One of the great problems facing the policy – proposed by both Labour and Conservative – to decarbonise domestic heat by replacing gas boilers with heat pumps is that it’s fundamentally uneconomic. As I pointed out in a recent paper for GWPF, while air-source heat pumps are, on average, three times as efficient as gas boilers, electricity is four times the price of gas, so unless your installation is much more efficient than the norm, you will not see operating cost reductions from a heat pump, let alone pay back the extra capital cost.
One of the wheezes dreamt up to address this issue is to remove all the renewables subsidy costs from electricity bills. This has been suggested by the Climate Change Committee today, and the simultaneous picking up of the idea by the BBC and others suggests a fully fledged Green Blob campaign in support of the idea is under way.
Given that the subsidies are for, well, electricity generation, the policy would further divorce consumer bills from the underlying economic realities, and it would therefore be expected to cause harm to the public at large, but it’s interesting to consider just how much harm.
To that end, I’ve done some rough calculations, taking the £13 billion of renewables subsidies and allocating them elsewhere so as to give a flavour of the price changes that might result.
One possibility is to move renewables subsidies to general taxation. However, this only reduces the electricity-gas price ratio to 3.3, which is still higher than the typical efficiency of a heat pump. This means most heat pump installations wouldn’t give an operational saving compared to a new gas boiler, and few would give savings sufficient to justify the extra capital cost.
Another alternative is to move the subsidies to gas bills. Here there are two key observations. Firstly, the policy would increase the cost of gas by around a third, from its current level of 5.4p per kilowatt hour to 7.3p. This would be pretty serious for householders, and it would potentially be terminal for businesses. It’s quite likely that many would go out of business, which would leave householders picking up the cost anyway.
Secondly, the policy would still not deliver on the Government’s decarbonisation plans, since the ratio of electricity to gas prices would only decline to 2.5. This figure would mean that more than half of air-source heat pumps would deliver operational savings, but very few would give a payback on the extra capital cost involved.
A third possibility would be to shifting the renewables subsidy costs onto retail consumers alone. If that were the case, businesses would be okay, but gas prices for householders would nearly double, to 10.9p. This is above the highest level of the price cap at the height of the price crisis, so it’s fair to say that it would be a hard political sell. Excess winter deaths would undoubtedly soar, and it’s hard to imagine that the public wouldn’t take to the streets. However, the electricity-gas price ratio would fall to 1.67, which would be enough to make a heat pump give both operational and overall savings for most installations.
But this is true only if the subsidies for heat pump installation continue at their current, grossly inflated level of £5,000. Without this bounty, heat pumps would still not make economic sense for most people.
And this is where we get to the title of this article. The installation subsidies and the shifting of renewables levies onto gas bills (if it happens) can only ever be temporary. The installation subsidy is already only available to those replacing gas boilers, of course; next time round, you will pay full whack. Similarly, once everyone has a heat pump, the windfarms are still going to want their subsidies, and so the levies are going to have to go onto electricity bills.
This means, at some point in the future, the innocents who have, at Mr. Miliband’s prompting, dutifully ripped out their gas boilers in favour of a heat pump, will suddenly find that their bills have soared. The cheap energy prices that lured them in will be gone. And when the time comes to replace the heat pump unit, it will cost many thousands of pounds more than it did the last time round.
The Government is engaged in a classic bait and switch – possibly the greatest bait-and-switch of all time.
Don’t fall for it.
Andrew Montford is Director of Net Zero Watch.
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Common Hold is the norm in Scotland, and through out Europe where the Feudal System was abolished hundreds of years ago. It is only England where the Tory landed gentry controlling Parliament prevented changes to our leasing laws, which are heavily skewed in favour the Free Holder, in order to protect their property rights. Tory promises of reform failed due to pressure from their very rich donors. Seems they are now paying a different piper.
Property Rights are protected under Common Law. Nobody can have Rights to property they don’t own.
So we have Commonhold in England too despite the Tory Scum™️
The problem with Commonhold is the process for forcing flat owners to pay their maintenance charges towards the upkeep of the building. The Commonhold company has to use normal debt collection procedures if a flat owner refuses to pay.
With a lease, the freeholder or management company has the threat of terminating the lease to pressure people to pay.
So I would say a decently long lease with non-onerous ground rent terms is preferable to Commonhold for the flat owner.
I can see little in common between blatant over charging and conspiracy between freeholders, brokers and insurers on one hand and the second hand car sales commissions on the other.
In the former case the leaseholder has no involvement.
In the second the buyer negotiates the price and borrowing terms and can walk away at any time. I understand that second hand car dealers typically massage the sale price down but get more commission so their overall take is about the same. Buyers, apparently, are keen to boast about the cheap deal they did ignoring their borrowing costs.
The attack on leaseholds per se is completely unjustified and involves the theft of property from owners. If there are unconsionable terms in typical leases then publish better ones – solicitors will soon spot deviant cases. Common ownership of blocks of flats will lead to disputes and minority oppression.
I tend to agree. On the face of it, share of freehold seems appealing but in practice I expect it’s not as simple as you’d hope.
It is not uncommon and works well – shared freehold via a limited company or association.
Maybe ok in a smaller building but I would have thought awkward in a larger one and much depends on the other tenants
Sharing the costs between people who share the same building is I think a nightmare everywhere.
Fortunately I have a house, full of dogs and guns so as far as possible I try to protect my own.
Needless to say I left fascist little England years ago.
According to my experience in Germany, flat owners from a block of flats meet regularly (two or three times a year) to discuss problems, organize general repairs and coordinate insurance and tax payments. A company and/or a group of people will be chosen to manage everything, including setting up a central fund in which all owners deposit a monthly sum depending on the size of their flat. The central fund, set up as soon as the building is finished, grows to a sizeable amount, ensuring that sufficient money is available for general repairs also after decades. Everything is open to review and is to the benefit of all owners.
Yep. And in most cases, that’s how it works in England too.
This article is bunk. Sorry, but it is.
There may well be some rogue freeholders around. That doesn’t mean they are all like that.
In fact, in many, perhaps even most, blocks of flats, the freehold is owned by a company that is in turn owned and controlled by the leaseholders. Attacking freeholders means attacking these companies too.
Look at this nonsense in the article:
“The broker touts the business round various insurance companies looking for the one that will pay the biggest commission, which he then splits with the freeholder. In one email this author has seen the insurer offered a “50/50 split as before”. In other words, for every £1 spent on the insurance premium, the insurance company charged the leaseholders £2. The other £1 it paid straight back into their freeholder’s pocket in secret ‘commissions’. A 100% mark up!”
Splitting the commission is NOT the same as splitting the insurance premium. In your (ridiculous) example of a £1 premium and another £1 commission, that extra pound would be split 50:50 between freeholder and insurance company.
Flat owners already have the “right to manage” – ie they can club together and take over management of the building including insurance. Why don’t they? Ah – because many don’t want the hassle of managing the building. They want to own their flats – but with all the responsibilities of tenants – which means no responsibilities.
When people are buying flats, of course they need to read the b***y lease, or get their solicitor to do so! Then they will understand the arrangements.
The author of this article seems to be blissfully unaware of the legal protections that already exist for leaseholders, including consultation etc, and of how onerous managing a block of flats can be. Example: does she know intimately the multiple fire regulations that the manager of the building must know and adhere to? Asbestos regulations? Consultation requirements? Leaseholders’ rights to get copies of maintenance accounts? The tax position of management companies? And so on and on and on.
It would be nice if well meaning but ignorant “campaigners” would get off the backs of building managers, who in most but not all cases are working hard on a thankless task and getting precious little gratitude from entitled leaseholders.
I was leaseholder (lease duration 125 years) of a flat in a new build. It was as you say, the “landlord” was the Residents’ Company – a limited company – the freehold having been transferred from the builders to the company on completion of the project, with directors elected from among the tenants. Building insurance, maintenance, etc was handled by the company. In the US they call this kind of arrangement a condominium.
A friend lived in leasehold flats where the residents association engaged a management company to deal with such things.
It really is misleading to present all leasehold arrangements as the same and pick out the worst to imply the standard.
And as you say – read the lease.