21 March 2000
ONE MILLION LOW INCOME HOMES TO GET CHEAPER, BETTER HEATING
Up to one million low income homes will be better heated with lower fuel bills as a result of changes to the tax rules announced by the Chancellor today to combat fuel poverty.
Central heating systems leased under the Government’s Affordable Warmth Programme will qualify for capital allowances, bringing down the cost and encouraging landlords to participate in the programme.
The Affordable Warmth Programme, which will substantially improve the quality of one million low income homes, will benefit urban regeneration, health and the environment:
- more efficient heating means lower fuel bills so families will not have to choose between food and warmth;
- warmer homes mean less illness and better health; and
- lower fuel use means cleaner air and less green house gasses.
1. The Affordable Warmth Programme has been developed by Transco (the pipe-line arm of BG plc), DTI and DETR. It will combat fuel poverty by supporting the installation over the next 7 years of insulation and energy-efficient central heating systems in 850,000 local authority and registered social landlord homes and 150,000 over 60s owner-occupied and private rented homes. It will enable those who need help most to heat their homes properly, while at the same time cutting their fuel bills.
2. The Affordable Warmth Programme will be underpinned by public spending. This will be supplemented through a public/ private partnership, which will allow the programme to help many more households than would otherwise be possible. The partnership will see the boilers and radiators being leased from commercial lessors.
3. At present, no capital allowances are available on boilers and radiators installed in residential property. In order to encourage local authorities and registered social and private landlords to participate fully in the programme, this bar will be relaxed. Capital allowances will be made available to lessors on boilers and radiators installed under the programme. This will bring down the cost of leasing and help to ensure that the target of installing modern central heating in one million low income homes can be met.
4. Two related minor changes to the capital allowance rules are also being made.
5. First, it is confirmed that the special rules for giving capital allowances on fixtures apply to boilers and radiators installed as part of a central heating or hot water system. This will remove doubts that have been expressed over the correct tax treatment of boilers and radiators that can be removed easily without damage to the rest of the system or the building. As the change is being made to confirm existing practice and understanding of the law, it will be treated as always having had effect.
6. Second, the new rules clarify the treatment of machinery or plant for capital allowances where both the special rules for fixtures and for hire-purchase could apply. They ensure that the special rules for fixtures take precedence. This will apply where an asset becomes a fixture on or after the Finance Bill receives Royal Assent.
NOTES FOR EDITORS
The Affordable Warmth Programme
1. The Affordable Warmth Programme is based on a pilot scheme in Leeds that demonstrated the fuel savings would allow the installation of modern energy efficient central heating systems and related insulation measures in low income homes on a commercial basis. But the Leeds pilot also indicated that the programme would not be financially attractive to landlords unless the leasing costs could be reduced.
2. Under the existing rules, a lessor cannot write off against its taxable income the cost of investments in machinery or plant fixtures that are leased either for use in a home or to a non-taxpayer. These rules will be relaxed for boilers and radiators leased under the Affordable Warmth Programme. Lessors will be able to write off 25% of the cost of this equipment each year against their profits on the reducing balance basis. This support will reduce the amount lessors need to charge and make the programme financially attractive to landlords.
3. These changes will support up to £1 billion of investment in central heating systems spread over the next 7 years. The Government assistance from this new capital allowances measure will peak at about £45 million in 2004/5 and 2005/6.
4. Fuel poverty is commonly defined as where a household needs to spend more than 10% of household income in order to maintain a satisfactory heating regime. The English House Condition survey showed there were at least 4.3 million such households in 1996. The effects of fuel poverty are mainly health related. Research shows cold homes are linked to winter mortality, ill-health and impaired quality of life. The people most vulnerable to cold related ill-health are those aged 60 years or more, children, the disabled and chronically sick.
5. An inter-ministerial group, jointly chaired by Helen Liddell and Lord Whitty, is considering the Government’s overall strategy to the problem. Action already taken includes:
· introduction of the £100 Winter Fuel Payment;
· reduction in VAT on domestic fuel and energy efficiency measures;
· benefits to low income households through price reductions from reform of the energy market.
6. In addition, from June, the new Home Energy Efficiency Scheme (HEES) will start improving the heating and insulation of vulnerable households through grants of up to £2,000. The scheme will focus on the private sector where nearly 70% of the fuel poor are found. For low income over-60 households, new HEES will offer efficient central heating systems as part of the Affordable Warmth Programme.
7. For central heating systems installed under the Affordable Warmth Programme, boilers and radiators will be leased from commercial lessors. This will boost spending on the programme by bringing in private finance for boilers and radiators. Giving capital allowances to the lessors will reduce the tax they pay on the lease rentals. Lessors participating in the scheme will pass on the tax saving to the property landlord in the form of lower lease rentals.
INLAND REVENUE PRESS OFFICE
Media enquiries to: 020 7438 6692/6706/7327
(Out of hours: 07860 359544)
Non-media enquiries to: 020 7438 6420/6425
(Office hours only)