidly, in the way that we argued when we discussed previous clauses. I look forward to the Minister’s response.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

First, I will respond to the issue of “may” or “must” that the hon. Gentleman teased me about. Let me be clear: one measure imposes a minimum standard and the other is about sanctions. That is a clear example of the point raised previously about setting a clear standard in legislation, and the need to encourage change ahead of the implementation of the regulations. The standard should represent the finish line, not the starting line.

The green deal under discussion is more of a game changer for businesses than it is for residential customers. The potential for energy-saving interventions in industrial and commercial premises is often greater than it is in the home, but there is invariably a greater disincentive than there is in the home for landlords to take measures that would improve their properties. In the interests of transparency and reciprocity, I should declare my interest in commercial property, although I am sorry to say that I do not have any domestic property. From that point of view, I know that the green deal cuts through the Gordian knot whereby there is no incentive for a landlord to improve the property, meaning that they basically hand energy savings to commercial tenants.

With an eye to a re-let or the end of a tenancy term, landlords will look at ways in which they can legitimately improve their investments with no up-front capital cost to themselves. A service charge can be legitimately stretched only so far, and there is a limit to how far tenants will be prepared to shoulder additional burdens or improvements through such a charge. There is clear benefit to tenants in anchoring payments through the golden rule and providing a reduction in energy bills. If tenants are part of a larger group, that may help them to consider group carbon commitments and obligations. Commercial and industrial landlords will leap at that. I think there will be very few cases of buildings not being upgraded. Of course, one could think of a few examples—buildings in complex multiple occupancy, where there are very small offices of low value with a high turnover of short-term tenants. They will nevertheless still be governed by the backstop date that we have introduced.

The date change is essential to give certainty. Unlike the registration we originally introduced, there will be no review. We therefore need to give ample time for non-domestic landlords to prepare. That is particularly important in the non-domestic sector, as tenancies are typically longer. We have talked about the average tenancy cycle, but in the commercial sector tenancies are longer. We also know that many tenants will not welcome the disruption that the retrofit of a building will involve. On the potential for retrofitting commercial buildings, in many more instances than with domestic installations, that will involve lighting, air conditioning, heating, different ducting—quite intrusive measures that will disrupt the ordinary course of business.

I can understand that some tenants would be wary of allowing business to be interrupted, particularly at this point in the economic cycle. I have no doubt that as growth lets rip as we head into the decade, there will be appropriate points. It is responsible to leave it to landlords and their tenants to judge the best point over the next five years at which to intervene in individual properties.  By making it clear that there will be no review, we have sent a clear and categorical signal in the Bill that by 2018 the measures must be taken care of.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change) 6:30 pm, 14th June 2011

How can we avoid what we saw with the roll-out of the Disability Discrimination Act 2005? As we approached the point at which everyone had to comply, there was an enormous rush of people trying to comply at the last minute, panicking, seeking advice and so on. Having debated various other ways proposed by Labour Members to put some of those milestones in—having not got those, but having a firm backstop—is the Minister confident that we will not have a rush as people say, “We now have to do it” in the final year or 18 months?

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

I am not familiar with the disabilities legislation, but there is a profound difference: the disabilities legislation was basically a burden on employers. It was right that they shouldered that burden, but there was no economic return in the short term. I am sure there would be in the long term in that they would have access to a wider work force, but there was not a direct, immediate, economic incentive. With the green deal, there is a direct economic incentive. It is in the interest of every landlord to improve their property, particularly as they come up to re-let.

We know that companies large and small increasingly want to save money. They look to the bottom line. Although the costs of energy as a proportion of overall overheads and production costs vary from company to company, it is nevertheless an important element. We know that Marks and Spencer implemented the plan A energy efficiency measures and up to £40 million dropped to its bottom line. The small mom and pop business has moved to better, more efficient accommodation—when leases come up for renewal, tenants expect more, particularly in such an economically competitive market.

The drivers in this legislation are entirely different from those in the disability legislation that the hon. Gentleman mentioned. I do not expect a lag. On the contrary, I expect that landlords will want to put in the measures sooner rather than later, particularly given the difficulties in the property market, where landlords are, by and large, as tenancies come to an end, looking for ways to maximise the value of their asset and to compete for attractive new tenants, and given that, historically, many parts of the country have high levels of vacancies. I think that there will be a real whoosh of interest in the commercial sector—much more than in the domestic sector—as people grab the opportunity with both hands. I do not think, therefore, that the hon. Gentleman’s scepticism is well placed.

Photo of Steve Brine Steve Brine Conservative, Winchester

I am listening carefully to my hon. Friend the Minister and musing as I do so. He might not know the answer to my question—perhaps he could liaise with his officials and write a response to the Committee—but, while I know that he has done lots of work in the Department, has he done any work on the effect on the non-domestic rate or value of properties as a result of commercial properties being green-dealed?

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

My hon. Friend raises a good point and I reassure him that I have done work in the Department. [ Interruption . ] My hon. Friend looks a little shocked, but I assure him that that is the case. We are looking at the economic impact assessment, but, given that we expect a fairly uniform take-up of the provision and the whole commercial property sector to arrive together, the provision should be seen as a minimum standard or an increment to what is acceptable, rather than as a huge and exceptional increase in the value of a property. I think that it will be the de minimis. Tenants will expect decent accommodation in commercial premises to be far more efficient in the future.

Photo of Steve Brine Steve Brine Conservative, Winchester

Does the Minister expect the trade organisations—the Federation of Small Businesses and the British Chambers of Commerce—to be the drivers of encouraging their members to take up the green deal? Local authorities and organisations that spring off them may well be the drivers in the domestic market, but that will not necessarily be the case in the non-domestic market, because local authorities do not set the rateable value. They collect it, but they do not gain from it.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

Yes, I think we are likely to see—particularly in relation to smaller SMEs—groups such as the FSB taking the lead in encouraging landlords to take up the green deal and in encouraging tenants to encourage their landlords to do so. We are talking about a different sort of relationship in the commercial sector from that which can exist between vulnerable tenants who are economically deprived and their landlord. That differs from a customer-provider relationship. In almost all cases regarding commercial premises, the whip hand is with the tenant and the landlord seeks to make sure that their property is sufficiently attractive to ensure that the tenant renews, preferably on a nice, long, juicy lease. That is a different relationship.

By definition, a commercial client is a smarter and more informed customer, with more choices and more information at their disposal than some of the more vulnerable tenants in the social or private rented sector. We should not draw too many parallels between domestic and commercial sector tenants. I think that we will see a welcome and robust commercial discussion, and that it will lead to tenants and landlords competing to see how they can implement the green deal in the most ambitious way. We need to set the provision in legislation to provide absolute certainty and I think that the market will take off from there.

Amendment 146 agreed to.

Amendments made: 147, in clause 46, page 31, line 30, leave out

‘, “let the property” and “tenant”’ and insert ‘and “let the property”’.

Amendment 148, in clause 46, page 31, line 31, after ‘regulations’ insert

‘(and “let the property” may be defined to include “continue to let the property”)’.

Amendment 149, in clause 46, page 31, line 42, leave out subsection (7) and insert—

‘(7) The first non-domestic energy efficiency regulations must come into force no later than 1 April 2018.’.—(Gregory Barker.)

Clause 46, as amended, ordered to stand part of the Bill.

Clauses47 and 48 ordered to stand part of the Bill.