Energy plan interest rate cut call

George OsborneChancellor George Osborne should inject new momentum into the Government's flagship energy efficiency scheme by "radically" reducing interest rates charged on loans for home insulation and other improvements, a new report has said.

Since its launch at the start of 2013, the Green Deal has been "dramatically under-performing", with just 1,173 households agreeing to take part, of whom only 813 had taken a loan or committed to do so by the end of October, said the IPPR thinktank.

Although the Department for Energy and Climate Change (DECC) insists it has no target for Green Deal take-up, the IPPR pointed out that numbers signing up so far were less than 1% of the 130,000 projected for 2013 in an official impact assessment.

The left-of-centre thinktank blamed high interest rates for making the scheme unattractive to low-income households. With typical rates of 8%, savings on energy bills from improvements like cavity wall or roof insulation and new boilers are entirely swallowed up by interest payments, said the report.

Rates could be cut to 5% - saving up to one million households £57 a year in interest payments at a cost of £14.2 million - if the Government offered to guarantee the debt of the Green Deal Finance Company, said the report. And it urged ministers to turn the Green Deal into a "Great Deal" by directly subsidising zero-interest deals, which would save 200,000 households £136 a year at a cost of £16.7 million.

The thinktank set out a Help to Heat framework for energy bills to match the Government's Help to Buy support for home-purchasers.

Help to Heat should replace the current Energy Company Obligation (ECO) scheme, under which firms levy an average £47 on household power bills to pay for energy efficiency measures for fuel-poor homes, it said.

ECO is "highly inefficient and bad for competition" because 80% of the funds spent each year have gone to households that are not in fuel poverty and the scheme entrenches the market power of the Big Six energy giants, said the IPPR.

Mr Osborne is widely expected to move the £1.3 billion cost of ECO from bills to general taxation in his Autumn Statement next week. While acknowledging that this would be a "broadly positive" step, the IPPR said the Chancellor would be better advised to use the cash to fund a Help to Heat scheme under which local organisations would go round areas house by house to identify exactly which people are fuel-poor and encourage them to take up Green Deal loans.

IPPR senior research fellow Reg Platt said: "The way to bring down energy bills is through more energy efficiency, not less. The Green Deal could unlock huge bill savings for consumers but is simply too expensive. What good comes from having competitively priced loans for which there is no demand? If people are going to take out a Green Deal, it needs to be a great deal and not just a good deal.

"At next week's Autumn Statement the Government should slash the interest rate from 8% to zero using the same approach they have used for 'Help to Buy' to create 'Help to Heat'. Underwriting the loans in this way would unlock large bill savings for households, turbo-charge economic growth by creating jobs, and rapidly reduce carbon emissions.

"Some energy companies want the Government to cut ECO. But this would be hugely detrimental for vulnerable people and should be resisted."

A DECC spokesman said: " The Green Deal isn't about targets, it's a 20-year scheme designed to give people choice and guidance on improving the energy efficiency of their homes.

"With more than 100,000 a ssessments and 270,000 properties made more energy efficient this year thanks to ECO and the Green Deal, it's clear that people are reaping the rewards of making their homes warmer."

DECC said that around 80% of the households assessed under the Green Deal said they intend to install at least one energy-saving measure, without necessarily taking out a loan under the scheme.

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