In view of the past twelve months, we can be fairly sure next week’s Budget will focus on financial measures to support businesses and individuals through the covid pandemic, but it’s our hope that the Budget also reflects the government’s commitment to rebuild our economy in a more sustainable way.
Our latest report at the Royal Institute of British Architects (RIBA) – Greener Homes – focusses on the shocking energy performance of the UK’s housing stock and how the government can tackle the problem. This will not only help the UK reach its climate goals, but will simultaneously drive a ‘green economic recovery’ from Covid-19.
The need for a National Retrofit Strategy – a long term policy and investment programme to upgrade the energy efficiency of our housing stock – is clear. It’s estimated that 85% of our homes will still be in use by 2050 and, of those homes, around 19 million require retrofitting to reach the government’s target.
But the government’s historical ad hoc approach to energy efficiency funding and policies will not bring about this change. We need substantial and sustained up-front funding; this means bringing the £9.2 billion pledged in the Conservative manifesto forward, to be spent over the next five years.
We also need the government to classify improving the energy efficiency of our building stock as a national infrastructure priority. To date, buildings have not been seen as part of the nation’s infrastructure and have fallen victim to less funding as a result. Evidence shows that investing in energy efficiency improvements offers equivalent returns on investment as other big infrastructure projects such as HS2 and Crossrail.
A National Retrofit Strategy must also be backed by adequate green financing options. The Green Deal of 2013, the government’s flagship policy for stimulating demand in the able-to-pay sector, was largely ineffective due to its high interest rates and the fact homeowners were not convinced they could improve the energy efficiency of their homes based on savings from bills alone. When green finance schemes are delivered correctly – as we have seen in Germany – they can have a huge impact. In 2016 alone, the German system that combined public subsidies and low interest loans led to 276,000 energy renovations, dwarfing the 14,000 cumulative total driven by the UK’s Green Deal.
But government and private sector finance can (and will) only form part of the strategy. If we want to unlock a home-retrofitting revolution, we must encourage those in the ‘able-to-pay’ market to take their own initiative. This is where tax levers may be helpful.
Our Greener Homes report puts forward the idea that Stamp Duty Land Tax could be altered to help embed energy efficiency in the housing market. If the government introduced a sliding scale of stamp duty payments, where the most efficient homes pay much less tax than the least, it could encourage buyers to think twice about where and how they invest their money. The revised tax could be capped at £25,000 to avoid large and potentially punitive increases on expensive homes and could also have a time-limited rebate period, to encourage homeowners to make their own energy-efficient improvements post-sale.
Evidence shows that policies that embed energy efficiency within the housing market are more likely to be successful, and those that link to ‘trigger points’ – such as renovating or purchasing a home – are particularly effective, since homeowners are already prepared for disruption.
Linking property values and transaction costs more explicitly to energy performance would increase the likelihood of homeowners pursuing energy efficiency alongside other upgrades during their occupancy. In 2017-18, there were 1.1 million residential transactions; if these were linked to energy efficiency, this could result in significant number of urgently needed retrofits.
Tax reforms should not be limited to stamp duty. Council Tax, Inheritance Tax and Capital Gains Tax could and should also be revised to incentivise energy efficiency. But given the number of homes subject to Inheritance and Capital Gains Tax is much smaller than stamp duty, amending these taxes will not be as effective as stamp duty reform. If the government made these changes, however, they would show serious commitment to tackling the energy inefficiency of UK homes and reaching net zero.
A National Retrofit Strategy will not only help the environment by improving the energy efficiency of existing homes, it will support economic growth by reducing household energy bills and increasing disposable income. It will create skilled employment opportunities, especially in places like the north-east and west midlands, where there are high levels of both unemployment and poorly insulated housing.
A retrofitting programme of this scale is unprecedented, but implementing it will not only help the environment but will help a green economic recovery from covid. Next week’s Budget provides an opportunity to tackle the shocking energy inefficiency of UK homes while supporting economic growth and creating new jobs.