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Are Incentives Vital For Green Deal Success?

Most people are sheep. And sheep, it seems, are suckers for getting something for nothing. These are two facts that should be at the forefront of the thinking of anyone looking to sell anything new to the public. Businesses do it all the time of course, with BOGOF deals in supermarkets and banks offering high interest rates to suck in new savers. The hard part is getting the first few customers through the door and making sure they go away happy. If they do they’ll tell their friends or better still internet forums and hey presto, you have a successful launch.

This is exactly the challenge facing the Department of Energy and Climate Change when it comes to selling the Green Deal. It is new and initially many people won’t trust it. There are plenty of critics already going to great pains to point out the potential flaws in the plan and it will take more than the projected energy bill savings to convince those early adopters who are so key to the scheme’s success to take the plunge. Added to that is the “hassle factor”, whereby people might think it is a good idea but don’t want the hassle of making all the arrangements and having their house turned upside down while the work is done. This is not lost on the Government and they are considering a number of incentives, but will they go far enough?

Public Will See Through £150 “Cash Back”

Initially, the Government were looking to offer early adopters an incentive of £150 cash when they sign up to the Green Deal. Sounds OK at first, until you realise that the £150 is actually added to the total Green Deal loan, so that you would not only have to pay it back, but you would pay it back with interest. Now it doesn’t take an economist to realise that if all you want to do is borrow £150, there are better ways than by borrowing another £5,000 on top to have new windows or a boiler or whatever installed that you don’t want and don’t really need!

This offer has been roundly and rightly criticised as being no real incentive at all and not going nearly far enough to give the scheme the kind of boost it needs. Fortunately the Government has seen sense and has set aside £200 million to fund a range of other incentives. What is less helpful is the continued delay in announcing what form these incentives might take, but there are a few things which appear to be under consideration.

High Street Shopping Vouchers

One option that has been proposed in some quarters is to give a reward in the form of free high street shopping vouchers in return for signing up to the Green Deal. This seems like a sensible option for a couple of reasons. First, it ticks what is probably the most important box for any incentive which is that it is as good as money in your pocket. Second, since many high street giants such as B & Q, M & S, Tesco and Argos are likely to be involved in the scheme as Green Deal Providers, Some deal can presumably be worked out that will mean that these private companies part finance the incentives, allowing the £200 million pot to go further.

In terms of administration it should be pretty easy to set up since these shops already stock and issue gift vouchers for their own promotions. The amount will obviously be important, £10 or £20 is unlikely to turn many heads and £100 – £200 might be more realistic.

One Month Free Council Tax

Nobody likes paying council tax, so a month without having to pay might seem on the face of it like a great incentive.

As with high street vouchers it ticks the “as good as cash” box. Local Government funding is however a very sensitive political issue at the moment of course. With large scale public sector redundancies due to funding cuts already well under way, the prospect of further cuts to pay for the Green Deal scheme would certainly anger the unions and many members of the public and could cast a shadow over it.

Even the councils were to be refunded by central Government; such a scheme would require a lot of administration, which would no doubt be vastly more expensive than it ought realistically to be, as seems to always be the way in the public sector. Take something as simple as the fact that many people pay their council tax by direct debit. To give a free month, you would either need to cancel the instruction and start again a month later or take payment and issue a refund. Either way the administration cost would make a big hole in the incentive budget. There may well be additional hassle to the customer. All in all, this incentive ought to be a non-starter.

First 6 Months’ Loan Payments Free

This is not an option I’ve heard touted by Government or any other commentator; however it seems to me like a sensible step. It would presumably cost little or nothing terms of administration, could be part funded by the provider or energy company and would showcase the real financial benefit of the Green Deal, which is the energy bill saving.

The idea, after all, is that the energy saving measure would continue to be effective after the loan which funded it has been repaid and this is when the real financial benefit would be felt. While the loan is being repaid there should still be a saving but it is likely to be fairly minimal. The problem is that people just don’t think long term so showing them at the outset what they will get at the end would hopefully drive home the advantages of the Green Deal scheme.

Delay on Announcing Incentives Could Damage the Scheme

Whatever incentives the Government chooses to offer, an announcement needs to be made sooner rather than later. Any incentive is going to take time to set up so the continued delays must risk them not being ready in time for the planned launch of the Green Deal in October this year. Delayed incentives are bound to hit the initial take up levels hard and provide ammunition for critics, particularly Labour MPs, who would be delighted to see the scheme fail and will be chomping at the bit to tell the Government “I told you so”.

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