Splendid insulation

Published: September 11 2008 19:46

Energy efficiency is the antithesis of what we have come to expect from government initiatives: it is long-term, dull – and effective. Yet it was the core of the energy aid package that Gordon Brown unveiled on Thursday. Together with the refusal to bow to populist pressure for a windfall tax on energy companies, it is welcome progress.
As with last week’s package for the housing market, the government had recklessly let expectations run ahead of reality. So a sensible long-term approach was booed for not being a one-off cash payment. Ministers have also been overly concerned to slap a “£1bn” price tag on the policies, even where the doubtful justification for this reduced the credibility of the announcement. But in other respects this week’s initiative was more competent. At the political level, energy efficiency should enable Labour to reclaim some ground on green issues.
The main aim is to insulate every home in Britain by 2020. Pensioners and poorer households will receive free loft and cavity wall insulation. Other households will get a 50 per cent discount. Energy companies will pick up the bill, adding the subsidies to what they already spend encouraging customers to improve their use of energy.
The goal is serious and worthwhile, even though we do not yet know how successfully the scheme will be taken up. The UK’s housing stock is among the least fuel- efficient in Europe, and reducing waste is critical to cutting emission of greenhouse gases.
But even awareness that spending on energy-saving may pay for itself within three or four years in the form of lower fuel bills has failed to prompt enough householders and landlords to adopt energy-saving measures. The upfront cost will have deterred some. Others may simply not have got round to it. In both instances, the subsidies and the impetus given to energy efficiency will help.
Despite its merits, Thursday’s package did not silence the clamour from some trade union leaders and Labour MPs for a windfall tax on energy companies. This is a shame.
Windfall taxes, which target so-called “excess” profits, are egregious. They undermine investment in two ways. First, there is the immediate effect of reducing post-tax returns. Second, they erode confidence that the fiscal structure is stable, and raise the prospect of a further levy the next time the government is desperate for cash.
In recent months, the government has often changed its tax plans under pressure. Not this time. It has been right to resist a windfall levy so far. It should continue to do so.
Copyright The Financial Times Limited 2008