Sam Hall is a researcher at Bright Blue and co-author of Better homes.
One of Ed Miliband’s most popular moments as Leader of the Opposition came when he announced that Labour would freeze household energy bills. He surged in the polls on the back of public dissatisfaction with large energy suppliers. Though the policy wasn’t enough to get him into Downing Street, it did reveal how powerful a political issue domestic energy could be. There is another way, however, to give consumers more control over their fuel bills, that avoids imposing damaging price controls on private companies: home energy improvements.
Britain’s homes are poorly insulated and people’s energy bills are overly-exposed to volatile fossil fuel prices. This can be mitigated through the installation of a combination of energy efficiency measures (such as double glazing and solid wall insulation) to reduce overall consumption and decentralised renewables (such as solar panels and heat pumps) to power and heat our homes at no marginal cost.
The Green Deal, which was the scheme introduced by the Coalition Government to incentivise this, failed. The Government forecast that 14 million homes would be improved by 2020. Yet, after two and a half years, just 15,000 Green Deal finance plans were in operation, and the Green Deal ended. That’s why today Bright Blue releases a new report proposing new policies to unleash the home energy improvement market.
Home energy improvements are required, in part, to reduce harmful carbon emissions. Twenty-two per cent of our carbon emissions come from residential buildings. The Government’s climate change advisors believe it would be almost impossible to meet our legally binding climate change targets without eliminating emissions in this sector by 2050.
But it also offers homeowners a fantastic opportunity to make their homes warmer, healthier and more valuable. The Government’s own research shows that properties with the highest energy performance rating were an average 14 per cent more valuable than the equivalent properties with the lowest score.
The Green Deal allowed consumers to finance energy improvements with a loan that was repaid through their energy bills. The idea was compelling, as it removed the upfront cost of installing these measures, avoiding competition with rival household expenditures, such as a new kitchen.
But the Government made this proposition fundamentally unappealing. The interest rate was too high, and homeowners could find a better deal by extending their mortgage or using their savings. Because of a constraint on the amount that could be borrowed the average Green Deal loan was just £3,500 – not enough to pay for more expensive measures, like double glazing, and no way near enough to pay for a whole energy improvement package, which typically costs tens of thousands of pounds.
New policies are now urgently needed to cost-effectively stimulate the home energy improvement market. Following the vote to leave the EU, there is considerable economic uncertainty. Upgrading the energy consumption of our homes would be a quick and easy stimulus.
First, the Government should introduce new ‘Help to Improve’ loans and ISAS. Government should underwrite loans to households to finance an exciting package of home energy improvements including energy efficiency measures, decentralised renewables, battery storage, and smart appliances. The interest rates would be considerably lower than under the Green Deal, because the government has much cheaper borrowing costs than private lenders. This could be accompanied by a Help to Improve ISA to incentivise households to save for these improvements or lower their loan repayments.
Second, the Government should use some of the funding earmarked for existing renewables subsidies to reduce the size of loan repayments. This would help make home improvement loans more affordable for consumers. But it would also be an intermediate step towards the goal of phasing out renewables subsidies altogether. Creating an attractive loan system, which ensures individuals ultimately pay for measures themselves, is a pre-requisite for these new technologies standing on their own two feet.
Finally, the Government should introduce new regulation to ensure there is consumer demand for home energy improvements and to give the supply chain confidence to invest. Homes should be prevented from being sold if they do not meet a minimum energy performance rating. Building regulations should also be amended to ensure that any general renovations, such as constructing a new conservatory or an extension, do not increase the home’s overall carbon emissions.
Together these policies will help to incentivise more home energy improvements. In the long-term, after the cost of the measures has been repaid, household fuel bills will be permanently lower. And by investing in their home, individuals will see their property value increase and gain greater personal control over their energy use in the process. This is a sustainable, conservative approach to addressing energy prices.