A green stimulus for housing

The macroeconomic impacts of a UK whole house retrofit programme

By Donal Brown, Hanna Wheatley, Chaitanya Kumar, Joanne Marshall

07 July 2020

This report makes the case that the nature of the recession predicted over the coming years necessitates fiscal stimulus measures to restart and redirect the UK economy. At the same time, the UK’s climate change targets necessitate the ‘retrofit’ of millions of homes in the coming years, involving multiple, integrated building fabric measures, new heating systems and controls, and the widespread adoption of rooftop solar.

Several organisations and groups across the political spectrum have called for an economic stimulus of building retrofits, including Policy Exchange, McKinsey, Confederation of British Industry, Local Government Association, the Green Finance Institute and most recently the Energy Efficiency Infrastructure Group. This report adds to that growing list, but we go further and model a radical scenario where around 9m UK homes receive whole-house retrofit measures over the remaining course of this parliament, saving around 15% of total domestic energy demand. This is not only necessary but is also feasible. Through our bottom-up assessment of jobs and comprehensive policy proposals, we add the ‘how’ to the growing calls for housing retrofit to be a key part of a green recovery.

Our modelling shows that such a scheme would produce massive benefits to the wider economy, including:

117,811 new direct jobs in year one, rising to a peak of 382,885, in year four. This is an average of 294,527 new jobs between 2020 – 2023/24, a 22% increase in total construction employment and a 162% increase in the renovation, maintenance and improvement sector. This rises to an average of 515,157 when factoring in indirect jobs.
These measures would increase economic activity significantly. Our modelling shows that the level of annual GDP is expected to be 1.58% (or £36.34 billion in 2020 prices) higher in 2023/24, compared with the level of economic activity otherwise expected for that year. Average annual energy bill savings of £418 for each home retrofitted.
Emissions savings of approximately 19.23MtCO₂/year by 2023/24, or 21% of 2019 emissions from the UK’s homes. This is a cumulative 40.9 MtCO₂by 2023/24, meaing this policy proposal alone could surpass the UK’s fourth carbon budget targets.

The government’s manifesto commitment of spending £9.2bn over the course of the parliament on energy efficiency can bring some of the aforementioned benefits but risks falling short of comprehensively dealing with the multiple crises of jobs, climate and public health. Delivering these aims will also require an unprecedented and comprehensive suite of regulations, funding instruments and policy initiatives over the next four years. We propose a four-year government-led programme that:

Creates and funds a National Retrofit Taskforce with the primary aim of achieving an average Energy Performance Certificate (EPC) rating of C for all homes by 2030, beginning with this four-year programme.
Provides additional public capital investment of an average of £8.66bn per year for four years from 2020 – 2024, much of it supporting low-income households through grants – while also unlocking a cumulative total of around £71.95bn of private capital investment in that timeframe.
Introduces tax changes in the form of a fiscally neutral, variable Stamp Duty Land Tax for more efficient homes, and equalises the VAT treatment for all retrofitting works at 5%, provided the whole property is brought above certain EPC thresholds. In addition, the package includes green mortgages, public backed zero-interest loans and a boiler scrappage scheme, as incentives for ‘able to pay’ homeowners and landlords.
Strengthens Building regulations, including new mandatory energy efficiency works for ‘consequential improvements’, and support new business models, standards, supply chains and skills necessary to provide ‘whole-house retrofits’ for 8.69m UK homes.
Supports a long-term Area-Based Delivery approach, with local authorities playing a core role in tackling fuel poverty, creating demand and growing local supply chains.