Thursday, April 16, 2009

Tories, energy saving and debt

George Osborne announced a new Tory policy which I don't understand:

They want to give every household a new entitlement to £6,500 of energy saving technologies. They provide government guarantees to enable companies to borrow the money to install this energy saving equipment in homes across the country. This money would be repaid through savings on energy bills resulting from the improved energy efficiency. So homeowners would be given the opportunity to have energy saving equipment fitted to their homes without any upfront costs. They claim this will unleash £20 billion of private investment if half of all households take this up.

So if I've got this right, homeowners can in effect borrow £6,500 to get energy saving equipment installed, and then pay it back over the next few years out of savings from lower energy bills.

The thing I don't understand is how this fits with the Tory economic argument that Debt is Bad. The average yearly energy bill, according to moneysupermarket.com, is £1,350, so it is going to take people an awfully long time to pay back £6,500 out of the savings from lower energy bills. So either a large chunk of this £20 billion is going to be paid upfront by the government and not recovered (which means in effect higher government spending, which the Tories oppose) or it means people taking on extra debt and paying it off over ten or more years (the Tories say private debt is currently too high already, so it is strange that they would have policies which encourage more of it).

I think that with some considerable tweaks, the government funding the installation of energy saving technologies in homes is probably a good idea (though, for example, it seems a bit harsh that under the Tory plans people like me who rent can't get it installed and it is only for people who own their own homes). But it is interesting that this new flagship Tory policy contradicts their overall economic strategy and analysis and instead appears to be more influenced by Labour's and Barack Obama's approach of the government spending more money in the short term in order that we can all reap the benefits in the longer term.

4 Comments:

At 10:49 pm , Blogger Andreas Paterson said...

I like wasting my evenings reading Tory policy papers too. Have you read the whole document, it's an inconsistent mess.

 
At 6:39 am , Blogger Sunder Katwala said...

Don,

Off topic, sorry.

Can't see an email contact detail. Can you please drop me an email at

sunder.katwala@fabian-society.org.uk

Would like to send something to you to get your view.

 
At 7:59 am , Anonymous Josephine energy said...

The government is making ways to save energy. This is a step that we should be glad about. But why are these people are getting annoyed by the move of the government. We should be thankful that they are helping us to save energy. This is my opinion only...peace thanks.

 
At 9:57 am , Anonymous Anonymous said...

So we all spend £20,000 putting up solar panels, which will never repay the amount of money spent on them. When I lived on a large farm we put in two large solar panels which we were told would cut down the use of our electricity bill by a 1/3, it did nothing of the sort and by the time the panels were paid for we spent more on power, yes fine if the sun shines , but when it does not it produces hardly anything not enough power to boil a kettle. We took the panels down after five years and they laid in the back garden until my mother used them to heat a large green house.

Who in his right mind would spend £20,000 now.

 

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