Local government and the path to net zero Contents

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2Homes

33.To achieve net zero, there need to be reductions in carbon emissions from both new and existing homes. In 2019 UK residential buildings emitted 66.5 million tonnes67 of CO2 equivalent (Mt CO2e), amounting to 18.2% of all UK CO2 emissions. In the provisional data for 2020 this number and proportion both increased, to 67.7 Mt CO2e and 20.8% respectively, probably due to people spending more time at home due to the covid-19 pandemic.68 66% of UK homes have an Energy Performance Certificate (EPC) Banding D or worse,69 90% of homes in England currently use fossil fuels for heating, cooking and hot water, and 86% are connected to the gas grid.70 The CCC stated in June 2020 that whilst there had been progress in the 2008–15 period, with a 13% reduction in emissions from buildings (adjusted for temperature changes), there had been “negligible progress since 2015.”71

34.Local authorities have a vital role in the development of new homes through being able to set their own energy efficiency standards, which are stricter than the national requirements. They also ensure buildings in their area comply with local building regulations, for example through enforcing minimum energy efficiency standards on the private rented sector. Their Building Control teams will be responsible after 2025 for ensuring that homes which have been built comply with the Future Homes Standard. Local authorities also own council housing and therefore have responsibility for retrofitting those properties. Since 2010 they appear to have been more proactive than housing associations in carrying out installations such as improving insulation in social housing.72 As we consider below, much of our evidence also emphasised the important role local authorities can play in the retrofitting of other properties in their local areas.

35.Ensuring that homes, both new and existing, have lower carbon emissions partly depends on improving their insulation, and partly through replacing fossil fuel burning heating, primarily gas boilers. The Government’s ten-point plan for a green industrial revolution, launched in November 2020, set out the aim to install 600,000 heat pumps per year by 2028. In October 2021 the Government published its Heat and Buildings strategy,73 and trials of hydrogen heating in a local neighbourhood are planned to begin in 2023.74

New homes

The Future Homes Standard

36.From October 2019 to February 2020, the Government ran a consultation into a proposed Future Homes Standard. This proposed changes to the regulations for new homes in respect of fuel and power conservation, and ventilation. The Government published its response to the consultation in January 2021. It proposed requiring all new homes be “zero carbon ready” by 2025, meaning they should emit 75–80% less carbon than those built to the current standards introduced in 2013. It is envisaged this would see new homes typically having triple glazing and other insulation to minimise heat loss, and low carbon heating systems such as heat pumps.75 The Government plans to hold a technical consultation on the Future Homes Standard in 2023 and introduce the necessary regulations in 2024.76 An interim target of a 31% reduction in CO2 emissions compared to current standards would be introduced through regulations in December 2021. This would take effect in June 2022.77 This commitment was reiterated in the Government’s 2020 Planning White Paper.78 A further consultation took place in 2021 on the Future Buildings Standard, focusing on non-domestic buildings, improving the ventilation standards for existing homes, and on mitigating overheating in new residential buildings.79

37.Our evidence generally either supported the Future Homes Standard coming into effect in 2025,80 or thought it should be brought forward to an earlier date—potentially 2022 or 2023.81 Similarly, we heard that the prospective dates of 2023 for the technical consultation and 2024 for regulations were too late to provide the certainty needed for implementation in 2025, especially for developers and suppliers of equipment.82

38.Besides the evidence on the best dates for implementation, consultation and regulation, there were calls for the standard to be more ambitious, echoing calls for further action by the CCC.83 The proposed measures included incorporating higher fabric efficiency alongside, not instead of, the use of low-carbon technologies;84 and moving to a requirement for homes to be “zero carbon” rather than “zero carbon ready”.85 This would be similar to the target originally planned for 201686 but scrapped in 2015.87 The CCC has stated there are now an additional 1.8 million homes that now need retrofitting with low-carbon heat, compared to 2007,88 and Lord Deben, in his evidence to us, was very critical of the abandonment of the 2016 target for that reason.89 He also argued that the additional homes that will need retrofitting represented “housebuilders handing to the purchaser a bill, which they will have to pay, instead of the housebuilders paying it”.90 We heard during our inquiry into the future of the planning system in England that the major housing developer Barratt Developments is working to make all its standard properties zero carbon by 2025 and all its homes zero carbon by 2030. This was echoed by evidence that the housebuilding companies Barratt Developments and Persimmon Homes could construct zero carbon homes at little extra cost.91 We also heard that higher standards must not impact on the number of new affordable houses being delivered.92

39.The Minister, Eddie Hughes MP, understood the wish to “move as quickly as possible” but said this had to be balanced with the need to build new homes: “We need to make sure that we do not in any way have the unintended consequence of building far fewer homes because we are meeting unnecessarily strict targets”. He also argued that recently built houses would need only limited retrofitting and that it was important to ensure the building sector was prepared for the changes.93 In its Heat and Buildings Strategy the Government also announced its intention to consult on ending “gas grid connections to homes constructed from 2025 in favour of alternative low-carbon heat sources.”94 The Government also stated that it anticipated 200,000 of the expected 600,000 heat pumps being delivered annually by 2028 will go into new homes.95

40.Our evidence also considered the transitional arrangements. The main discussion was whether the stricter transitional standards proposed to take effect from 2022 should apply to new properties constructed on sites where other homes have already been constructed as part of the same development. The Government’s position is that the rules should apply to such properties.96 Although there were concerns about the changes, particular the problem of having to change the heating networks of sites already partly constructed,97 most of our evidence either supported the Government’s approach;98 or wanted the transitional arrangements to go further in terms of dates and in terms of stricter standards on walls and flooring. The latter would avoid costly retrofitting for social housing providers.99

41.Reaching net zero requires ensuring that new homes are designed and built in a way that will avoid subsequent retrofitting and are built to net zero standards. This will also avoid the cost of ensuring higher standards being borne by the people living in the property, rather than being met by the developer. There needs to be certainty about the details of the Future Homes Standard as soon as possible to ensure the 2025 target is met. The technical consultation on the Future Homes Standard should take place in 2022 rather than 2023, thereby enabling the relevant legislation to be brought forward as soon as possible to ensure greater certainty for suppliers and developers. The Government should consider setting a further target of moving to zero carbon homes by 2030.

42.The Government anticipates that only 200,000 heat pumps a year will be fitted into new homes by 2028. As the Government’s target is to build 300,000 homes a year by the mid-2020s, it should explain where the additional heat pumps and other low-carbon heating systems will come from to meet the demand of all 300,000 new homes.

Measuring energy efficiency

43.There was less support for the Government over the metrics being used to measure energy efficiency.100 This is an issue which applies to the measuring of both new homes and existing residences. There was criticism of the existing Energy Performance Certificates as “a tick-box exercise” which were unsuitable for traditional and rural properties, and needed reform.101 Proposed reforms to the certificates included better recognition of the decarbonisation of electricity.102 Proposed wider reforms to the metrics used included requiring calculations of carbon emissions produced by construction to include the embedded carbon of a property.103 Emphasis was also placed on ensuring measuring real, in-use performance.104 Similarly, action was advocated to close the performance gap between the theoretical and actual energy output of new homes.105 We were told it was estimated new build homes lost 50% more heat than they are designed to.106 Possible measures include better airtightness testing and standards,107 enhanced in-use measuring,108 and post-occupancy evaluations of new homes and public sector buildings.109 The Minister, Eddie Hughes MP, stated that, while he would not support mandatory post-occupancy evaluations, it nonetheless “has a role to play”.110

44.The public need to have confidence that homes stated to be net zero are as promised. Therefore, the Government should review the metrics used to measure energy efficiency in homes. This should include considering how energy performance certificates are calculated, how embedded carbon could be better incorporated into the calculations of the carbon emissions of properties, and how the in-use performance of properties can be accurately measured. The Government should introduce measures to close the performance gap, including post-occupancy evaluations, which assess whether the actual energy output of new properties meet the standards promised by the developers once they are being lived in. This is particularly important as evidence indicates that new homes can lose 50% more heat than expected.

The planning system

45.The construction of low-carbon and net zero homes can also be incentivised through the planning system. There was broad, though not complete,111 support for continuing to permit local authorities to set their own energy efficiency standards, which are above the national requirements, for developments needing planning permissions.112 However, the current system was also criticised as a race to the bottom, with developers doing the minimum possible to comply with existing home standards.113 It was also feared that stronger standards are being undermined by permitted development rights.114 The Government has announced reforms to the planning system, which we reported on in June 2021.115 The CCC commented that the reforms missed “the powerful opportunity to ensure that developments and infrastructure are compliant with Net Zero and appropriately resilient to climate change.”116

46.The general tenor of our evidence was a wish to give local authorities greater powers to use the planning system to require higher standards of energy efficiency. It was stressed to us by UK100 that existing powers are inadequate because:

you can sometimes have really ambitious sustainable planning ambitions and the national Planning Inspectorate will come along, rip it out and say it is a drag on the market. That is crazy. We should be creating a market that is more environmentally sustainable, so we need to ensure that the more ambitious things are supported rather than dragged back.117

47.It was also argued that the “framework for Local Plan making must adapt to recognise the urgency and importance of net zero aims.”118 Examples such as Reading Borough Council’s Local Plan being amended by the planning inspector, and similar fears the same would happen in Central Lincolnshire, were cited to show where the current rules around development viability stifle stricter energy efficiency standards.119 The risk of planning inspectors requiring alterations to Local Plans therefore discouraged local authorities from including bold targets in their draft Plans in the first place.120 This tied to concerns about the need to clarify in the National Planning Policy Framework (NPPF) that local authorities could set local energy efficiency standards for developments that were more rigorous than national standards.121 It was also proposed that the NPPF should ensure local authorities could insist on net zero housing,122 and that getting to net zero should be placed on the same level of importance in the NPPF as the current requirements for local authorities to consider forecasts of local housing need and to foster economic growth.123 This echoes the CCC’s call that the Government should “remove blocks and align powers and policies to be consistent with delivering Net Zero” including in planning policies.124

48.Besides these changes to the NPPF, the new national design code proposed by the Government was seen as another way of ensuring that new homes have high levels of energy efficiency. At present the proposed code, the national model design code, does not appear to consider these issues.125 It was proposed that the code could include requiring that sustainability be included in the local design codes drawn up by local authorities; and that attention be paid to the amount of carbon used in materials and in construction.126

49.Our evidence also called for the proper resourcing of the planning system to fill gaps in skills and knowledge about decarbonisation in local planning authorities. In our report into the future of the planning system in England, we followed the Royal Town Planning Institute’s (RTPI) call for £500 million over four years to support the planning system and fill specialist skill gaps.127 The RTPI explained it had wanted £67 million of that £500 million to be allocated to providing a full-time planner dedicated to climate change for each planning authority. Apart from a small amount of money for design, the called for funding has not been promised or delivered.128 A member of the Local Government Association’s (LGA) Environment, Economy, Housing and Transport Board, Councillor Rachel Blake, noted that 88% of local authority local directors surveyed by the LGA had mentioned skills shortages as a barrier to dealing with climate change. This reflects a wider consensus on the need for more skills and therefore resources for the planning system.129

50.The Government’s Net Zero Strategy stated its commitment to reviewing the NPPF “to make sure it contributes to climate change mitigation and adaptation as fully as possible” as part of its wider reforms to the planning system.130 It emphasised that the national model design code stresses that local design codes should consider the contribution of places and buildings to net zero targets.131

51.The Department for Levelling Up, Housing and Communities should ensure that future reforms to the planning system give a larger role to sustainability than is the case in the current planning system. We welcome the Government’s commitment to reviewing the National Planning Policy Framework to ensure it contributes to climate action, but the Net Zero and Heating and Buildings strategies could have said more about the ability of local authorities to use the planning system to shape their communities in ways that reduce carbon emissions. We agree with local authorities continuing to be able to set their own, more extensive, energy efficiency standards for new housing developments. To support making new housing carbon neutral, net zero should be given a central role in the National Planning Policy Framework. This can and should be compatible with the Government’s target to deliver 300,000 new homes a year by the mid-2020s. Net zero should also be embedded in the new national design code and local design codes. Furthermore, local authorities should be given the ability to include tougher standards in Local Plans as unconditional requirements for all developments. The proposal in the Planning White Paper for local authorities to have a statutory responsibility to produce a Local Plan should also include a requirement that the Local Plan specifically addresses the issue of carbon emissions and how the local authority will ensure developments in their area contribute towards achieving net zero. This will enable local authorities to take a strategic approach about how to foster developments that will help reduce carbon emissions. To ensure that planning authorities have the necessary skills to devise and monitor effective decarbonisation policies we reiterate the recommendation from our recent planning report for £500 million to be invested over four years into funding the planning system.

Retrofitting of existing homes

52.The Government’s figures show that c.16 million homes in England have EPC Band below C.132 The Government’s ambition is to raise to EPC Band C as many homes as possible in England and Wales by 2035 where it is cost effective, practical, and affordable.133 This means these homes will need work undertaken to enhance their energy efficiency and to replace their fossil fuel, usually gas, heating systems. The CCC singled out the lack of progress in upgrading buildings, noting that insulation rates have consistently been below the level seen in 2012.134 Furthermore, the Government’s statistics on greenhouse gas emissions show that not only were the provisional CO2 emissions of residential properties in 2020 higher than in 2019, but the low point of annual residential CO2 emissions was back in 2014.135

53.The CCC has estimated the cost of decarbonising buildings could be as much as £250 billion.136 However, upgrading all UK homes to EPC Band C could save £7.5 billion on annual energy bills.137 Our evidence highlighted the possible costs at a local level. It is reckoned the cost per home could be £20,000 to £30,000.138 Essex County Council has estimated that retrofitting in Essex to at least EPC Band C would cost £6.8 billion.139

Funding for retrofitting

54.The Government has put various schemes in place to encourage retrofitting. The Conservative Party’s 2019 manifesto promised £9.2 billion in energy efficiency funding for homes, schools and hospitals.140 This included a Public Sector Decarbonisation Scheme, whose funding would rise to £690 million by 2023–24, and a Social Housing Decarbonisation Fund, whose funding would rise from £60 million in 2021–22 to £240 million in 2022–23 and £410 million in 2023–24.141 In July 2020 the Government announced in the Plans for Jobs 2020 policy paper its intention to launch a Green Homes Grant scheme.142 In September 2020 the Government launched this policy, backed with £2 billion worth of funding, and divided into two schemes: the Green Homes Grant Voucher scheme and the Local Authority Delivery schemes. The voucher scheme received £1.5 billion, which paid up to £5,000 to homeowners and landlords to cover up to two-thirds of the cost of upgrading energy performance, and for people on low-incomes up to £10,000, covering the whole cost.143 By 6 September 2021, at least 36,400 installations had taken place with 32,700 vouchers paid, out of a total number of 169,300 applications for vouchers from 113,700 households.144 The voucher scheme closed at the end of March 2021, with an unspent £300 million being redirected to local authorities.145 In May 2021 the Government acknowledged that the scheme “has not been delivering at the rate and scale we had originally hoped.”146

55.Another £500 million was ringfenced for the Local Authority Delivery scheme. The first phase (1A and 1B) allocated money to particular projects in different local authorities, with phase 1A spending £74 million targeted at c.10,000 low-income households; and phase 1B allocating £126 million to 81 local authority-led bids.147 Phase 2 allocated £300 million to five local energy hubs acting as regional points of expertise and coordination.148 Phase 3, with £200 million available, was combined with the £150 million Home Upgrade Grant Phase 1, into the Sustainable Warmth Competition. This aims to upgrade owner-occupier and private rented homes with EPC Bands of D to G which are lived in by low-income families. Local authorities have to bid for the money, with successful projects allocated funding by the end of 2021, and projects having to be completed by 31 March 2023.149

56.The voucher scheme was strongly criticised by the Environmental Audit Committee for being “rushed in conception and poorly implemented” with a lack of consultation, overly short timescales, “disastrous” administration and overly complex anti-fraud measures. The consequences were that vouchers were not issued, companies lost orders, and staff were laid off.150 Similar criticisms were made by the NAO,151 and in our evidence.152 Lord Callanan acknowledged: “It is fair to say that the Green Homes Grant has not been one of our finest success stories. A lot of work went into it. We did gain a wealth of experience and knowledge, but clearly it did not fulfil the high expectations we had of it originally.”153 The relative failure of this scheme echoed the failure of previous schemes to support retrofitting. In 2016 the NAO similarly criticised the Coalition Government’s Green Deal scheme, which had enabled householders to borrow money to improve the energy efficiency of their homes, but failed to attract the public take-up expected by the government.154 A recent review of the supply chain demonstrator scheme155 by BEIS also noted there was “general scepticism from the installer supply chain about the likely returns, and / or long term prospects of a Government funded scheme; often on the basis of previous experiences e.g. Green Deal.” These experiences caused “a lack of trust in government initiatives.”156

57.By contrast we heard praise for the Local Authority Delivery scheme.157 By the end of July 2021 at least 4,933 installations—primarily of insulation—in 4,025 households had been completed as part of phase 1.158 It was expected eventually phase 1 would eventually upgrade 20,000 to 25,000 homes and phase 2 would upgrade 30,000 homes.159 The Northern Housing Consortium commented: “With longer-term certainty, local authorities could deliver even more ambitious schemes and use various funding streams to shape local supply chain capacity.”160 The consortium particular praised the second phase, because of the pre-allocation of funds that avoided money being wasted on bids that would not succeed.161 Therefore it was regrettable that funding is scheduled to end on 31 December 2021.162

58.The Public Sector Decarbonisation Scheme is focused on funding the decarbonisation of the buildings of public sector organisations, including local authorities. It is managed by Salix Finance Ltd, a non-departmental public body sponsored by BEIS.163 There have now been three phases of the scheme: £1 billion committed in 2020 to bolster the economy; £75 million provided for the 2021–22 financial year concentrated on heat decarbonisation; and a third phase for which applications began on the 6 October 2021.164 The Public Sector Decarbonisation Scheme received similar praise to the Local Authority Delivery Scheme.165 However, the same complaint was made about both schemes: that they were too short in duration, particularly in their bidding period.166

59.The Social Housing Decarbonisation Fund is aimed at improving the energy performance of social rented homes. As a pilot scheme, in October 2020 the £62 million Social Housing Decarbonisation Fund Demonstrator was launched, aiming to raise over 2,300 homes to EPC Band C.167 In June 2021, the competition to win allocations of first wave of the fund, worth £160 million, was launched.168 Our evidence on this fund echoed the recommendation of the Environmental Audit Committee for the promised £3.8 billion Social Housing Decarbonisation Fund to be front-loaded “rather than trickled out over 10 years”, enabling the retrofitting of social housing to build up the wider skills and supply chain of the retrofitting industry.169 A review by BEIS also found that 48% of social housing providers thought the Government’s policy regarding energy performance in social housing was unclear, and 23% were not sure. Only 34% of social housing providers had heard of the Social Housing Decarbonisation Fund, with small providers having low levels of awareness.170

Proposals for future funding

60.We heard several proposals for how future funding for retrofitting should be organised and focused. First, local authorities should be given a central role,171 as is the case with the Home Upgrade Grant, which is targeted at low-income households and is being introduced in 2022.172 It was also proposed that local authorities should be able to combine together pots of money from different schemes,173 and that funding be devolved to regional levels,174 with cooperation fostered by Green Growth Boards consisting of the local authorities and other stakeholders in an area.175

61.Secondly, even those successful in the Local Authority Delivery scheme thought funding needed to be awarded by means other than competitive bidding.176 The LGA criticised the projects that were awarded money through the Social Housing Decarbonisation Fund Demonstrator for being “nearly identical” and “lacking any innovative approaches.”177 The UK100 noted the Public Sector Decarbonisation Scheme and the Low Carbon Skills Fund178 were both awarded through competitive bidding with short timeframes for applications and delivery of projects, and therefore the majority of recipients were larger urban authorities or those already strongly active on climate change. Those most in need were less likely to bid due to a lack of capacity.179 Furthermore, money spent on bidding was money not spent on retrofitting.180

62.Thirdly, the needs of the ‘able-to-pay’ market cannot be neglected; retrofitting needs to be incentivised for all types of housing and all income levels.181 Different funding approaches are needed based on household income—a mixed approach is already employed by some local authorities.182 Poorer families, regardless of housing tenure, need a grant-based system.183 There is a place for loans to wealthier homeowners.184 If loans are adopted then lessons should be learnt from the failed ‘Green Deal’ initiative of the Coalition Government,185 including ensuring an attractive rate of interest is offered and greater security to encourage local authorities to invest.186 Attention should also be paid to the pilot scheme in Scotland where several local authorities are providing equity loans, where individuals can borrow against the value of their property, secured against the sale of the property.187

63.Fourthly, the Government must ensure that retrofitting is feasible for social housing.188 This could include bringing forward the remainder of the promised £3.8 billion the Government has committed to the Social Housing Decarbonisation Fund.189 We were concerned by the warning from the representatives of arms-length management organisations, who manage nearly 350,000 council homes in England, that the estimated cost of retrofitting (£20,000 to £30,000 per homes) their existing homes was “completely unaffordable” and would require the properties to be demolished and rebuilt.190 PlaceShapers, an organisation made up of over one hundred housing associations, told us that the cost of retrofitting meant all but one of their members reported they “would be bankrupted well before 2050.”191 We were also told there should be reforms to any successor to the current Domestic Renewable Heat Incentive scheme,192 which ends in March 2022, as it is “resource intensive and difficult to apply for.”193 Government help may also be needed to overcome the problem of social housing providers recouping the costs of energy performance improvement work on mixed tenure housing from leaseholders and share owners, as this is a significant barrier to such work taking place.194

64.Fifthly, there needs to be long-term certainty rather than short-term schemes.195 One potential benefit of such long-term certainty over spending would be to facilitate an increase in the number of installers, something the green home schemes did not achieve,196 with a minimum schedule of ten years being mentioned as necessary to build up the retrofitting industry.197 Sixthly, future retrofitting schemes need to be properly funded, clear, and easy to access, with obvious benefits to the participants.198

65.Alongside government funding, we heard calls for tax incentives and support for private investment to promote retrofitting. This could include reduced or zero-rated VAT,199 measures which the Prime Minister appeared to sympathise with when asked about this at the Liaison Committee.200 There were similarly calls for tax incentives through levying different rates of stamp duty,201 and council tax to reflect the energy efficiency of the property.202

66.Another source of funding is from the private sector. Michael Lewis, CEO of the gas and electricity supplier E.ON, argued that extracting 3% or 5% of the £275 billion annual mortgage market could be a useful source of funding for retrofitting.203 This could be undertaken either through a process of certification to prove a house being sold meets the required standards or by offering stamp duty relief for buyers committing to make improvements.204 This reflected wider enthusiasm for the concept of green mortgages, which are mortgages with more favourable terms, such as lower interest rates, for more energy efficient properties.205 Similarly, we were told that the UK Infrastructure Bank, which has two core objectives of tackling climate change and supporting regional and local economic growth,206 had an important role in supporting retrofitting.207 The example was cited to us of the German national infrastructure bank, the KfW, which had generated €6 in private financial support for retrofitting for each euro it had invested. It was suggested the UK Infrastructure Bank could underwrite the interest rates on loans by banks and building societies for retrofitting,208 and provide technical assistance to local authorities, particularly for those lacking the expertise in infrastructure projects and investment.209 The Government stated that it would not be possible for the whole of the estimated £250 billion cost of decarbonising buildings to be met by the taxpayer. Similarly, whilst the Government has invested £2.5 bullion into the National Skills Fund to fund the training of adults, including in installing heat pumps and insulation, Lord Callanan also pointed to the £10 million construction of a training facility in Slough by the energy company Octopus, as reflecting an approach of public and private funding.210

67.After we had finished taking evidence for this inquiry, and shortly before the publication of our report, the Government published its Heat and Buildings Strategy and its Net Zero Strategy.211 The former announced that detached properties using oil or liquid petroleum gas (LPG) with EPC Band E, and large, detached grade-listed properties with EPC Bands E or F would from 2026 have to adopt a low-carbon heating system when their current system needs replacing. All other houses would have to move to low-carbon heating when they need to change their heating system from 2035.212 It also announced a £450 million Boiler Upgrade Scheme, which had previously been consulted on as the Clean Heat Grant, to fund the installation of low-carbon heating through to 2025. Households would receive £5,000 in government grants for installing air-source heat pumps and biomass boilers, and £6,000 for ground-source heat pumps.213 The Government expected that the cost of installing heat pumps would fall by 25 to 50% by 2025 and move towards parity with boilers by 2030.214 This scheme would be part of £3.9 billion promised for the 2022/23 to 2024/25 period to decarbonise heat and building. This £3.9 billion also included a further £1.425 billion to fund the Public Sector Decarbonisation Scheme, an additional £950 million for the Home Upgrade Grant scheme and an additional £800 million for the Social Housing Decarbonisation Fund.215 The Government also announced there would be £338 million for the Heat Network Transformation Programme.216 Money would also be taken from the £1 billion Net Zero Innovation Portfolio to provide £65 million for the Flexibility Innovation Programme to support innovative projects that would help manage the increased demand on the UK’s electricity system,217 and the £60 million provided for the Heat Pump Ready programme that would be awarded through a competitive process.218

68.The Government also proposed that mortgage lenders should disclose details of the EPC banding of the homes on which they lend, as part of a voluntary improvement target of moving houses to have an average EPC Band C by 2030. If progress was insufficient compulsory targets could be introduced.219 UK Finance, representing banks and mortgage lenders, feared this could trap homeowners in negative equity if they could not cost-effectively improve their homes, with the potential for a two-tier market might develop.220 The Strategy also explained that the UK Infrastructure Bank would develop expert advisory services to help local authorities with developing and financing projects; and would lend to local authorities “for high value and strategic projects of at least £5 million”, thereby drawing in private sector investment.221

69.The retrofitting of existing homes is essential for ensuring the UK reaches net zero by 2050. Retrofitting will come at substantial cost and can only be achieved through a mix of both public and private funding. We welcome the additional £3.9 billion of funding being provided for retrofitting as outlined in the Government’s Heat and Buildings Strategy, including for public sector buildings, social housing, and low-income families. But more needs to be done to provide long-term certainty for funding for retrofitting beyond 2025. The Government should set out its longer-term funding plans beyond 2025, and outline the share of funding for retrofitting it anticipates will come from private investment. The use of private sector financial instruments should be encouraged and incentivised by government. This should include greater action by the UK Infrastructure Bank to support private financing of retrofitting, following the example of the German national infrastructure bank. We note the Government’s proposal to encourage green mortgages, and this should be subject to extensive consultation to avoid unintended consequences. The Government should also consider offering tax incentives, which could include lower VAT, stamp duty and council tax, for energy efficient measures and homes.

70.The Green Homes Grant voucher scheme proved a disappointing failure, and it is important that the reasons for its failure–that it was created too quickly, had high management and administration costs, and did not last long enough–should shape future schemes. Above all both the voucher scheme and the previous Green Deal failed to achieve the expected level of take up by the public. These repeated failures make it essential that future schemes are a success and that all relevant government departments, including the Treasury, alter their approach accordingly. Although the funding delivered through the Boiler Upgrade Scheme is welcome, we note that the scheme will only fund at most 90,000 additional heat pumps, and there is seemingly no role for local authorities in the delivery of the scheme. The effectiveness of the scheme should be monitored closely to ensure its successful contribution to retrofitting of homes.

71.Future retrofitting schemes will be needed to incentivise the public to switch to low carbon heating. Such schemes should be put in place after a thorough consultation with stakeholders, including with the public. We believe the following five principles would provide a solid foundation for future schemes:

• local authorities should have a major role;
• the funding provided to local authorities should primarily be allocated without using competitive bidding;
• schemes should be adapted to different types of housing and income groups;
• schemes should be long-term in duration to provide certainty for the public and suppliers, and to ensure a skilled and qualified workforce is built up to safely install the necessary equipment; and
• schemes should be clear and easily accessible.

72.The Government is proposing that certain properties with low EPC Bands and using electricity and LPG gas will need to choose a low-carbon heating system when replacing their existing one from 2026. This contrasts with the same requirement on replacing heating systems only applying to homes that are on the gas grid from 2035. The Government should explain the rationale for these different approaches. The lack of a requirement to replace a gas boiler that has ceased working with a low-carbon heating system until 2035 risks a large number of existing gas boilers simply being replaced with new gas boilers, especially given that there is a lack of incentives to do otherwise. Furthermore, the Government should set out its plans for properties that cannot be retrofitted.

The role of local authorities in retrofitting

73.Local authorities have a vital role to play in retrofitting. We were told there should be an “area-based strategy with local authorities the key delivery partner. The coordination of funding in a local area would enhance the effectiveness and value for money of energy efficiency improvement measures”.222 Local authorities in Scotland produce renovation schemes and local heat and energy efficiency strategies, and several are involved in a pilot scheme to provide equity loans, where individuals can borrow against the value of their property, secured against the sale of the property.223

74.A similar role for local authorities in England would also help ensure that the public is advised as to the choices available for retrofitting, so they have confidence it will be properly installed.224 We heard various technologies being championed for use in retrofitting—primarily heat pumps,225 and hydrogen,226 but also infrared heating,227 bio-LPG (liquid petroleum gas),228 and direct electric heating.229 The potential of a number of power sources was also emphasised to us, such as PV solar panels,230 district heating networks,231 modular nuclear,232 and nuclear fusion power.233 The importance of keeping options open was also emphasised.234 The Climate Assembly UK rightly stressed the importance of the public being provided with as much choice as possible in the retrofitting process, including over the technology provided.235 Such choice, coupled with local authority communications about the options available, will help overcome public reticence and lack of awareness about retrofitting.236 We were also told that there needs to be clarity on what will be done with properties that are very hard to retrofit - for example, the 460,000 listed buildings in the UK.237 We were therefore pleased that Lord Callanan acknowledged that there would not be a silver bullet approach with different solutions needed for different buildings and housing types.238

75.Local government could also play an important role in bolstering the number of skilled, qualified people able to install the new technologies. The Construction Industry Training Board has calculated that the UK would need 7,500 heat pump installers, 12,000 installers of fabrics such as insulation, and 200 hydrogen boiler installers being trained per year by 2025, and 15,000 heat pump installers, up to 30,000 fabric installers, and 1,500 hydrogen boiler installers by 2031.239 Local government was seen to have a threefold role: ensuring coordination across a locality or city, to bring the “skills sector together with the construction clients and contractors.” The second was preparing and informing people about the move to net zero.240 Thirdly, there were calls for partnerships between local authorities, businesses, and schools and colleges to foster co-operation.241

76.The Government’s Heat and Building Strategy endorsed the principle of public choice and recognised the importance of public engagement in retrofitting.242 It also stated that the Government plans to draw on trials of hydrogen in a neighbourhood and village to “inform a strategic decision on the role of hydrogen in decarbonising heat in 2026.”243

77.The Climate Assembly UK emphasised the importance of giving the public choice over how retrofitting takes place, including over which technologies are installed. Choice is important in securing public support for retrofitting. Local authorities can play an important role in supporting retrofitting in their local area, by assisting with organisation, advice, promotion and consultation with communities. The Government must ensure there is as much choice for the public in deciding how their homes are retrofitted as is technologically possible. There is therefore a need for progress on developing alternatives to heat pumps, including hydrogen heating. Local authorities should be given the necessary support and resources to fulfil their important role in retrofitting.

Enforcing energy efficiency standards

78.Local authorities have an important role in enforcing the minimum energy efficiency standards that are required of the private rented sector.244 We were told that the greatest barrier to the enforcement of these standards by local authorities is their lack of resources to fund it.245 We were also told the Standard Assessment Procedure246 should be reformed to reflect changes in low and zero carbon technology,247 and a database of landlords established.248 We were pleased to hear the Government is considering a register of landlords.249 Furthermore, we received considerable evidence calling for reforms to the Decent Homes Standard,250 as part of the Government’s on-going review,251 with a strong energy efficiency requirement, for example by requiring that all social housing meet EPC Band C by 2028.252 The last proposal echoed the recent call of the Committee on Fuel Poverty for social housing to have to be EPC Band C by 2030.253

79.We were told that local government needs additional resources to enforce minimum energy efficiency standards in the private rented sector. Resources should be made available for this purpose. Enforcement would also be aided by the introduction of a register of landlords, as already undertaken in certain local authorities, and we are pleased to hear the Government is considering this as an option. This register must be compulsory and local authorities must have enforcement powers to ensure registration.