Income tax exemption for domestic microgeneration

Brooks Newmark calls on the Government to address the high installation cost which is the real disincentive for homeowners to install domestic microgeneration systems.

Mr. Newmark: I turn first to amendments Nos. 3, 4 and 5. I have no need to rehearse the careful arguments advanced earlier in the debate today and in Committee on the issue. However, in the Committee of the whole House, the Chief Secretary implied that the question was one of intention, not of the volume of production-of which we have heard much today. The right hon. Gentleman said that the Government's proposals on microgeneration were

"targeted at people whose primary intention is to consume in their home the electricity that they generate".-[ Official Report, 1 May 2007; Vol. 459, c. 1479.]

That may be so, but clauses 20 and 21 are drafted in terms of the amount generated, not the intention behind the generation. Will the right hon. Gentleman attempt to put a figure on what he believes constitutes significant excess?

Secondly, does the Chief Secretary anticipate any adverse impact on domestic energy efficiency if people realise that there is little incentive or indeed some risk of generating a significant excess? We have heard much about that point this afternoon. Lastly, would not it be simpler to forget the idea of intention altogether and stick with the generation limits already contained in the Climate Change and Sustainable Energy Act 2006?

There is a compelling need for the Government's policy on incentivising microgeneration to receive some scrutiny, which amendments Nos. 35 and 36 will provide. As we have heard, the most significant challenges faced by those wishing to install microgeneration are the high start-up costs and, consequently, the length of time needed to justify the initial capital costs. In principle, at least, exempting from income tax the sale of electricity from domestic microgeneration is a step forward, as it would seem to speed up the return on that initial investment. I suspect, however, that the measure will make not a jot of difference; it is a classic case of gesture politics.

First, there is no evidence whatever that HMRC has attempted to collect any tax in that context. If it had done so, the policy could have been curtailed in a memorandum of understanding rather than in legislation. Secondly, the sums involved, I suspect, will be truly minute. In any event, the Government are committed to clamping down on a significant excess of generating capacity, which suggests a policy that is pulling in two directions at once. We have no idea how successful the provisions are expected to be, or how it is thought that they will influence behaviour. While the Government are arguing over pennies, the pounds seem to be going astray. The low-carbon buildings programme seems to have restarted, but the general impression has been one of a policy in disarray and a lack of co-ordination across Government. Waiving income tax on electricity generation will not address the central issue of capital costs, and how else it can contribute remains to be seen.

A report on the benefits of the policy would be most welcome so that the issue does not continue to obscure the significant challenges faced in the quest to take microgeneration into the mass market. Clearly, we are not there yet. Recently, I met representatives of British Gas to discuss the latest phase of its innovative scheme to incentivise microgeneration: Members with an interest in climate change and energy efficiency will have heard me wax lyrical previously about its successful partnership with Conservative Braintree district council to offer council tax relief in return for cavity wall insulation. That scheme has now been extended to a subsidy of microgeneration technology. However, the numbers are still, at least to my mind, marginal. It costs £11,000 to install a photovoltaic solar panel or, slightly better, £4,300 for solar thermal installation. In return, participants qualify for a one-off council tax rebate of £500 and £300 respectively, in addition to eligibility for a subsidy of about 10 per cent. from the low-carbon buildings programme. Those technologies require some 25 or perhaps 30 years to repay the investment, and are unlikely to have mass market appeal.

I would like a report to be made to Parliament, as the amendments propose, to see whether the Government's policy has any impact on the numbers. If it does, I shall applaud them. The British Gas representatives whom I met wryly observed that one of the reasons for the scheme's success was that people preferred a tax rebate to a subsidy, even if the amount is the same. In the same spirit, perhaps a tax-free income from microgeneration will prove to be a similarly successful incentive. We shall have to wait for the report called for by the amendments, which I hope the Government will support.

7.15 pm

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OTHER INTERVENTIONS IN THE SAME DEBATE

Mr. Newmark: In achieving the consensus, does my right hon. Friend see a day when the new Prime Minister might install a wind turbine on the top of No. 10 Downing street?

Mr. Redwood: We shall probably not see that any time soon, even with the change of tenant at No. 10 Downing street, but as the hon. Member for Nottingham, South said, perhaps the House can do rather more under the previsions of the clause to provide examples of how we could generate more of our own energy. Members have already said that we generate a lot of hot air that could be used. I suspect we should need a spin turbine rather than a wind turbine, and the new tenant at No. 10 may be particularly good at offering a model that would offer facilities from which he and we might benefit.