Incentives that drive household energy efficiency improvements can cut carbon and bolster the nation's energy security, writes CEN's Sam Payne.
The way in which we decarbonise our heat - be it through heat pumps, biomass boilers, or renewable liquid fuel - is still being debated. As we saw last week, the government has now decided to give households more time to weigh up their choices whilst giving them some steer with an increased heat pump grant. But everyone agrees that, unless the condition of our leaky housing stock is improved, we will not maximise the benefits of cleaner heating, whichever technology becomes mainstream.
The UK has the oldest housing stock in Europe, predominantly due to the vast number of houses built during the industrial revolution. Around 38 per cent of our homes were built before 1946, with these houses being the most difficult and most expensive to insulate. Unlike cash discounts on people's energy bills, incentivising energy efficiency measures will permanently cut bills and reduce energy waste. More energy efficient buildings means that less energy is required to heat and power our homes to comfortable levels, whether through more efficient appliances or by reducing the amount of energy lost. This in turn will reduce our reliance on imported gas for heat and power, which is weakening our energy security, increasing energy bills and contributing to the cost of living crisis. Whilst gas prices are not due to fall this decade, incentivising insulation, especially in the 5.8 million households that could easily install it, will help cut gas usage for years to come. Firstly, to widen accessibility to energy efficiency measures, an employee benefit scheme could be introduced, allowing employees to spread the cost of upgrades over a longer period of time, and benefit from a tax deduction. Measures such as insulation or energy efficient lighting costing up to £1000 could be paid for through a pre-tax salary sacrifice scheme, similar to the Cycle2Work scheme currently in place for the purchase of new bikes. Up to 63% of UK households could sufficiently upgrade their energy efficiency by spending £1,000 or less. As employees do not pay income tax or national insurance on the salary sacrificed, they would save up to £432.50 in taxes, depending on their tax band. Meanwhile participating employers would also save 15.05 per cent on the salary sacrificed, as they would reduce their national insurance cost.
For rented accommodation, it can be more challenging to improve energy efficiency, however the benefits can extend to both renters and landlords. Properties with a higher EPC rating can be let for a higher amount than those with a lower energy efficiency rating, increasing income for landlords. For tenants this means that properties will have lower energy bills, with energy efficiency improvements saving tenants on average £276 on bills per year.
However one of the biggest barriers for landlords to upgrade the energy efficiency in their properties is the upfront cost. The introduction of Private Rented Sector Minimum Energy Efficiency Standards (PRS MEES) is of course one part of the solution. In 2018, new requirements came into effect meaning that rented properties must be a minimum of EPC E. As of 2023, around 2.4 per cent of the 4.8 million rented residential properties in the UK are not meeting this minimum standard. Further regulations on the sector, to raise the minimum requirement to EPC C, have been consulted on, however government has now confirmed that this will not go ahead.
The political barriers to further upgrades could be tackled with a greater focus on ‘carrots' rather than ‘sticks'. If government is not going to introduce more regulation on energy efficiency, they could consider, for example, making energy efficiency improvements tax deductible for landlords. Whilst replacement furniture, legal fees and property maintenance are tax deductible, installation of energy efficiency upgrades such as insulation are not. A majority of landlords who aren't currently considering upgrading their energy efficiency would reconsider if there was a tax incentive to do so. It's estimated such a measure would result in lost tax revenue of £0.26 billion per year while properties are upgraded. Of course much of this revenue could be recouped through the Treasury as rental households will have more disposable income from lower energy bills.
Having campaigned for the introduction of the ECO+ (now rebranded as the Great British Insulation Scheme), the Conservative Environment Network is calling for tax cuts to support insulation. The Great British Insulation scheme is in addition to the ECO4 scheme, targeted at the least energy efficient, lower-income households. However we need incentives to improve energy efficiency across the majority of households.
Fundamentally, this is a conservative mission. It is supporting households to reduce waste and make our country more secure, without increasing the tax burden. Ahead of the next general election, and as the days turn colder, there is the opportunity for conservatives to deliver a policy that will ensure we all are warmer not just this winter, but every winter.
First published by BusinessGreen. Sam Payne is the Conservative Environment Network's Climate Programme Manager.