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Green Deal: what’s the big deal?

When the heatwave recedes and the familiar grey drizzle returns, will we all start preparing for winter by making use of the Green Deal?

So far the Green Deal, the government’s flagship programme aimed at getting millions of homes and businesses better insulated without property owners having to pay all the costs up front, has proved a bit of a damp squib.  Under the scheme, the government had hoped to have householders queuing up to get an array of new insulation, double glazing, boilers, solar panels and heat pumps installed by specialist Green Deal providers, with the cost to the householder being recovered via their electricity bills.  The package provides a funding mechanism of up to £10,000 repayable over 25 years for a range of energy-saving improvements together with a limited cashback fund to incentivise early take up of the Green Deal.

However, between January 2013, when the Green Deal was launched to great fanfare and late June 2013, only a handful of households had actually signed up to the Green Deal.  In fact, the primary effect of the Green Deal so far has been a dramatic fall in the previously free or subsidised loft and cavity wall insulations (a 97% drop in April 2013 compared to the previous year) and resulting job losses (about 4,000) in the industry. The cashback element of the scheme, on the other hand, has proved more popular, with many households being incentivised to buy costly items such as new boilers and effectively get a discount through the cashback fund.

The main problem with the “debt”-funding part of the Green Deal is that with interest rates so low at the moment, the 7 to 8% interest rate being charged on Green Deal financing makes no sense for most households, for whom it will be cheaper to borrow on their mortgage. For landlords, if the tenant pays the utility bills, then there is little incentive to borrow money to reduce these. Another issue is simply a fear of the unknown: some people are nervous about incurring debt that attaches to their property’s electricity bill, for fear it could put off future purchasers.

Given its painfully slow start, it is hard to see how the Green Deal will take off unless the government incentivises homeowners and landlords alike to give it a go.  Options include lowering the Green Deal interest rates or providing tax incentives such as a council tax or SDLT rebate for properties which have taken advantage of the programme or even punitive steps for properties that remain steadfastly energy inefficient.  For now, though, it appears we are not convinced to take the plunge …