Government risks missing retrofit targets without interest-free loans, warns NEF

The government’s Warm Homes Plan risks missing its home insulation and heat pump targets unless it makes finance available, through interest-free loans, for middle-income households, analysis by the New Economics Foundation (NEF) has found.

The thinktank has today [Monday 20 January] published a major new report which provides a detailed plan for the decarbonisation of UK homes. Researchers set out how the government should introduce an interest-free loan scheme, backed by the Bank of England, to help households afford the necessary upgrades to their homes.

The report, A blueprint for warmer homes: How to deliver a retrofit programme, sets out the scale of the challenge facing the government with an estimated £315bn required to retrofit the UK’s housing stock by 2050. To make the necessary investment, the report proposes an interest-free loan scheme delivered through the National Wealth Fund.

The report sets out how this would make home upgrades more affordable for households while unlocking £62 billion in private investment with just £3 billion in government-backed interest subsidies over the next decade.

The analysis found that under the current scheme, the Warm Homes Plan was unlikely to meet its target of retrofitting 5m homes by the end of this parliament, including its fuel poverty target, with just 2.26m households in fuel poverty receiving deep retrofit measures by 2034.

Chaitanya Kumar, head of economic and environmental policy at NEF, said:

“Everybody should be able to afford to heat their home, and the government’s Warm Homes Plan could go a long way to help people afford their bills while cutting emissions.

“However, it’s clear that the government is finding it difficult to encourage homeowners who don’t qualify for a grant to take up loans which they then have to pay interest on. This means millions of people are left unable to afford to heat their home.

“Government investment in interest-free loans for middle-income homeowners would not only allow households to upgrade their homes and worry less about energy bills – it would boost the economy and cut emissions at the same time.”

The key proposals in the report include:

• Zero-Interest loans for home upgrades: Offering middle-income households access to affordable finance for installing insulation, heat pumps, and solar energy systems.

• Targeted support for vulnerable households: Providing support to retrofit 2.26 million homes in fuel poverty over the next decade. The report advocates for a majority of the proposed £13.2bn of investment over the parliament to be focused on tackling fuel poverty.

• A local delivery model: Strengthening the role of councils and community organisations to manage retrofitting programmes tailored to local needs, while creating jobs and building skills. Moving away from a competitive funding model for local authorities to a needs based one is right and the report urges the government to maintain this approach.

• Significant economic benefits: Every £1 of public investment is projected to generate £4.60 in private investment and £6.90 in broader economic activity.

ENDS

Contact

James Rush – james.rush@neweconomics.org

Notes

The New Economics Foundation is a charitable think tank. We are independent of political parties and committed to being transparent about how we are funded.

The report, A blueprint for warmer homes: How to deliver a retrofit revolution, will be available here from 00.01 Thursday 30 January.

NEF calculated it would cost £315bn to retrofit the UK’s housing stock by adjusting estimates published by the Climate Change Committee for inflation and accounting for investment already made since 2020.

We estimate the government’s current plans will see 2.26m households in fuel poverty receive deep retrofit measures by 2034 by assuming over 90% of the £13.2bn in capital allocation for this parliament is directed to address fuel poverty and ​“whole-house” interventions are funded as a result. In other words, both insulation and heat pumps are installed to upgrade the home to a higher standard.

We estimate that every £1 of public investment is projected to generate £4.60 in private investment and £6.90 in broader economic activity. These figures represent the ratio of the cost to government of home upgrades (which includes the upfront grants to fuel poor households and the cost of interest paid on loans to middle income households) and the total investment mobilised through private finance.