RHI reform announced in Spending Review

Published:  25 November, 2015

The Chancellor George Osborne has set out the government’s spending plans in the Spending Review, including a £700m cut to the Renewable Heat Incentive and almost £7bn in funding to build affordable homes in England.

Stating his belief that "going green should not cost the earth", the Chancellor announced a reform of the Renewable Heat Incentive scheme, which would see funding cut by £700 million.

He also announced that a cheaper domestic energy efficiency scheme will be introduced to replace the Energy Company Obligation in 2017, intended to save 24 million homeowners an average of £30 off their energy bills. He said the new scheme would help upgrade the energy efficiency of 200,000 homes per year, and that the scheme would run for five years and have a value of £640m per year.

Speaking to Parliament, Mr Osborne also outlined plans for "the biggest affordable housebuilding programme since the 1970s," which he said would address the crisis of home ownership and double the housing budget to £2bn per year.

The programme will include:

  • £2.3bn to be paid to developers in return for building 200,000 ‘starter homes’ for first-time buyers. These homes will then be offered at a 20% discount on market rates.
  • £400m to build 8,000 homes for the elderly and those with disabilities
  • £200m to fund 10,000 new homes, which tenants can live in for five years at a reduced rent, while saving for a deposit. They will then be given the first right to buy the home
  • £4bn to help build 135,000 ‘Help to Buy: Shared Ownership’ homes by 2020-21 for households earning less than £80,000 (£90,000 in London).
  • Extending the Right to Buy scheme to Housing Association tenants from midnight tonight (25 November)
  • Accelerating housing supply by reforming Planning system so it can deliver homes more quickly.
  • Releasing additional land for housebuilding
  • First garden city in Ebbsfleet for nearly a century
  • London ‘Help to Buy’ scheme created for those with a 5% deposit to get an interest free loan of up to 40% of the total cost of the home
  • A new rate of stamp duty for buy-to-let homes.

The housebuilding programme was one of the key spending policies announced among a series of cuts to welfare and government departments including the Treasury and the Department of Business, Innovation & Skills, which the government hopes will enable it to achieve a a £10bn budget surplus by 2019-20.

The government has also made Apprenticeships a key focus for this Parliament. Having already stated its intention to create 3 million new apprentices by 2020 through the creation of a new Apprenticeship Levy, Mr Osborne said spending on apprenticeships would double by 2020 compared to when the government first came to office.

Mr Osborne has now set the rate of the Levy at 0.5% of an employer’s wage bill, which will raise £3bn in funds. However, this will be offset against an allowance of £15,000 per business, meaning that in practice, only companies with a payroll of over £3m per year will be required to pay.

While the budget for the NHS and Defence are ringfenced and will, the Chancellor said, see an increase in spending, other departments have been asked to find a total £20bn in savings over the coming years.

Some of the other key announcements in the Spending Review include:

  • £12bn spending on capital investments, in order to “create the infrastructure the country needs”
  • HMRC is to make 18% efficiency savings, but will receive £800m extra funding to tackle tax evasion
  • The much-discussed tax credit cuts will be scrapped altogether
  • The government will reform the “compensation culture” in the motor insurance industry, which it said would result in a £40 to £50 annual saving on insurance bills
  • The Small Business Rate Relief Scheme will be extended for another year
  • The Department of Business, Innovation and Skills will see day-to-day spending cut by 17%
  • The Environment and Energy departments will see spending fall by 15% and 22% respectively
  • Total financial support for education will rise by £10bn.


 

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