A blueprint for warmer homes

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Decarbonising the UK’s homes is an immense challenge, often described as the biggest infrastructural undertaking of the 21st century. According to estimates from the Climate Change Committee (CCC), approximately £315bn in funding is required to achieve the necessary upgrades. A portion of this funding must be publicly sourced, and the new Labour government has pledged £13.2bn over the current parliamentary term for energy efficiency and low-carbon heating initiatives.

This report explores the optimal allocation of this funding and provides a set of value for money (VfM) principles that should underpin the government’s Warm Homes Plan. We argue that a successful Warm Homes Plan requires stable, needs-based funding and a robust local delivery model. Rather than relying on competitive bidding, a needs-based funding system should provide long-term, predictable financial support for local authorities to lead retrofit initiatives. This approach aims to strengthen the capacity of local governments to deliver tailored, community-specific retrofit solutions, fostering long-term economic growth and supporting a sustainable transition to a low-carbon future.

Funding and financing are critical components of this programme. In this report, we model three scenarios: the baseline scenario with £13.2bn over five years and a new loan scheme for able-to-pay households; a similar public spending scenario with reduced interest rates; and a scenario with a £30bn commitment over five years with low-cost lending, acknowledging that even with the best of intentions, current budgets for public investment will be inadequate to meet the decarbonisation challenge. Interest rates significantly impact these models, as many home upgrades are expected to be funded by zero-interest loans with local authorities and central government borrowing at different rates.

We argue that tackling fuel poverty should be central to the Warm Homes Plan. In our baseline scenario, 390,000 fuel-poor households will be upgraded in the first two years, increasing to 1.27m by year five, incorporating low-carbon heating measures like heat pumps and solar thermal systems alongside basic retrofit measures. Over a decade, just over half of the UK’s approximately 4.4m (2.26m) households in fuel poverty (as of 2022) will receive deep retrofit measures. This includes most social housing occupants in fuel poverty and just under two-thirds in the private rented sector. With an estimated £22.7bn in grant expenditure, the government could enable £37bn in capital expenditure on retrofitting fuel-poor homes over ten years.

The strategy is also poised to boost economic growth, with every £1 of public investment estimated to generate £4.60 in capital expenditure and £6.90 in broader economic activity. This economic stimulus will support the creation of thousands of green jobs and contribute to a robust supply chain for retrofitting services.

We make the following recommendations to the government:

• Establish a national homes upgrade unit (NHU) Create a central body to coordinate efforts, provide guidance, and ensure efficient delivery of the Warm Homes Plan.
• Adopt a needs-based funding model: End competitive bidding for retrofit funding. Introduce long-term, needs-based funding to support area-based delivery and increase the Warm Homes: Local Grant’s allocation beyond the existing £88m.
• Empower local authorities for area-based delivery: Enable councils to develop long-term capabilities for delivering retrofit – supporting local supply chains, reducing costs through economies of scale, and increasing community engagement.
• Introduce new loan schemes for able-to-pay households: Launch low- or zero-interest loans through the UK Infrastructure Bank, now the National Wealth Fund (NWF), allowing middle-income households to access affordable financing for home upgrades. Concurrently, consider a targeted term funding scheme to provide low-cost, long-term financing for retrofit investments. This approach would offer affordable credit to banks and lenders on the condition that the funds are used exclusively for home energy efficiency projects. By aligning the cost of capital with retrofit goals, the Term Funding Scheme (TFS) can reduce borrowing costs for households and local authorities.
• Prioritise workforce development: Implement a large-scale training programme for retrofit jobs, ensuring a skilled workforce to meet growing demand and supporting a strong green job market.

The home retrofitting programme outlined in this report presents a ​‘starting gun’ strategy for Labour’s Warm Homes Plan. By addressing financial and practical challenges through coordinated national efforts, targeted funding, and robust training programmes, the UK can make significant progress in decarbonising homes, achieving climate goals, and providing significant economic benefits.

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