88.In 2015, the Government withdrew funding for its Green Deal scheme citing low uptake. This left no policy in place to encourage the ‘able to pay’ residential sector to invest in energy efficiency—the largest sector of all types of tenure. Launched in 2013, the Green Deal created a finance mechanism enabling households to install measures at little upfront cost, paying instead through energy bill savings. While originally envisaged to facilitate improvements to 14 million homes by 2020, only 14,000 households took out green deal loans. The scheme collapsed because it operated with an uncompetitive interest rate of over 7 per cent on its loans, was unaccompanied by incentives to drive demand, and failed to protect homeowners from rogue traders carrying out substandard installations. The scheme was re-launched privately by the Green Deal Finance Company and now runs with an interest rate of 9.5 per cent, but the level of activity has been comparatively low. The scheme’s breakdown appears to have discouraged the Government from developing new policies for the market, while the stop/start nature of policy undermined confidence in the energy efficiency market. These shortcomings of the Green Deal should not be used as an excuse for subsequent and continuing government inaction.
89.To meet the Government’s 2035 EPC target, it is crucial that incentives and finance solutions are available to stimulate demand for energy efficiency, optimising key trigger points across the home ownership journey, such as prior to property sale, the point of home purchase and during renovation work. We sought to understand what products are currently being offered on the retail banking high street for residential energy efficiency, noting that many consumers are likely to use their current account or mortgage provider as a first point of contact in relation to their financial needs. We wrote to the five largest retail banks (HSBC, Lloyds, RBS, Barclays and Santander) with questions relating to the availability, marketing and take-up of residential energy efficiency finance products, as well asking what action the Government could take to overcome deterrents to provision. Our correspondence revealed a lack of engagement and low levels of product availability for residential energy efficiency products on the high street, notably:
90.Given the importance of the primary banking relationship, the lack of current product availability offered by the high street banks is very disappointing. The Minister told us that “conversations with banks are happening”. But the evidence we received has not convinced us that these conversations are being pursued effectively, if at all.
91.In October 2017, the Government launched a consultation on ‘Building a market for energy efficiency’. This set out policy options to fill the current vacuum, largely focusing on routes to incentivise ‘able to pay’ homeowner investment. In response to this consultation, the Government is expected to publish an ‘Action Plan’ that will present a range of policies to shape the market. But 18 months after launching the call for evidence—and despite the Committee on Climate Change’s (CCC) recurrent calls for an attractive package for householders—it has not materialised.
92.In March 2018, the Green Finance Taskforce issued a report, ‘Accelerating Green Finance’, which contained several recommendations to incentivise the supply and demand for energy efficiency financing for the ‘able to pay’ sector. The recommendations urged the Government:
93.Witnesses strongly supported the use of a Stamp Duty incentive, which would reduce the duty on more efficient properties and increase it on less efficient ones. Homeowners making energy improvements to their property within a set period could receive a rebate proportionate to the scale of improvements. Frontier Economics, an independent economics consultancy, found that if implemented across the UK, a variable Stamp Duty scheme could incentivise around 16 million homes to make energy efficiency improvements by 2035. Stakeholders argued that the price signals reflected in variable Stamp Duty rates would create a value for energy efficiency in the property market. This could incentivise sellers to improve the property before putting it on the market or encourage buyers to invest in improvements to recover the additional Stamp Duty paid. This mechanism also has the benefit of being progressive and revenue neutral to HM Treasury. The Government recently defended its decision not to link Stamp Duty to energy efficiency by stating:
In 2007, the then government introduced a relief from Stamp Duty Land Tax (SDLT) for zero-carbon homes intended to encourage greater energy efficiency in buildings. However, the policy was found to be ineffective with a limited number of transactions taking up the relief and it was ended as planned in September 2012.
94.The previous policy, described above, provided Stamp Duty relief on new homes that were built to the zero carbon homes standard announced in 2006. It is unsurprising that the policy failed to drive any scale-up when very few homes were ever constructed to this standard. Furthermore, the policy was designed in such a way that any uptake resulted in a loss of revenue to the Government. The Government’s reasoning in its statement should not be used as evidence to justify disregarding the recommendation of the Green Finance Taskforce.
95.Green mortgages, although a niche market in the UK, are successfully promoted in the Netherlands, where mortgage lending rules allow households to borrow up to €25,000 extra to purchase or refurbish to a net zero energy home. While supporting the development of green mortgages, stakeholders warned that Government’s encouragement of green mortgages could become a “tick-box energy efficiency solution”, with the Government pursuing the illusion of activity at minimum cost. The Government itself acknowledged that green mortgages will be inadequate to drive the ‘able to pay’ market unless positioned within a wider set of policy initiatives.
96.The principal message presented by witnesses was that a combination of government-backed incentives is key to ensuring an attractive offer for all households, as shown by international experience. France, Germany, the Netherlands and Scotland all have attractive finance at 0 to 2.7 per cent that can be combined with capital subsidies. These countries see far higher renovation rates than the UK as a result.
97.We heard that Germany’s programme has been particularly successful at driving private investment for energy efficiency retrofit. Germany’s development bank offers combinable low interest loans at 0.75 per cent and subsidies of up to €30,000 towards energy renovation and low carbon heat, linking the level of subsidy to energy performance standards. In 2016, the programme supported 276,000 energy renovations at a federal cost of €1.7 billion. Property owners invested €8.4 billion, leading to a total investment of €10.1 billion in energy renovation that year. With VAT revenues alone, at €1.6 billion, the scheme almost pays for itself. This is before considering the wider economic growth impacts. In 2016, this investment spurred €6.6 billion net turnover upstream in the supply chain, with 115,000 full-time equivalent workers required. For every €1 of public investment, €6 was invested in energy renovation.
98.However, even Germany, which is considerably more successful than the UK at harnessing private investment for energy efficiency, is still off-track to meeting its goal to see 2 per cent of its housing stock (800,000 homes) per year undergoing major energy renovation from 2020. With the UK Government aiming for over a million homes renovated to a good standard per year—around 4 per cent of the housing stock, this shows that even the most successful policies have limits to their reach. This reinforces the case for multiple levers to be put in place.
Box 5: Further ideas for incentives for the able to pay market
Stakeholders suggested a number of further options that the Government could explore to incentivise energy efficiency investment within the ‘able to pay’ sector:
99.In July, the Government published its Green Finance Strategy in response to the recommendations made by the Green Finance Taskforce. In the face of a challenge that requires far-reaching action, the Strategy announced £5 million for a Green Home Finance Innovation Fund for the private sector to pilot green home finance products over 18 months, such as green mortgages. The Government ignored the Green Finance Taskforce’s key recommendation in relation to Stamp Duty. Supporting the provision of incentives for the market is of course a welcome step. But as discussed in Chapter 2, available evidence shows that around £1 billion of public funding per year will be required in order for homes to reach EPC Band C by 2035. The £5 million announced is less than 1 per cent of that annual requirement.
100.The Government’s announcement in July 2019 of a £5 million Green Home Finance Innovation Fund is woefully inadequate to stimulate demand for energy efficiency within the ‘able to pay’ sector and drive the scale of supportive action needed by the financial sector. The Government’s lack of ambition is particularly disappointing given international evidence that attractive finance and incentives have the potential to pay for themselves through VAT alone. It is also regrettable that the Government’s Green Finance Strategy rejected the Green Finance Taskforce’s key recommendation of linking Stamp Duty to energy efficiency. We remain none the wiser as to how the Government intends to meet its target for all homes to reach EPC Band C by 2035 without providing sufficient incentives for the market to grow. At present, this remains an empty commitment.
101.We recommend that the Government publishes its energy efficiency ‘Action Plan’ without further delay to explain how it intends to meet its EPC Band C 2035 target. We recommend that the ‘Action Plan’ drastically increases the £5 million allocated to the Green Home Finance Innovation Fund, to underpin a coordinated demonstration programme that tests a comprehensive and varied package of incentives and finance mechanisms for the ‘able to pay’ market. This should include a Stamp Duty incentive and low-interest loans, in addition to green mortgages. This demonstration programme needs to go well beyond the Green Home Finance Innovation Fund to be delivered at scale. We further recommend that the Government engages seriously with the retail banks to put in place the necessary enticements to ensure that attractive energy efficiency products that can be delivered on a nationwide basis are developed.
209 HM Government, (July 2015)
210 The Green Deal was available for customers in England, Scotland and Wales.
211 Department for Energy and Climate Change, (June 2011)
212 Department for Energy and Climate Change, (June 2016)
213 Energy and Climate Change Committee, (HC 552; 12 March 2016), pp.11–12; Grantham Research Institute on Climate Change and the Environment and Centre for Climate Change Economics and Policy, (Nov 2017); Rosenow.J, Eyre.N (2016), ‘’, Energy Research & Social Science, Vol. 21, pp.141–144; National Audit Office, (April 2016); Energy and Utilities Alliance ()
214 Energy Efficiency Infrastructure Group (); For a discussion on the current Green Deal, see: Green Deal Finance Company Group Limited ()
215 Department for Business, Energy and Industrial Strategy, (Dec 2017)
216 Q94 
217 Energy Saving Trust, , (2010); UK Energy and Research Council, (Oct 2013); Sustainable Energy Association, (March 2017); UK Green Building Council, (July 2013)
218 Letter sent from the BEIS Committee Chair, , , , , and (March 2019).
219 Letters from (April 2019), (May 2019), (April 2019), (May 2019), and (June 2019).
220 Institute for the Market Transformation, (March 2013); See also: Allcott, H., Knittel, C., Taubinsky, D., (2015) ‘’ American Economic Review, Vol. 105, pp.187–91; UK Green Building Council and UCL, (Aug 2015); [Lewis]; Green Finance Taskforce, (March 2018); Electrical Contractors’ Association ()
221 We are referring to the big retail banks, we note that green mortgages are offered by Ecology Building Society.
223 Department for Business, Energy and Industrial Strategy, (Oct 2017)
224 Department for Business, Energy and Industrial Strategy ()
225 Committee on Climate Change, (Feb 2019); Committee on Climate Change, (July 2018); Committee on Climate Change, (June 2017); Committee on Climate Change, (June 2016)
226 Green Finance Taskforce, (March 2018)
227 A paper by Melius Homes developed for UK Green Building Council Incentives Task Group explains how this policy could work in practice with illustrative examples, (Feb 2016)
228 UK Gren Building Council ()
229 Frontier Economics, (Sept 2017), p.54
230 E.ON (); The Energy Efficiency Infrastructure Group (EEIG) (); ROCKWOOL Ltd (); Canetis (); Kingspan Insulation (); Canetis (); Energy UK (); UK Green Building Council (); Regulatory Assistance Project (RAP) (); Policy Connect (); The Institution of Engineering and Technology (); Green Deal Finance Company (); [Lord Deben]; [Lewis]; [Matthew]
231 from Alan Brown MP to HM Treasury, answered by Robert Jenerick (April 2019)
232 HM Government,
233 E3G, (July 2018); The European Union is also seeking to establish a market for green mortgages by piloting a standardised energy efficient mortgage based on preferential interest rates for energy efficient homes and additional funds for retrofitting homes at the point of purchase European Union,
234 [Matthew]; [Bray]
236 For example: Sustainable Energy Association (); UK Green Building Council (); The Energy Efficiency Infrastructure Group (EEIG) (); Centre on Innovation and Energy Demand, (2018)
237 For detailed case studies, see: E3G, (July 2018); See also in-depth case study presentations by Guertler, P.: ; ; ; and .
238 As above
239 [Matthew; Lewis]
240 E3G, (July 2018)
241 As above. The €1.7 billion comprises €1.45 billion for loan interest rate subsidy and a debt write-off incentive, and €0.25 billion for standalone capital subsidy.
242 E3G, (July 2018)
243 As above
244 As above
245 Green Finance Strategy, (March 2018), p.40
246 UK Green Building Council (); Sustainable Energy Association ()
248 As above
249 As above; see also: [Bray]
250 HM Government, (July 2019)
Published: 12 July 2019