Energy Efficiency of Existing Homes Contents

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3Current Government policy on domestic energy efficiency

33.This chapter provides a discussion on the Government’s energy efficiency schemes in place at the end of the last Parliament, the Conservative Party’s manifesto commitments for the 2019 general election, and policy initiatives subsequently announced in the Energy White Paper and the Prime Minister’s Ten Point Plan for a Green Industrial Revolution.

The Energy Company Obligation (ECO)

34.The Energy Company Obligation (ECO) is the Government’s primary mechanism for alleviating fuel poverty through energy efficiency (box 2). It requires the largest energy suppliers to install measures in homes.74 All suppliers pass on their costs to their customers through a levy on energy bills, largely on electricity bills.75 ECO, and its predecessor schemes, have prioritised low-cost measures, such as cavity wall and loft insulation. As these measures have been installed and the number of households able to benefit from them has diminished, harder to treat homes, needing more expensive improvements, are now in the majority. The rate of installations has fallen during ECO compared to its predecessor schemes, as easy to treat homes have been dealt with and costs have risen (figure 4).76

Box 2: Fuel poverty

When compared with 30 other European countries it was found that the UK has the sixth-worst long-term rate of excess winter deaths.77 Improving the energy efficiency of buildings plays a crucial role in tackling fuel poverty and will help bring down energy bills for the most vulnerable customers. A household is deemed to be in fuel poverty if it has required heating costs above the national median, and meeting these costs places the household below the poverty line. The poverty line in the UK is defined as a household income below 60 per cent of median income.78 The Government has a statutory target to improve the homes of fuel poor households, “as far as reasonably practicable”, to EPC Band C by 2030.79 This target has two interim milestones of EPC E by 2020 and EPC D by 2025. The Committee on Fuel Poverty (CFP) is an advisory Non-Departmental Public Body sponsored by BEIS providing monitoring of fuel poverty targets and independent, expert advice to ensure that the Strategy’s milestones and target are met. The CFP’s 2020 progress report showed that since the Government’s Fuel Poverty Strategy was introduced in 2014/5, the number of households in fuel poverty in England had increased by 60,000 to 2.4 million.80 It expects the fuel poverty targets to be missed.81

Figure 4: ECO measures installed, by obligation, by month, up to end October 202082

35.Jenny Holland, from the UK Green Building Council, told us that as a scheme for tackling fuel poverty, ECO was not very effective as it was inherently regressive.83 Michael Lewis, CEO at E.ON, explained that, for the lowest income people around 1.5 per cent of their household income was spent on such schemes: if funding for such schemes were taken from to general taxation, the burden would move towards higher income households who were more able to pay. This would make the transition to net zero more acceptable to the wider population.84 Simon Bittlestone, audit manager at the National Audit Office, told us that the transparency, governance and oversight of measures implemented under the ECO was potentially not as strong as that for schemes funded by the Exchequer out of general taxation. He added that the Government used to publish a breakdown on of how much each of these schemes cost and also how much they save, but had not done so since 2014.85

36.Jenny Holland warned that ECO funding was simply not compatible with the delivery of whole-house retrofits as it tended to deliver single energy efficiency measures only.86 Karen Brown from the Northern Housing Consortium also noted this issue:

[… If] you get ECO funding for one measure you cannot blend that in with other funding. It is obviously useful, but it is ad hoc and it is just one measure at a time and does not move things forwards at any pace or scale.87

37.Dr Joanne Wade, of the Association for Decentralised Energy, said that ECO was delivering “a lot of good measures and a lot of help for people, but it is not solving the problem because not enough money is being invested”.88 Jenny Holland explained that Scotland, Wales and Northern Ireland supported locally-led fuel poverty schemes, whilst England had the “dubious distinction” of not spending public money on fuel poverty (apart from the newly launched Green Homes Grant for fuel poor households).89 She said that ECO’s focus on low-income and vulnerable households should continue, but that additional Exchequer funding was needed.

38.As we have noted during our work on heat pumps as part of our inquiry into technological innovation and climate change, the Government has placed low carbon policy costs, including ECO, on the electricity side of consumer bills.90 At present, environmental and social charges account for 23 per cent of electricity bills on average, compared to two per cent for gas.91 This acts as a significant barrier to heat pump adoption. We were told that a revision of the policy costs across gas and electricity could significantly improve the customer case for heat pumps, making them cheaper than gas boilers to run in many more domestic settings.92

39.In the Energy White Paper the Government announced an extension to ECO from 2022 to 2026, and indicated that it would in future be focused primarily on improving the worst-quality homes across Great Britain, complementing the upcoming Home Upgrade Grant scheme in England and equivalent schemes in the devolved administrations.93 We asked Kemi Badenoch MP, Exchequer Secretary to the Treasury, whether the Treasury would consider funding ECO from taxpayers bills. She responded:

The energy company obligation is a proven delivery model. It has upgraded more than two million homes, which confirms that that approach works and helps to provide the energy efficiency industry with the confidence to invest now in jobs and training. We should not be looking at it as a tax; we should be looking at it as exactly what it is trying to do. The Government are committed to keeping bills under control. We need to consider the distribution across when we are designing policy. We believe that we have minimised the impact on bills, while maintaining fiscal discipline. There are many different ways in which we can achieve energy efficiency. We cannot do it all through spending or through tax; some of it has to be regulatory and within schemes such as ECO. We believe that it is working.94

40.Since we gathered the evidence in this inquiry, in February 2021 the Government published its fuel poverty strategy for England, originally expected in 2019.95 Funding for ECO is to increase from £640 million to £1 billion per year between 2022 and 2026.

41.While the energy efficiency of two million homes has been successfully upgraded under the ECO, the number of measures installed has reduced significantly in recent years and the Government’s fuel poverty targets are not expected to be met. The inability to use ECO with other sources of funding is hampering the deeper retrofits that are needed in social housing. Since ECO is funded by all energy bill payers, the poorest pay proportionally the most for the benefits from the scheme: this makes it a regressive policy.

42.We support the extension of ECO to 2026 and the extra funding announced in the Fuel Poverty Strategy. The Government must review whether ECO is still delivering value for money and whether the energy bill is the most appropriate, fair and effective means of funding the scheme, since the poorest households pay disproportionately towards its costs.

43.We recommend the Government reviews the way ECO is funded, in common with the other policy costs that are added to consumer electricity bills rather than gas. Disproportionate use of this regressive funding mechanism is hampering the adoption of low carbon heating options such as heat pumps. We recommend that the Government consults on the balance of levies on electricity versus gas/other fossil fuel heating sources, in order to encourage the uptake of electrifying home heating through the adoption of heat pumps.

Home Upgrade Grants (HUGs)

44.Home Upgrade Grants (HUGs) were pledged in the Conservative Party manifesto for the 2019 general election to support deep renovation measures for low income households living in highly inefficient homes.96 £2.5 billion was pledged over the five years to 2025. In the 2020 Spending Review, £150 million was allocated to HUGs for the financial year 2021–22.97

45.Witnesses to our inquiry suggested different possible roles and delivery bodies for this grant programme, in the absence of further information about the Government’s plans for the scheme:

• Peter Smith from National Energy Action said he thought it could be used to target off grid homes and the fuel poor in rural areas.98
• E.ON said it should also be available to top up ECO funding where measures could not be fully funded through ECO.99
• Greater Manchester Combined Authority told us it could be used as matched funding where ECO criteria have not been met.100
• The Coalition for the Energy Efficiency of Buildings and the Zero Carbon Campaign supported its use for area based scheme delivery by local authorities.101
• The Association for Decentralised Energy (ADE) said fuel poverty charities and local authorities might be better placed to coordinate funding and delivery of the scheme.102

46.In the Energy White Paper in December 2020, the Government clarified that the grants would be used to improve the “worst-quality off-gas grid homes” in England, supporting the installation of energy efficiency measures and low-carbon heating. ECO and HUG would both focus support on low-income households.103 In its update to the Fuel Poverty Strategy, the Government said that the scheme would commence in early 2022.104

47.Approximately 1.5 million homes in the UK are not connected to the gas grid and depend on oil for heating, and a further 200,000 use liquified petroleum gas (LPG).105 Joanne Wade from ADE told us that rural homes off the gas grid should be prioritised for low carbon heat pumps:

Let’s start with the ones off the gas grid. You can make a clear case, for example, for some rural homes in saying, “This is a good idea for a heat pump”. That is where you can start to build those supply chains. It is obvious that you need a highly efficient home with a heat pump in this circumstance. The answer for that home is clear. Let’s start with those.106

48.She added that rural homes were diverse and had different types of tenure, so the introduction of heat pumps in rural properties could be financed in different ways.107 Peter Smith said that HUGs should be introduced to tackle fuel poverty in rural areas for those living in the least efficient homes since ECO was “not effective in terms of addressing improvements in villages, hamlets and isolated dwellings”.108 He said there were over 200,000 fuel-poor households in such rural settings, which were more isolated than those classified as being in rural areas but which might in fact be in large rural towns. Jonathan Ducker from Kingspan also noted this gap for rural homes in fuel poverty. He explained that ECO was not tackling homes with solid walls, as energy efficiency measures in such properties were expensive, and energy companies focused primarily on delivering on the obligation in the cheapest way they could.109

49.In the course of our inquiry into technological innovation and climate change we have heard about the higher costs of heat pumps compared to traditional heating systems.110 Although the costs of heat pumps are due to fall in the future, a report for BEIS found the costs of the work involved to prepare and fully install an air source heat pump to be between £14,750 and £21,550 depending on the size of the property.111 The Northern Housing Consortium told us that it cost an £19,300 for energy efficiency retrofit of an average privately owned domestic property, and an additional £5,000 for a heat pump.112

50.We welcome the clarification provided in the Energy White Paper that Home Upgrade Grants will focus on the worst-quality off-gas grid homes with low income households in England. We consider that this focus is the right one. Using the indicative costs for improving energy efficiency and heat pump installation and the Government’s pledged £2.5bn, we estimate around 100,000 homes may benefit from the scheme. This is welcome, but represents a fraction of the 1.5 million households off the gas grid who will need further support to upgrade their homes, irrespective of tenure in view of the high costs involved.

51.We recommend that Home Upgrade Grants are launched in full before the end of 2021, backed by the entirety of the funding pledged for the scheme, to mobilise supply chains for low carbon heating. The Government should also set out how it intends to administer the scheme and what role there will be for local authorities who are well placed to identify vulnerable households.

The Green Homes Grant (GHG)

52.The Green Homes Grant (GHG) provides vouchers worth up to £5,000 for energy-saving improvements. The £2bn grant scheme is split into two parts: a £1.5 billion voucher scheme and a £500 million Local Authority Delivery scheme.113 Alongside the scheme the Government launched the Green Homes Grant Skills Training competition (which is discussed in chapter four). The GHG was devised as an economic stimulus package in response to the covid-19 pandemic and was intended to mobilise the energy efficiency supply chain. Shortly after its launch in September 2020, the then Secretary of State for Business, Energy and Industrial Strategy, Rt Hon Alok Sharma MP, told us that the GHG would target the improvement of 600,000 homes between September 2020 and March 2021.114 According to polling by YouGov commissioned by the Energy and Climate Intelligence Unit, 22 times more households were interested in taking part in the scheme than it had capacity for.115

53.At an early stage, concerns were being expressed about the design of the policy and its capacity to mobilise the supply chain as planned. By November 2020, the low number of vouchers issued appeared to have spurred the Government to extend the scheme by a further year, to March 2022, and to provide additional funding.116 George Munson, of Leeds City Council, said that this would still not be enough to drive the supply chain.117 Russell Smith from RetrofitWorks agreed, and told us that “it is not about being thrown money. It is about saying there is a viable business opportunity in the long term”.118 Brian Berry from the Federation of Master Builders observed that

The market needs certainty because small companies are not going to invest unless they know there is a long-term market. […] If we want to tackle energy efficiency in our homes, we need to grow the market, we need to give encouragement to these small companies that this is not just a flash in the pan, it is not going to be a repeat of the Green Deal and it is not going to be a 12-month programme. This is a 20-year programme to transform our existing homes.119

Consumer and company feedback on the scheme

54.We conducted our own consumer survey in November, to identify the reasons behind the apparent early underperformance of the scheme against the ambitions Ministers had expressed for it.120 Of the 414 householders who responded to the survey and applied for the grant, 348 (84 per cent) had had a poor experience with the process. We wrote to Rt Hon Kwasi Kwarteng MP, then Energy Minister, in December 2020 with the results and asked for short term action to be taken on some of the issues the survey had highlighted: resolving the confusion around primary and secondary measures, streamlining the quotation process and ensuring enough registered installers were available.121

55.The scheme distinguishes between primary and secondary energy efficiency measures. Homeowners must install primary measures before being able to receive the same funding towards secondary measures. Brian Berry, Chief Executive of the Federation of Master Builders, told us that this was confusing and could be simplified.122 The British Energy Efficiency Federation said it had “created a major limiting factor” in terms of the full extent of measures that could be installed in a home and said the scheme should also include measures such as high efficiency LED lighting and ‘older’ double glazing to modern double or triple glazing.123 Jenny Holland, from the UK Green Building Council, told us that this would also pose a problem with the sequencing of the energy efficiency measures. For instance, draught-proofing and heating controls were classified as secondary efficiency measures under the scheme, but ought to be in place before the installation of a heat pump, which require a property to be energy efficient to be effective.124

56.In a written answer, the Minister of State for Energy and Clean Growth, Rt Hon Anne-Marie Trevelyan MP, told the House that the primary measures were chosen because they supported jobs, were cost effective and would have a large impact on carbon emissions: the measures identified as secondary under the scheme had a more limited impact on carbon emissions, but still offered benefits in terms of energy efficiency.125

57.According to BEIS figures in December 2020, just under 60,000 vouchers had been applied for.126 A published answer to a request under the Freedom of Information Act 2000 showed that as of 31 December 2020, 11,645 vouchers had been issued under the scheme.127 The Energy Efficiency Association told us that “if there are further delays to the scheme, and vouchers are not being redeemed by mid-January 2021, the installers will not be hiring but instead there will be lay-offs and redundancies”.128 We have since heard evidence from the industry that small companies are having orders cancelled and having to lay off staff. Eco SprayFoam Systems Ltd, an insulation contractor, told us:

In principle the initiative is a great idea but in reality, it has failed our business and the industry. The scheme is now three and a half months old and:

• revenue has decreased by at least 40%
• administration and costs have increased by 300%
• for the first time in years the company’s cashflow will be negative
• we are reviewing cutting our staff by 40%

Our credibility with customers has never been at such a low point due to mistakes with the GHG communication with customers.129

58.Use the Sun Ltd said that the grant had had the exact opposite effect on the industry it was meant to have, with orders cancelled and jobs being affected:

In September 2020 ours, and every company I know, was expanding with orders streaming in. Then it was announced that there would be a grant coming soon. The market came to a shuddering halt as customers put their installations on hold whilst applying for the Grant. No Grant in September or October left six weeks with hardly any work. A few trickled through mid-November, by Christmas we had five vouchers, half our sales team had left and we were using reserves to pay the back office staff.130

59.Insulated Homes Ltd said it had a full order book of clients wanting their homes insulated but lost every order it had as customers were waiting to apply for funding:

We had to lay off the two office staff and one surveyor, the other surveyor then went part time. I have had to lay off three of my install teams and am hoping and praying they will come back when we actually get a voucher, it takes years to fully train an installer in our specialist field and some of my men have been with me for over 15 years. […]

I have spoken with many other insulation companies and most are in a worse situation than I am, one company director I spoke with today told me he had to re-mortgage his house to pay his staff wages and again lost his entire order book due to this scheme.131

60.Respondents to our survey said that quotes were expected to fulfil an onerous checklist which were not specified at the point of application, leading to quotes expiring. For example, quotes would only be accepted if they included the number of hours required for the job and detailed the access to utilities. The scheme suggested that three quotes needed to be provided, but homeowners were finding this difficult as there were so few accredited installers.132

61.Lord Callanan, Parliamentary Under Secretary of State at the Department for Business, Energy and Industrial Strategy wrote to us in January 2021 stating that 16,000 vouchers had been issued.133 He told us it was not a requirement to have three quotations.134 Since this was not clear on the application it may have inhibited applications. In response to a parliamentary question on the delays in companies receiving payments, Anne-Marie Trevelyan said:

The scheme administrator is working to ensure vouchers are paid as quickly as possible. Payment to installers is a four-step process. It requires the customer to confirm the work has been completed, the installer to lodge the work and the scheme administrator to undertake scheme checks before they can proceed to payment. Once it has reached the payment stage, the administrator aims to make payments within five-working days. However, if an inspection is deemed necessary then the process will take longer, especially given the current covid-19 restrictions.135

Trustmark

62.To carry out home improvements as part of the GHG, tradespeople need to be registered with TrustMark and have Microgeneration Certification Scheme (MCS) or Publicly Accessible Standards (PAS 2035:2019) certification.136 Robert Tiffin, owner-director of Eco Tiffin, stressed that there was not enough time for installers to get PAS certified to become registered with Trustmark:

If you take somebody that is a competent contractor that wants to do this, he is going to need at least three to four months to become PAS 2030 certified. He is going to need at least £2,500, and if he does not have a secretary or PA a lot of his own time in understanding it and dealing with it.137

63.Simon Ayers, chief executive of TrustMark, disputed this and said that the average cost of accreditation was between £700 and £750 for PAS certification, including Trustmark registration. He said that if an installer had been trained and had a good understanding of building physics, then the accreditation could be achieved in as little as 10 to 12 days.138 Peter Smith, of National Energy Action, said that it was right to require installers to have the TrustMark standard and said in his view, quality standards were non-negotiable, though he accepted that the requirement was creating “teething problems” for the delivery of the scheme.139 Brian Berry from the Federation of Master Builders (FMB) said that the need for PAS accreditation improved overall standards and protected workers in the building industry.140 He was concerned that the GHG had been announced before any consultation with the building industry, which was the sector expected to undertake the work.141 He told us on 18th November that 180 FMB members had expressed an interest in the scheme but only three had so far become accredited.142 He thought there was “a lot of confusion” for small building companies who consider that Trustmark accreditation is sufficient, without realising they need to be PAS 2030 accredited.143

64.TrustMark told us on 18th November 2020 that it had just over 1,200 businesses that were PAS accredited and able to take part in the Green Homes Grant scheme. Around 20,000 subcontractors would be working further down the supply chain for these 1,200 businesses.144 Typically, the sector is made up of very small contractors.145 When we asked how the Green Homes Grant would deliver the Government’s ambitions for the creation of 100,000 jobs when most construction companies are SMEs, Kwasi Kwarteng responded:

Anecdotally I was being told that people who could do these installations felt that because the scheme was only going to run for six months, they didn’t have the incentive to get the necessary accreditation. Now we have announced, as you know, that we are going to extend the scheme to the end of March 2022. Obviously, time will tell, but we feel that the extension will encourage more installers and more traders to seek the TrustMark and therefore increase the capacity, the number of people who can actually deliver on installing the measures.146

Funding

65.The scheme was launched with £1.5bn of funding for its vouchers. In November 2020 the Government allocated an additional £320 million in the Spending Review, and extended the scheme for a further year.147 It has since become apparent that the original £1.5bn in funding was only allocated for use in the 2020/21 financial year: any unspent cash may not be carried over to fund grants from April 2021. In answer to a written question, Anne-Marie Trevelyan said:

The original funding for the Green Homes Grant Voucher Scheme was announced as a short-term stimulus, for use in the 2020/21 financial year only. In the 2020 Spending Review, my Rt. Hon. Friend Mr Chancellor of the Exchequer announced £320 million of funding for the Green Homes Grant Voucher Scheme for 2021/22, as part of funding allocated to make homes and buildings more energy efficient and less carbon intensive.148

66.As of 8th February 2021, 22,165 vouchers had been issued to customers, with a value of £94.1 million.149 This is around six per cent of the initial £1.5bn budget.

Early termination of the scheme

67.On the 19th February 2021, The Times newspaper reported that the Green Homes Grant was to come to an end in March 2021.150 A Government spokesperson said:

The green homes grant voucher scheme was designed to provide a short-term economic stimulus while tackling our contribution to climate change. However, the prevalence of Covid-19 since the scheme’s launch in September last year has led to an understandable reluctance on the part of the public to welcome tradespeople into their homes.151

68.There is no prohibition in law on tradespeople entering domestic properties to carry out work, though Government guidance recommends that protective measures are observed.152 We received no evidence that householders had been unwilling to have installers in for reasons connected with covid-19. The vast majority we heard from had experienced challenges in finding a tradesperson who was TrustMark registered and available to quote for the job, or to undertake the work required if the application was approved in time. The companies that we heard from were oversubscribed with work orders, but unable to deliver the installations requested, since the administration of the scheme and payment of vouchers were holding them back.153 The EEIG, CBI, Energy UK and others wrote to the Chancellor of the Exchequer in February 2021 urging him to keep the GHG, in the year that the UK hosts COP26, as a measure contributing to achievement of the UK’s net zero targets by 2050.154 In the 2021 Budget the scheme was not scrapped so it will continue to March 2022 with a reduced budget of £320m. Kemi Badenoch confirmed this to us the following day,

… the green homes grant is a policy that has not quite worked in the way that we wanted it to and we are looking at how we can improve it.155

69.We welcome the Government’s introduction of a scheme for owner occupiers to fund energy efficiency improvements. Such a scheme is essential in order to achieve the ambition to reach energy efficient homes by 2030, given this is by far the largest pool of housing stock across the UK. But the Green Homes Grant has been rushed in conception and poorly implemented. In its haste to create a scheme to deliver economic stimulus, the Government failed to consult industry adequately on its delivery, set a timescale which was overly short term and has presided over scheme administration which appears nothing short of disastrous. If the ambition for the scheme to retrofit 600,000 homes envisaged completion of the work by the end of the current financial year, then the Government has been wildly optimistic in its scheme planning and industry engagement. The impact of its botched implementation has had devastating consequences on many of the builders and installers that can do the work, who have been left in limbo as a result of the orders cancelled and time taken to approve applications.

70.It is commendable that the Government has been keen to avoid fraud in administration of the scheme by only allowing Trustmark and PAS registered companies to participate. But the anti-fraud precautions have been so complex that vouchers are simply not being issued. Consumers are frustrated by delays in delivery, and the industry which the scheme was set up to support has been completely failed. Companies are losing orders, laying off staff and have warned they may close altogether. Extraordinarily, rather than providing an economic stimulus for sector recovery, the scheme’s operation may have reduced its capacity in the short term.

71.We recommend that the Green Homes Grant scheme be urgently overhauled and extended to provide a genuine long-term stimulus to the domestic energy efficiency sector. The scheme should not be scrapped or quietly wound down. The Government must address the design and administration issues with the scheme, and all allocated funding that has not been spent by the end of March 2021 should be rolled over into the next financial year. A multi-annual scheme must be delivered to provide the financial support to owner occupiers and build trust within the industry to encourage installers to get accredited and enable companies to hire staff. In its response to this report the Government should set out how it intends to revise the types of measures included in the scheme, streamline the application process, including the number of quotes required for application, and remove unnecessary bureaucracy at every step.

72.Sustained delivery of measures to support the transition to a 68 per cent reduction in emissions by 2030, and net zero by 2050, will require strategic planning and thorough engagement with all stakeholders. The Government’s strategic ambitions here require multi-annual spending commitments which may need to supersede Spending Review perspectives. Short-term tactical fixes in this sector, designed to deliver quick wins, have been proven to be counterproductive when not designed as part of an overall strategy.

73.We recommend that BEIS and the Treasury undertake a joint review of the preparation, launch, funding and delivery of the Green Homes Grant programme, and that the recommendations of that review be applied to all cross-Government working on programmes to deliver net zero objectives.

The Green Homes Grant Local Authority Delivery scheme

74.The Green Homes Grant Local Authority Delivery (LAD) scheme was announced in July 2020, providing £500 million allocated to local authorities to support low-income, fuel poor households.156 The scheme aims to raise the energy efficiency of low energy performance homes (those rated at EPC Bands E, F or G), including off-gas grid homes. Its focus is on owner occupiers and those in the private and social rented sector with a household income of under £30,000 across England. The initial phase of the scheme provided £200 million funding to March 2021.157 A second round was launched to September 2021, providing £300 million for Local Energy Hubs in England to support the upgrading of eligible homes.158

75.Karen Brown, from the Northern Housing Consortium, warned that the initial four week application deadline and the amount of information required to be provided meant that only schemes that were bid-ready could apply.159 The British Energy Efficiency Federation told us in November that the tight timescales for application were already showing signs of underspend.160 George Munson from Leeds City Council was more positive: he said it was a “fantastic opportunity” because it could provide a solution to all of the homes within an area regardless of tenure.161 He said:

We absolutely love area-based projects. It is something that we have been trying to do in Leeds for a number of years. We have always had to stitch different sources of funding together, often with different eligibility criteria. We might have one offer for private rented, a completely different offer for owner-occupiers and then something that is there for social housing. The complexity that brings means it is very hard to sell.162

The benefit of taking an area-based approach is that local authorities and social housing providers can use their homes as a catalyst to get contractors into an area, create economies of scale and get the community excited about the benefits of energy efficiency. A neighbourhood approach will improve the visual impact of the appearance of external insulation.163 Involving owner-occupiers and the private rented sector is more efficient and means a whole neighbourhood can be improved in one go.164

76.Karen Brown cautioned that local authorities did not in general have the capacity to undertake the coordination work required for such applications, and since the scheme was short term it would not build the capacity necessary at local authority level.165 George Munson confirmed that “finances and staff availability in local authorities [was] a long way down on where it was a few years ago”.166 He was encouraged by the partnership working being undertaken between local authorities, local enterprise partnerships (LEPs) and BEIS energy hubs. Leeds City Region had benefited from the staffing resource in the LEP to take ideas through to a business case and delivery. He said that utilising the energy hubs, to help make sure local authorities had the right roadmap, would help with capacity while local authorities built up their project management resources.167

77.We welcome the Green Homes Grant Local Authority Delivery scheme, and, in particular, the fact that it can be used to deliver improvements across all tenures. We consider that it has real potential to help build local authority capacity and energy efficiency supply chains by supporting area based approaches.

78.We recommend that, following an evaluation of Phase Two, the scheme is expanded with a larger budget, over a multi-year period, and a greater role for BEIS’s local energy hubs to supplement local authority capacity.

The Social Housing Decarbonisation Fund (SHDF)

79.The National Infrastructure Commission’s 2018 National Infrastructure Assessment made recommendations on improving the energy efficiency of social housing. It recommended that the Government allocate £3.8 billion between 2018 and 2030 to prioritise energy efficiency improvements in the social rented sector.168 In its manifesto for the 2019 general election, the Conservative Party pledged to spend £3.8bn over ten years on a Social Housing Decarbonisation Fund (SHDF), with £60m pledged for 2020–21, £240m in 2022–23 and £410m in 2023–24.169 To date, one tranche of this pledged funding has been allocated for expenditure: £60m funding was allocated in the November 2020 spending review, for use in the 2021–22 financial year.170

80.The Committee on Fuel Poverty recommended that the full £3.8bn pledged to the scheme should be allocated for spending, and that upgrading the energy efficiency of social housing homes of fuel poor households should be prioritised.171 The Local Government Association said that the Government should “urgently bring forward its commitment”,172 while the Northern Housing Consortium said expenditure of the promised £3.8bn should be brought forwards so that councils and housing associations can retrofit homes at scale and speed.173

81.In September 2020, a £50m fund for demonstrator projects under the SHDF was announced.174 Jenny Holland from the UK Green Building Council said this was “putting the cart before the horse” because the Government was requiring projects to achieve cost reductions of between five and 30 per cent in the demonstrator phase, when in practice the required efficiencies would be realised through delivery at scale.175 George Munson from Leeds City Council said that the authority had bid to the pilot stage of the SHDF:

What I was impressed with was the fact that there is quite a high ceiling on the level of investment into a property. It is up to around £30,000 per home. That allows you to do everything that you need to do to make that home essentially 2050 ready, zero-carbon ready. It is an excellent approach and a step-change to what we have seen in the past.176

82.Pedro Guertler, from E3G, told us that deep retrofits ought to be undertaken wherever possible.177 Whole house retrofits integrate fabric improvement measures, low carbon heating, on-site renewable generation and smart energy management in one-step upgrades.178 We believe deep retrofits are suitable only when properties become vacant. The SHDF approach makes good use of investment by transforming some of the worst-performing properties up to EPC band A or B without having to revisit and redo the work.179

83.Housing associations are able to apply for the demonstrator programme, but local authorities are required to lead any bid.180 Stonewater, a social housing provider, said that it understood that less than half of the funding available in the SHDF demonstrator was applied for by the sector. It considered that this was because many local authorities did not have their own stock or did not have the resources to lead bids.181

84.When asked whether the social housing targets were achievable, Kwasi Kwarteng told us:

… in the 2019 Conservative party manifesto, we committed something like £3.8 billion […] to social housing and to exactly this point of driving up energy efficiency. It is important to stress that that was over 10 years. Of the three measures that we committed a huge amount of money to over that period, which were social housing, public buildings and the home upgrades grant, the social housing element was the largest financial commitment. We feel that we can actually achieve what we set out to in that area. It is a crucially important area.182

85.We welcome the Social Housing Decarbonisation fund and support its aims to retrofit social housing at scale. However, to date only a fraction of the funding has been made available for demonstrator projects that may well not deliver the efficiencies that larger schemes could achieve.

86.The Government should bring forward the allocation of the £3.8bn of funding pledged before the 2019 general election. This would deliver cost savings at scale. This funding should be frontloaded to reap the benefits of cumulative emissions savings towards net zero. The Government should also allow housing associations to lead bids, so as to ensure that the available funding is used quickly and effectively.

Extending the Warm Home Discount

87.The Warm Home Discount is a one-off £140 payment applied to eligible customers’ electricity bills between October and April. It has been designed to help reduce costs for those living on a low income or a state pension over the winter months.183 It currently costs £350 million per year, and supporting two and a half million low-income and vulnerable households. The Energy White Paper proposes that it be extended to 2025/26 and expanded to £475 million, reaching three million households.184

88.While the money will benefit low income households, the expansion proposed in the White Paper appears to provide no signal or incentive to homeowners in receipt of the discount to spend the money to improve the energy efficiency of their home. Improvements in a property’s energy efficiency reduce its energy consumption, and therefore the household’s domestic bills, in perpetuity. Evidence to our inquiry from BEIS agreed with this:

Energy efficiency is the most sustainable long-term solution to fuel poverty and we are committed to reaching our statutory fuel poverty target of improving as many fuel poor homes as reasonably practicable to EPC Band C by the end of 2030, as well as our interim targets of Band E by 2020 and Band D by 2025.185

89.The proposed extension to the Warm Home Discount provides no apparent incentive to poor or vulnerable customers to invest in improving the energy efficiency of their homes. Energy efficiency is the most sustainable long-term solution to fuel poverty. The money earmarked for additional years of the scheme could be better applied to support energy efficiency objectives more directly, through Home Upgrade Grants or the Energy Company Obligation, to improve energy efficiency and to lower energy bills in perpetuity for those struggling to pay.