No country for cold homes

The Warm Homes Plan is the Government’s flagship policy to cut energy bills and decarbonise England’s housing stock. It aims to upgrade homes so that they are easier to keep warm, generate more electricity from solar panels, and are heated by electric heat pumps instead of gas boilers. This ambition is backed by £13.2 billion of allocated capital spending over the next five years.

Given the wide remit of the Warm Homes Plan, success requires ministers to be clear about what it will achieve and who it will benefit. Despite significant resources, the Government will not be able to overhaul all the nation’s homes. So, policy makers must balance reducing energy bills – especially for the one-in-three English households (37 per cent) in fuel stress – with spending to accelerate the woefully low rate of heat pump installations, which need to increase more than four-fold (98,000 to 450,000) by 2030 to meet national carbon targets.

In this context, it is important to bear in mind that the lowest-income households are twice as exposed to energy costs than their richer counterparts. Ensuring that funds allocated to the Warm Homes Plan flow to poorer families will maximise its impact on the cost of living as well as contributing to lower carbon emissions. The most effective way to bring down bills will depend on the type of property a family lives in, with some measures delivering considerable bang for buck. For example, loft insulation is ten-times more cost effective at bringing down bills than a heat pump.

And focussing on cutting bills for vulnerable households will pay dividends, locking in permanent savings of £230 per year, on average, for those in badly-insulated (EPC D-rated or worse) homes, equivalent to 14 per cent of spending on energy bills or 2 per cent of disposable incomes for the lowest-income families.

But heat pumps are the best way to cut emissions from homes. So while it makes sense to prioritise insulation that can both brings down bills and reduce carbon emissions, this doesn’t mean giving up on decarbonising home heating. Instead, ministers should be bolder with regulations that compel manufacturers to sell more heat pumps and housebuilders to install them – before eventually regulating consumers so heat pumps are the only option to replace a broken boiler.

The Plan’s limited resources means policy should be highly targeted to groups who will benefit most –particularly those unlikely to be able to afford large outlays without government support. Here there is another trade off: some programmes are better able to effectively target support (such as those based on incomes) and some have a greater track record of deliverability (such as those employing benefit passporting or schemes based on area).

Policy makers need to be switched on to the advantages of a more complicated scheme that hones in on those with the greatest levels of need. This means an approach in which eligibility is predicated by income (or to go even further, a combination of household income and non-pension wealth, as we have previously recommended). Determining eligibility with an earnings limit of £36,000 would see 97 per cent of the poorest homeowners eligible, compared to 30 per cent if based on the welfare system and just 27 per cent through an area-based approach. Further, policy makers should think hard before apportioning funding to properties in which action can be spurred on by regulation – such as homes covered by efficiency standards in the private rented sector. Grants should be concentrated on poorer homeowners instead.

This targeting trade off can be eased by financing policy measures in a way that allows the Government to do more. That is exactly what is envisaged under the plan’s £5 billion of spending in the form of ‘financial transactions’ – loans rather than grants which must be repaid (and so push more of the burden onto families). These are effectively excluded from the Government’s fiscal rules, allowing the capacity of this scheme to double without falling foul of the Chancellor’s constraints. Loans can be effective in helping higher-income families bridge credit constraints that would prevent the adoption of technologies that should deliver substantial longer-term savings – for example, insulation and solar panels.

The next phase of the UK’s journey to net zero will have a significant impact on families. The key to managing this change is to use government policy to ensure that the costs and benefits are shared fairly. The Warm Homes Plan is a key event in this context, giving the Government the opportunity to drive meaningful reductions in bills and move the country closer to our net zero goals. But limited resources mean grappling with difficult trade offs. The answer here is to prioritise capital spending on reducing bills and to employ other, more creative, policy measures to ensure progress is made on heating decarbonisation. This means using regulation to drive the decarbonisation of home heating and lending schemes that to broaden adoption of energy efficiency measures beyond those for whom they are affordable without grant funding.