Philip Dunne outlines the scale of the task ahead in order to improve the energy efficiency of our homes and urges the Government to work closely with the industry when developing any successor scheme to ensure it has the confidence of the industry and consumers.
I beg to move,
That this House has considered the future of the Green Homes Grant voucher scheme.
It is a pleasure to serve under you, Mr Robertson, albeit remotely. Apologies if I am improperly dressed. I thank the Chairman of Ways and Means for allowing the debate to take place, because it was postponed as a result of Prorogation happening a day earlier than previously planned. I am grateful for that flexibility. I am moving the motion because, as Chair of the Environmental Audit Committee, I have a particular interest in energy efficiency and the contribution that it needs to make to enable the country to meet our net zero obligations.
The green homes grant scheme was announced with some fanfare in July last year by the Chancellor of the Exchequer as the centrepiece of the economic package of emergency measures to aid our economic recovery from covid. It was announced as a £1.5 billion scheme, not previously flagged as part of the manifesto commitment from the previous general election, with a very welcome ambition to improve 600,000 homes by March 2021 and in so doing create some 100,000 jobs.
The scheme did not open for applications until late September last year, which in itself led to an unfortunate hiatus in orders for energy efficiency improvements, as householders intending to proceed with some improvements stalled orders while they awaited the prospect of grant funding. The financial grants on offer to install energy efficiency measures and some types of low-carbon heating such as heat pumps were capped at £5,000 per property but up to £10,000 for fuel-poor households—but accessing the grants proved extremely difficult. I am sure others will come to that.
In November, the green homes grant scheme was extended for a further year to March 2022 due to the demand for applications. That was welcome, because one of the shortcomings of the scheme had been its short duration. The scheme was intended to mobilise the energy-efficiency supply chain, but as a consequence of intrinsic problems in its application and implementation, it had a perverse impact, with several installation companies seeking to use the scheme having to lay off staff because of the difficulties consumers had had in gaining access to it.
Prior to the voucher scheme’s closure in March this year, it had received more than 113,000 applications— 10 times as many as under the coalition Government’s green deal—so it was clear that there was demand. By 5 May, the last date for which statistics have been published, some 57,500 vouchers had been issued and 15,500 measures had been installed. Some 1,880 installation companies had expressed interest in becoming accredited under the scheme, but only 1,021 were classed as active, so barely half of those installers who had been interested in participating in the scheme had done so. I suspect that was in large part due to the varying uncertainties surrounding the scheme.
The Environmental Audit Committee held an inquiry on the energy efficiency of existing homes, which we launched in May last year—before the scheme had been announced—and concluded in March, a week before the scheme was scrapped. I am pleased to see my excellent Committee colleague, my hon. Friend the Member for North Norfolk (Duncan Baker), in his place for the debate; I look forward to his contribution. The Committee made recommendations about necessary improvements to the scheme. We wanted to see it overhauled and, crucially, extended to make it more effective. We certainly did not want to see it scaled back or scrapped. I will not dwell on the shortcomings of the scheme any more than I have already—they were manifest, and I am sure others will point out some of the specific challenges—but focus my remarks on what is needed in the future.
It is hard to overstate the scale of the challenge presented by the need to improve the energy efficiency of our homes. The UK has one of the least efficient housing stocks in Europe. Domestic properties account for almost a fifth of the UK’s carbon emissions. There are 29 million homes across the UK, 19 million of which do not meet the energy performance certificate C rating. Even those that do, in many cases, do so without effective insulation and so could do better. The Climate Change Committee has said that the UK’s legally binding climate change targets will not be met without the near-complete elimination of greenhouse gas emissions from UK building stock by 2050.
Failure to address, with urgency, the energy efficiency of the country’s homes could seriously jeopardise our emissions, now enshrined in statute to be net zero by 2050. The Government know that, having been elected on a manifesto that allocated £9.2 billion to be spent during this Parliament on improving heat in buildings, only a third of which has been allocated now that the green homes grant scheme has been ended. The funding needs to be deployed in new, more flexible, more enduring and more realistic schemes, as I shall touch on when I conclude my remarks.
The task is colossal. In England alone, more than 10 million owner-occupied homes and more than 3 million private rented sector landlords need to upgrade the energy efficiency of their homes to become at least EPC C rated by 2035. In the Government response to our report, the suggestion was made that the target will be brought forward to around 2030. I would just like the scale of that to sink in with the Minister, who I know is not normally responsible for this area. If that acceleration were to happen, 13.6 million homes in England would require retrofitting over nine years. That is equivalent to 1.5 million properties a year or 125,000 properties a month, each and every month between, say, the end of this year and the end of 2030.
This will be at the same time as the construction industry, which is by and large responsible for this work, is supposed to be delivering 300,000 new homes a year. For context, I should say that the green homes grant scheme achieved 15,500 installations in six months. That is a fraction of what would be required every month from now until the end of the period.
The good news is that this is a colossal business opportunity, including for many small and medium-sized enterprises, for whom, as small business Minister, my hon. Friend has responsibility. For contractors to seize this opportunity, they need to have their confidence restored that the Government have a coherent plan, with support available, to be clearly established once the domestic renewable heat incentive scheme ends next March, which is currently the only scheme available.
The Government have been dropping hints that they will mandate energy efficiency at the point of sale or renovation of a property. We expect that to be spelled out in the heat in buildings strategy. Homeowners need support to get there. I would find it very challenging for the Government if minimum standards of energy efficiency were brought in for owner-occupiers without some financial support, given the scale of work required. It is not just buying a heat pump; it requires significant insulation, in particular to properties that are in isolated rural locations. Rural, stand-alone or elderly properties are often much harder to insulate with a retrofit and it is therefore more expensive. If no support is available, there is a genuine risk of blight on millions of homes.
What can we learn from the green homes grant scheme? Demand for the scheme was there. Our Committee received no evidence that covid was causing a problem, which at one point the Government hinted at. That was evidenced in the consumer survey that the Committee conducted: covid was not referenced as a problem at all. The good news is that there is demand there from home- owners.
The Government redirected some of the green homes grant funding to the local authority delivery scheme, which is welcome, but it will not reach all those who need help as only some local authorities have had successful bids. It may not help SMEs in the sector, where support for jobs is needed, since local authorities will often award projects to larger construction companies or to their own in-house workforces.
An example is E.ON, which recruited some 100 permanent roles to deliver the local authority scheme. That is good for those who were employed, but it does not help SMEs. We need to see support available to homeowners across the country—and with it, jobs. Bringing all homes up to EPC C would achieve more than the 100,000 jobs that the Government were talking about; one of our witnesses at the Committee, the Energy Efficiency Infrastructure Group, indicated that it would support 150,000 jobs from the moment it began.
I want to see a long-term replacement—certainly five years and preferably 10 years—for the green homes grant scheme. It should be funded as one of the spending review announcements. A replacement scheme needs to be as free of bureaucracy as possible, consistent—obviously—with the need to beware of the risk of fraud. Government and industry need to work together to design a scheme. Sadly, that was not the case with the green homes grant scheme from the point of inception. The scheme needs to be long-term to give the right signals to the sector, to train the people required to do the work, and to enable them to have confidence that they can afford the accreditation process.
Above all, the scheme needs to be easy for the public to understand. It needs to cover a simple hierarchy of measures and to be flexible enough to cope with the individual requirements of individual properties. No two properties are identical, and the notion of having two different tiers—in which some work has to be completed under one tier before being able to move on to the other —was far too complicated and put many people off.
The Government should look to other solutions to improve domestic energy efficiency. In our report, our Committee called for a reduction in VAT on renovations that improve energy efficiency. That would be a simple way to incentivise work. We already have zero rating on new homes, so why not zero or 5%, depending on the item, for those that need improving as well?
We feel that the Treasury has taken a sceptical approach to such measures. It ruled out changes to VAT or stamp duty rebates, which is another suggestion made by industry that we think has significant scope: the rebate would be spent on getting the building up to energy efficiency standards. The UK Green Building Council published a report this week containing a revenue-neutral proposal for just that: a stamp duty rebate to encourage energy efficiency, and I strongly urge the Minister to encourage his colleagues at the Treasury to look at such a scheme.
We welcome the fact that the Government are working with lenders for green mortgages. That has real potential, and there is a lot of enthusiasm in the mortgage industry for attaching green mortgages to their product portfolio. Again, we need to be wary that if we raise standards without providing support or mechanisms to allow people to improve their properties, potential buyers of properties that do not meet the standard may not get access to mortgages. That could have a significant impact on those properties’ value. The Government should also look to the national infrastructure bank to provide finance. The Government have said that the bank’s remit will be established this summer, and we hope that this will be included within it.
I will touch briefly on the energy performance certificate regime. The certificates were originally designed to provide a basic indicator of the energy cost of running a home, but they now underpin a range of Government policies and targets—including not only the legally binding fuel poverty targets, but the ambition to have as many homes as possible at grade C by 2035 or earlier, as indicated by me, and the minimum energy efficiency standard for private homes.
EPCs have a range of flaws, as was demonstrated to me by an assessor who I met last week. I asked to be taken through how the algorithm works. It is now undertaken through a centralised Government website, where the assessor puts in the parameters of the property and out comes the result. Just to illustrate to Members how perplexing this is, for a rural three-bedroom cottage currently fuelled by domestic heating oil in my constituency, where we had all the details, replacing that heating oil with a heat pump and doing nothing else would increase the EPC rating by two points. It is necessary to move by nine or 10 points in order to move up a rating, so doing so barely moves the dial on its own.
The EPC rating penalises off-grid and rural homes in particular, as too much weighting is given to fuel costs. If a person is on a domestic heating oil system because that is the cheapest method of heating their home, but they then introduce energy efficiency measures, that does not move the rating, and they cannot adopt a non-fossil fuel system if it is more expensive. The EPC methodology is therefore not addressing the fundamental challenge, so we recommend that it is fundamentally overhauled to support low-carbon heating measures by indicating in its headline rating not only the fuel cost of heating a property, but its energy and carbon metrics. This must be done before we set minimum efficiency standards for homes. Eye-catching top-line targets for heat pump installations are welcome, and raising minimum energy performance standards for homes is all very well, but what is desperately needed is a coherent plan to achieve the targets that are being set.
Homeowners need to be made aware of the benefits for the planet, but also for their pocket, as reduced energy demand will reduce energy bills. They need to be given the confidence to invest in energy efficiency and low-carbon heating. My Committee and I remain of the view that a replacement scheme for the green homes grant is needed, and that this should be announced and funded in the next spending review.
This replacement scheme will need to endure for several years and be free of bureaucratic obstacles. Alongside that, an overhaul of energy performance certificates is needed to make sure that progress towards decarbonising our homes is not penalised. The Government’s recent response to our report frankly raises the stakes for the heat in buildings strategy, which is due to be published; it has been much delayed, and we would like to see it published as soon as possible. We very much hope that we will not be disappointed by that strategy, and that tangible action to implement it, backed up by Treasury funding, is taken as soon as possible after its publication.
I want to start by thanking the Minister, my hon. Friend the Member for Sutton and Cheam (Paul Scully), for his wind-up speech and for undertaking to listen to the contributions in this debate, and indeed to the submissions made by the Committee that I am proud to chair. Before I respond to the points made, I also want to thank others who have participated, particularly the hon. Member for Bristol North West (Darren Jones), the Chair of the BEIS Select Committee, who co-sponsored this afternoon’s debate with me. We work closely together on climate change issues, and it was good to see his characteristically measured and impressive contribution to the debate. We look forward with great interest to the results of the inquiry that is being undertaken into energy efficiency measures.
I also want to thank other Members who participated in the debate. My hon. Friend the Member for Wantage (David Johnston) made an impassioned plea for contractors in his constituency. Notably, he called for future measures to help those who are fuel-poor, as did the hon. Members for Putney (Fleur Anderson) and for Birkenhead (Mick Whitley).
In the debate, although we were talking about an issue that is, let us face it, not the Government’s finest hour in implementing a new support scheme, it was particularly striking that there was not a great deal of party point-scoring. The measured tone of the debate was about learning lessons to ensure that in future, whatever scheme is put in place to replace the green homes grant scheme, it is effective and can deliver on what is, frankly, and clearly from this debate, a very shared objective. In that respect, the hon. Member for Southampton, Test (Dr Whitehead), who speaks for the Opposition, was characteristically measured in his tone, too, for which I am very grateful.
On contributions, I cannot wind up without thanking for his comments my good friend, my hon. Friend the Member for North Norfolk (Duncan Baker), who plays such a valuable role on my Committee. He focused much of his remarks on ensuring that, when we look at energy efficiency measures, we give due credit to the embodied carbon impact of the materials used. He makes a very good point: we cannot just carry on using materials that in themselves create enormous carbon cost in their production. That is why he was persuasive in encouraging our Committee to undertake a new inquiry, which we have just launched, into the sustainability of the built environment, looking in particular at construction materials, in which he has such an interest.
To conclude, I encourage the Minister, in his discussions in the Department and with the industry, to ensure that we do not seek just to introduce headline-grabbing measures. This week there has been a rumour that the Government are thinking about scrapping gas boilers, introducing an end date for their installation. That would be as striking for domestic buildings as the ban on internal combustion engines in the sale of new petrol and diesel cars from 2030 will be for that industry.
There is a major difference, however: the motor vehicle industry has been working on alternative-fuel vehicles for many years and has hundreds—literally, I think, this year 100—of new models coming into its showrooms, for people to start buying now. We are not in that position in domestic heating. In 2019, the last year for which figures are available, 1.7 million gas boilers were installed in our homes. In the same year, 30,000 heat pumps were installed. That is 56 times as many gas boilers as heat pumps.
As we have discussed, just installing a heat pump will not cause a home to qualify for a higher energy performance certificate band. The technology is there, but what is not there yet is what will be required for a new scheme: it should only be introduced, in my view, when the technology is available and affordable and when it is achievable to replace such a significant part of the construction industry’s standard operating practice with something that can be installed because enough people are skilled to do so.
These measures are not simple. A great deal of thought is needed for their introduction, and work with the industry to ensure that any successor scheme to the green homes grant has a real prospect of restoring confidence to the industry and to consumers, so that it can be adopted. I very much look forward to what the heat and buildings strategy will say, and to the spending review this autumn.