The Clean Growth Strategy shows great promise, but the devil remains in the detail

By Knauf Insulation UK & Ireland
December 01, 2017

The Clean Growth Strategy shows great promise, but the devil remains in the detail explains Steven Heath

By laying out a strategy to improve the energy performance of existing homes, the Government has taken an important step towards the UK meeting its Climate Change Act commitments, explains Steven Heath of Knauf Insulation.

With the publication of its Clean Growth Plan recently, the Government has indicated that it is going to get serious about improving the energy performance of the UK’s housing stock, something that will be critical in meeting our long-term targets for cutting emissions.

Housing accounts for 13 per cent of total UK emissions. While much has been done already to improve the performance of new-build stock, the performance of the ageing buildings in which most of the population live has always been something of an elephant in the room.

It’s encouraging, then, that with this new plan the Government is showing willingness to look at using policy tools to influence homeowners’ decisions when it comes to improving the efficiency of their homes. For too long, there has been an overreliance on obligated energy suppliers to implement these changes, but the reality is that they are too far removed, and too constrained in their improvement choices, to ever make the best decisions for individual property renovation. 

Stamp duty

One of the most interesting proposals that came with the publication of the plan is a mechanism that would reduce stamp duty for homeowners who own energy efficient homes or invest in making them more energy efficient.

In the private ownership sector, this could be a very smart way of incentivising home energy improvements allowing the housing market to price energy efficient homes more favourably. If the mechanism were to allow a rebate within a year of moving, as well as a reduction at the time of sale, then both sellers and new-home purchasers would be driven to make improvements.

This approach could even be delivered at no additional net cost to treasury or the tax payer, if owners of homes that fall below a given efficiency rating were asked to pay a little more to offset the reduction in duty elsewhere.

Preferential mortgage rates

This is another promising method for incentivising investment in home energy improvements. Working with mortgage lenders to offer favourable lending conditions on properties with excellent energy credentials makes a lot of sense, as the cost of fuel to heat and power the home is a significant factor used to calculate the affordability of credit.

Where the prospective buyer can prove that their new property will cost much less than the average to run, it makes sense they should be able to use that additional disposable income to invest in a bigger property or attract a more favourable lending rate to reflect the lower risk of default.

If mortgage providers were ultimately able to take account of the lower running cost of efficient homes, an ‘efficient homes market premium’, initially created by favourable stamp duty, could continue accelerated investment in improving the older housing stock long after any favourable tax incentives had been withdrawn. It would also create a larger pool of potential buyers for new efficient homes.

Where do we go from here?

While this plan is certainly a step in the right direction – and one that shows the Government is willing to consider taking more direct action in encouraging those who own our housing stock to invest in making it more efficient – there is still a lot of work to do.

In the year Richard Thaler, the father of Behavioural Economics, and ‘nudge theory’, won the Nobel prize for Economics, the Government has set out a plan that seeks neither to subside nor regulate home improvement, but rather to ‘nudge’ home owners into making positive choices in terms of energy performance.

Richard Thaler’s work inspired the work-based pension model that means millions more of us now have pensions for our old age as we no longer need to actively opt in to company pension schemes but rather have the choice to opt out should we wish.

The true test of any final Government ‘nudge’ plan to improve our housing stock is whether similar numbers will be living in warm comfortable homes in 15 years.