Supporting economic recovery and protecting the NHS

National Insulation Association calls on Chancellor Rishi Sunak to deliver promised Home Upgrade Grants Scheme as part of COVID-19 stimulus package.

Rollout out of manifesto proposals could save NHS £1 billion.

A street by street, locally led energy efficiency revolution

Foreword

We have all faced huge challenges over the past few months, but thoughts are now turning to the economy and what comes next. Plans to recover from the profound and far-reaching impacts of the COVID-19 pandemic cannot just take us back to business as usual; we must go beyond that and build back better.

The NIA represents the insulation industry in the UK and our members include manufacturers, system designers and installers of insulation solutions for your home or business. NIA members have long been interested in delivering improvements to properties which reduce waste, reduce energy bills and provide local economic benefit.

At this critical point for the country, there is a unique opportunity to assist households in improving the worst-performing homes, reducing energy costs and at the same time support local economic growth by strengthening our resilience to the climate crisis.

We are not the first organisation during this crisis to call for energy efficiency to have a major role in the recovery, however this paper sets out how this can be achieved at a practical level with details on a fast-track street by street, locally led approach which could be introduced this calendar year to improve the quality of homes across the country.

This report provides a considered view on how the Home Upgrade Grants scheme promised in the 2019 Conservative Manifesto could operate, how funding might be deployed, who would be eligible and how quality of work should be maintained to deliver significant benefits. We hope that these recommendations support the Government in its decisions over the coming weeks to ‘level up’ Britain and kickstart the green recovery.

Derek Horrocks, Chairman, National Insulation Association

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Contents

Foreword 3

Contents 4

Executive Summary 5

Energy efficiency should be central to economic stimulus 7

Existing support mechanisms 9

Policy proposal 11

Scheme administration 12

Benefits of the scheme 18

Appendix: Data Tables 24

References 26

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As thoughts turn to rebuilding the economy after the health crisis, the National Insulation Association is calling on the Government to upgrade UK homes. Boris Johnson has already made clear that we should avoid ‘going back to an era of the same emissions as we’ve had in the past1, stating that we should instead keep carbon down and ‘entrench those gains’ by investing in low carbon industries, jobs and infrastructure. Improving our homes to ensure that they are fit for the future and more affordable to run must sit at the heart of this objective.

The Committee on Climate Change’s 2020 Progress Report to Parliament highlighted the lack of progress over the past 12 months towards delivering on climate goals, with buildings and heating policy in particular lagging behind what is needed. The CCC recognises that the ‘retrofit to increase building heat efficiency has been largely unaddressed’ and stresses the need for a holistic Buildings and Heat Strategy which is ‘supported by a national effort to improve the energy efficiency of UK buildings along with ensuring their safety and comfort’2.

The 2019 Conservative Manifesto pledged £9.5 billion toward improving the energy efficiency of homes, schools and hospitals with £2.5 billion intended for a five-year Home Upgrade Grant (HUG) Scheme. As decisions are taken to rebuild a stronger and more resilient economy following a health crisis that few could have anticipated, it is time for the Government to make a reality of this indispensable pledge.

Whilst we understand that proposals for Home Energy Upgrade Grants may be published alongside a National Infrastructure Strategy, there are benefits to early action that simply cannot be missed. We have a unique opportunity to ‘build back better’ in a way that lines up with our net-zero plans and delivers far-reaching benefits to both consumers, the environment, and the wider economy alike.

Kickstarting energy efficiency improvements through a Home Upgrade Grant pilot scheme this calendar year will ensure that the £150 million allocated to the scheme within the Conservative Manifesto costings document is effectively deployed as planned3 – something that is likely to be challenging without further development on the scheme within the near term.

In its first year alone, the Home Upgrade Grants (HUG) Scheme would deliver significant benefits.

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Boosting economic growth at speed and at scaleThe HUG scheme would create jobs, reduce energy bills for consumers and consequently increase disposable income and spending to stimulate economic growth. This could lead to a Gross Value Added (GVA) of £126 million across the economy.

Easing pressure on the NHSPoor performing homes impact both physical and mental health and contribute to the excess winter deaths recorded every year. Tackling the worst-performing homes through the HUG scheme would save the NHS a sizable £63 million in the first year and just over £1 billion if the full £2.5 billion is delivered.

Making homes more affordable to runPoorly insulated homes make for expensive homes to run, particularly for those who are now home-schooling or working remotely. Improving the energy efficiency of homes would therefore reduce household cost of living, offering the average home a saving of £329 per year on their energy bills.

Generating new jobs across the countryCOVID-19 has left many people unexpectantly out of work. The HUG Scheme could help to generate labour-intensive jobs which involve a wide range of skills to stimulate a recovery across all parts of the country. It is estimated that the pilot scheme would create over 470 new jobs in the first year, rising to 8,000 total jobs if the full £2.5 billion investment is delivered as set out in the Conservative manifesto.

Providing certainty of demand for the construction sector The construction sector is amongst the hardest hit by COVID-19, with 680,000 employees having been furloughed by 154,000 employers up to 31st May 20204. The HUG Scheme would be the strongest possible signal that work can and should be carried out safely and at scale, providing certainty of demand to business owners who are currently reluctant to relaunch their businesses or bring back furloughed employees.

Reducing carbon and improving air qualityBy improving the energy efficiency of homes, we can reduce energy demand – something that the Committee on Climate Change has recognised as a necessity to reach net-zero emissions by 2050.5 By reducing energy demand in homes through multi-measure improvements, the HUG scheme could lead to significant carbon savings and air quality improvement. The initial pilot is estimated to create a Net Present Value (NPV) of £8.5 million in air quality damage and £81.9 million from avoided carbon emissions.

Transforming neighbourhoods and creating a sense of community The streetscape improvement of measures such as external wall insulation (EWI),particularly in areas that are considered ‘run down’ delivers benefits that go beyondaesthetics. Taking a community driven approach creates a more pleasant and visuallypleasing environment, reinvigorates local pride, encourages people to take care oftheir properties, creates a sense of community and leads to reduction in crime. Theimproved appearance of homes and the subsequent added value are also significant forlandlords and homeowners who can borrow more against them to continue to improveareas and communities.

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We recommend the following approach to introducing and administering the pilot scheme to deliver these benefits.

A street-by-street approach delivered by local authorities and supported by BEIS Local Energy Hubs. Local authorities typically have a greater understanding of the local housing stock and are therefore best placed to identify the worst-performing homes within their area. They are already doing so to some extent under the supplier-led Energy Company Obligation (ECO). By taking a street-by-street approach to delivering energy efficiency upgrades, local authorities will be able to effectively target properties suitable fordeep-retrofit upgrades, focusing on specific property archetypes in clusters. This will enable contractors to better plan works, avoid any unnecessary disruption, and capitalise on the cost-effectiveness of upgrading multiple homes at the same time. BEIS Local Energy Hubs could work with local authorities within their region to offerany expertise and support, and to deploy the funding through a bid process.

A pathway for all homes that prioritises fuel poor households whilst also incentivising able-to-pay. Fuel poverty impacts a significant number of families across the UK, with over 2.4million affected in England alone6. With job losses, reduced incomes and higherenergy bills all symptomatic of the pandemic, it is expected that many more familiesliving in inefficient properties will struggle to afford to adequately heat their homes. Improving the homes of the fuel poor at no or very little cost the consumer should be a priority, particularly if lockdown extends into winter. However, if fuel poor andable-to-pay properties are located on the same street, it makes sense to upgrade bothat the same time. An installation cost subsidy at a level between 30-40% could be aneffective option to encourage able-to-pay households to invest in these improvementsalongside their neighbours.

A two-part process: Retrofit assessments followed by deep retrofit upgrades.All properties identified by the local authority and rated below Energy Performance Certificate (EPC) Band C should be offered a retrofit assessment complete with a ‘whole house plan’ using PAS2030:2019 criteria to determine the improvements needed for the home to reach its potential. The plan would be used to ascertain the home’s eligibility for further funding support and would also inform any future decisions on energy efficiency improvements. The findings should be lodged on the TrustMark Data Warehouse by an accredited TrustMark-registered Retrofit Coordinator.

Deep multi-measure retrofits.The HUG scheme should take a minimum measure approach to exceed the volume of measures per property currently achieved under ECO support and bring homes up to standard in a single step rather than through a series of incremental steps over a long period of time.

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A shared consensus for a green recovery Energy efficiency must be at the heart of the green economic recovery, and many experts have called for this in unison. In a letter to the Prime Minister in May 20207, the Committee on Climate Change (CCC) pinpointed upgrades to our homes to ensure they are fit for the future as one of the five measures that should be expanded immediately to deliver economic, social and environmental benefits. Other organisations have echoed much of the same:

• The International Energy Agency (IEA) within its strategic considerations for policymakers has highlighted energy efficiency opportunities in both new and existing buildings, including upgrades for insulation and building fabric, to boost economic growth at speed and scale due to the job intensity of the sector8.

• As part of its ‘Manifesto for a green recovery,’ Greenpeace has called for a nationwide home and public sector energy efficiency programme that prioritises fuel poor and social housing but provides clarity for the able-to-pay market9.

• More recently, the Energy Efficiency Infrastructure Group (EEIG) published a report titled ‘Building for Resilience: Energy efficiency’s offer for a net-zero compatible stimulus and recovery’ within which it calls for a programme of home upgrades that could reduce household energy expenditure by £7.5 billion and support over 150,000 skilled and semi-skilled jobs by 203010.

Net-Zero Target Becoming carbon neutral by 2050 necessitates the complete decarbonisation of the building stock within just three decades, which will mean that close to 28 million homes will need to change the way they use energy. Today, around one-fifth of UK emissions are a result of how our buildings are heated with homes making up the majority at 77%. Energy efficiency is the most cost-effective way to tackle this. Whilst this has been recognised within the Future Homes Standard’s promise to ensure all new homes are built with ‘world-leading levels of efficiency’ by 2025, more needs to be done to improve homes that already exist today – which represent 80% of the homes people will be living in by 205011. The CCC has called for this to be an infrastructure priority, suggesting that ‘the uptake of energy efficiency measures such as loft and wall insulation must be increased.12’ In their most recent Progress Report to Parliament the CCC have stressed the need for the forthcoming National Infrastructure Strategy to be fully consistent with the UK’s Net Zero and climate adaptation objectives, in particular on buildings energy efficiency, where funding is likely to be needed beyond manifesto commitments.13

Energy efficiency should be central to economic stimulus

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Making homes affordable to run Homes in the UK are some of the least efficient in Europe with heat being needlessly wasted through poorly insulated roofs, walls and windows to the detriment of both consumers and the environment. This is true to the extent that the share of families unable to afford their heating is three times higher in the UK compared to Sweden, where walls are three times more efficient. This is despite our much milder winters and similar average income.14

Leaky homes also contribute significantly to fuel poverty which affects the physical and mental wellbeing of a considerable number of households across the UK, and 2.4 million in England alone15. The effects of poor homes are estimated to cost the NHS at least £1.4 billion per year, and £2.5 billion when considering the UK overall16. Such high levels of fuel poverty also contribute to premature mortality, with the the number of excess deaths in the UK ranked sixth highest in Europe.

In the wake of the pandemic that asked the nation to stay home, it is expected that many more families will be susceptible to fuel poverty, determined in England using the Low-Income High Costs (LIHC) indicator. By April 2020, 8.6 million people across the UK experienced a dip in their income17, with this number anticipated to climb once the Coronavirus Job Retention Schemes comes to an end in October this year. At the same time, energy consumption in homes could potentially keep on rising now that working from home infrastructure has been put into place. This additional strain on finances may worsen daily life for those already at risk or in the depths of fuel poverty without energy improvements to help lower heating costs.

The Energy and Climate Intelligence Unit (ECIU) within its report, ‘Lockdown in Leaky Homes18’ estimates that those in the most inefficient homes could see their winter heating bills inflate to around £124 a month - £49 more than those in well-insulated homes where bills are expected to rise to £76 per month. Priorities must, therefore, go to improving the energy efficiency – and affordability – of the most vulnerable households and least efficient homes as soon as possible.

The potential for improvement is nothing short of a game-changer with fuel costs for Band G Properties almost three times as high as those for those rated A, B or C on the other end of the scale19. Whilst the current iteration of the Energy Company Obligation scheme (ECO3) is focused on low-income, fuel poor and vulnerable households, the scheme is not sufficient on its own. Further policy intervention Is needed to alleviate fuel poverty and to help convince able-to-pay customers of the benefits of energy efficiency improvements.

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Energy Company Obligation (ECO) Additional support must differ from the existing ECO Scheme and close the energy efficiency gap that is still very much in place today. ECO, which was first introduced to encourage the installation of energy efficiency measures in 2013, remains the only public scheme delivering insulation measures into homes in England. Whilst it has been amended several times over the years, the policy has not delivered the scale of change needed. There is also very ‘little evidence to suggest that there is a considerable amount of insulation deployment taking place outside of ECO, except for double glazing installations20.’ The drop in insulation measures has unsurprisingly correlated with the reduced budget since the scheme began, now halved in comparison. It stands to reason that more effort and more funding is therefore needed to drive energy efficiency measures in homes between now and 2050.

In 2017, the Government’s Clean Growth Strategy announced plans to improve the energy performance of UK homes.21 The target was set to bring all homes to a C rating by 2035, starting first with fuel poor homes by 2030. The absense of the social housing sector from this target is a concern considering that these homes make up 17% of the total housing stock and around half of social rented homes have an EPC rating of D or worse.22

There is currently no policy framework or support available for energy efficiency in the social housing sector. This is set against the current backdrop of many social housing providers facing significant budget constraints, and therefore being likely to need significant financial support to help fund desperately needed energy efficiency improvements. Based on the latest fuel poverty statistics23, just 12.4% of all households meet EPC Band C.

Even with just ten years between us and the nearest goal post, loft and wall insulation are going into homes at a 95% lower rate than in 2012, with just 110,000 energy efficiency measures installed with ECO support in 2018.24

Energy efficiency installation rates would need to sit far higher at 1 million each year to meet EPC Band C – a target that the Institute for Public Policy Research (IPPR) estimates will not be met until 2091 based on current rates of installation.25

Energy efficiency improvements will need to be accelerated with urgency to meet the timelines proposed. In fact, according to the Committee on Fuel Poverty, ECO will have reduced the number of fuel poor homes in Band F or G by just 1 percentage point by the time the scheme comes to an end in March 202226.

2. Existing support Mechanisms

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There are several reasons for lack of progress• First, the ECO scheme is not sufficiently funded with the budget cut in half to

£640 million in 2017 from the original £1.3 billion.

• Second, the budget is paid for using a levy on customer bills and puts pressure on energy suppliers to deliver upgrades at the lowest possible costs to avoid an increase in bill costs. This contradicts ECO3’s focus on vulnerable homes since many fuel poor homes need high-cost or multiple measure improvements and are consequently neglected.

• Third, installers are more inclined to specialise in upgrades that are easier to install since more challenging, time-consuming measures incur larger labour costs.

• Fourth, the scheme does not appropriately consider how the needs of a home may change in years to come, meaning that measures are installed in fuel poor homes that may not be compatible with or adaptable to future heating systems.

• Finally, the use of benefits data as a proxy to identify fuel-poor households means that many homes that need improvements are not aware of their eligibility for benefits and therefore fall through the cracks. According to analysis by the Institute for Public Policy Research (IPPR), just 30% of ECO funding is likely to be spent on those living in fuel poverty every year27.

Clean Heat Grant Scheme In April 2019, a consultation was published on Future Support for Low Carbon Heat, proposing grant funding for households following the end of the Renewable Heat Incentive (RHI) scheme28. Clean Heat Grants are expected to provide £4000 to households and small businesses for the purchase of heat pumps and, in some cases, biomass. This indicates a step forward but risks a scenario whereby low carbon heating solutions are installed in homes that have not first been insulated to the highest standard and therefore continue to waste heat.

A fabric first approach is particularly important in this scenario given that low-temperature heating systems such as heat pumps perform best in homes that are well-insulated and are also anticipated to cost more per unit of energy than gas. This means that those living in a poorly insulated home fitted with a heat pump, regardless of its carbon and cost-saving potential, could be adversely impacted with higher energy bills. Making energy efficiency part of the economic stimulus package and taking a ‘whole house,’ fabric-first approach will help to ensure that homes are fit for low carbon solutions that perform as they should, whether installed at the same time or later down the line.

Whilst ECO has had an impact on the UK housing stock and delivered approximately 2.3 million energy efficiency measures between 2013 and 2018, the shortcomings listed above provide a compelling case for an additional new ‘whole house’ approach to home upgrades.

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The Manifesto commitmentThe 2019 Conservative Manifesto pledged £9.2 billion toward improving the efficiency of homes, schools and hospitals, with £2.5 billion of this intended for a five-year Home Upgrade Grant (HUG) Scheme. Proposals for this were absent from the recent Budget but may be published by BEIS alongside a National Infrastructure Strategy this Autumn, though this leaves very little time to deploy the £150 million budget allocated to the scheme during financial year 2020/2129. Progress must be made in the near-term to ensure the allocated budget is spent as intended and to provide an immediate boost to the economy at a time when it is very much in need.

Kick-starting the Home Upgrade Grant (HUG) Scheme The National Insulation Association recommend that a pilot version of the Home Upgrade Grant (HUG) Scheme is introduced this year, in advance of or alongside the finalisation of the National Infrastructure Strategy. We recognise that major spending commitments relating to the future energy performance of homes must, of course, be given the proper time and care they deserve, however, there are significant benefits to early action that cannot be missed. Fast-tracking policy development would have a direct impact on kick-starting energy efficiency activity and would be the strongest possible signal that work can be carried out safely if the correct safeguards are put in place. This would boost green economic activity whilst supporting the existing workforce, creating new jobs that are geographically spread and reduce energy costs for consumers. At a critical time for the economy following the impacts of the pandemic, the knock-on effects of the scheme would go beyond the impacts of upgrades funded through ECO, non-grant work and home renovation.

The next section of this paper sets out how the Home Upgrades Grant Scheme might be administered to deliver these much-needed benefits.

3. Policy Proposal - A street by street Home Upgrade Grants Scheme

BEFORE AFTER

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The key recommendations for how this scheme should be administered are as follows.

BEIS Local Energy HUBSFunding should be managed by the five BEIS Local Energy Hubs. To help address the regional disparities across the country shown in the latest fuel poverty statistics for England, it is proposed that the total budget for the pilot scheme (£150 million) is split according to the proportion of fuel poor homes within each region. Based on 2018 data, households living in the North West have the highest proportion of fuel poor households at 12.1%. It would not be fair therefore to issue funding pots to these regions equal to those issued to the South East, where the prevalence of fuel poverty is lower at 7.9%. Whilst this does not correlate with the average fuel poverty gap, which is greatest in the West Midlands, it is considered that both wouldl reduce at the same time. Each hub would then be able to work with local authorities within their region to deploy the funding to the worst-performing properties whilst also offering expertise and support throughout the process.

4. Scheme administration

Figure 2: Fuel Poverty Statistics for England, 2018

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Three pots of funding It is our view that to derive the maximum benefit, the total funding for each local hub is divided into three separate funding pots. This would support robust budget management, simplify and balance roles and responsibilities throughout the process, and widen access to the scheme.

Figure 3: The division of funding between each of the five Local Energy Hubs across England

Table 1: The funding process

STAGE 1 FUNDING STAGE 2 FUNDING

Retrofit assessments 100 % grants for fuel poor homes ‘Nudge’ grants for able-to-pay

All homes identified for this scheme below EPC Band C or without a valid EPC should be offered a retrofit assessment free of charge using PAS 2030: 2019 criteria to drive a ‘whole house’ and ‘fabric first’ approach. This would demonstrate the expected benefits of any improvements and help to determine which homes are eligible for further funding whilst also providing information on energy efficiency for homes that do not qualify.

To help tackle the worst-performing homes first, it is thought that fuel poor properties should receive 100% grant funding. This would remove the cost barrier to upgrades and enable the household to benefit from bill savings. It is proposed that the LIHC metric would be used to determine which homes fall under this category, but that local authorities may have some flexibility based on their own individual criteria.

A nudge provided as a percentage of installation cost subsidy could be an effective option to increase the uptake of measures in able-to-pay households. This is recommended at a level of between 30-40% of the typical installation cost. To be eligible for this funding, a minimum of three measures would need to be installed and the work would need to take place alongside improvements on fuel-poor homes within the same area.

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Effectively targeting properties

Whilst one option would be to target properties with the lowest EPC ratings first, we propose that an area-based street-by-street approach led by local authorities is adopted. Local authorities typically have a greater understanding of the local housing stock and are therefore best placed to identify locations whereby clusters of fuel poor households might be suitable for deep retrofit. This would help to target fuel poor homes more effectively since multiple properties most in need of energy efficiency improvements can be identified at one time. Focusing on specific housing archetypes in clusters would enable contractors a better understanding of what installations are likely to be required and would help to address any property types currently neglected under ECO due to the tendency to prioritise the lowest cost upgrades. Property archetypes are explored more in the following chapter.

Retrofit assessments

As specified in Table 1, all properties below EPC Band C within the location identified by the local authorities should be offered an energy efficiency retrofit assessment using PAS 2030: 2019 criteria to drive a ‘whole house’ and ‘fabric first’ approach. This should be free of charge and result in a ‘whole house plan’ for each property, providing insight into the work needed to solve energy efficiency issues to ensure that the home is warmer and more affordable to run. This information would be lodged into the TrustMark Data Warehouse by an accredited TrustMark-registered Retrofit Coordinator. The Assessor would also be a qualified Domestic Energy Assessor, meaning that an EPC assessment could be lodged if requested or required. The retrofit assessment would also help to demonstrate the impact of the measure on the performance of the property and the improvements needed for the home to reach its potential.

Creating a pathway for all homes

The retrofit assessment would help the local authority to determine properties which would benefit most from further funding. Properties should be deemed eligible if there is potential for at least three measures, with those in need of fewer directed to the ECO scheme where appropriate. It is also proposed that local authorities are able to set individual objectives based on local priorities such as carbon savings, maximum measures, or fuel poverty and would determine what happens next for each property. These could be outlined within a Statement of Intent, using a similar template to that in place for the Flexible Eligibility under ECO 3, whereby local authorities define criteria to determine eligible residents either living in fuel poverty or on low incomes and vulnerable to living in a cold home. Properties that do not meet the local criteria and are not eligible for full grant funding might still benefit from discounted improvements provided that these can be carried out at the same time as other work is being undertaken in the area under the Local Authority procurement arrangement. This could be provided through an able-to-pay ‘nudge’ discount to incentivise uptake. Any remaining costs would be paid to the local authority by the consumer, who would also benefit from the cost-effectiveness of upgrades being delivered to multiple properties at one time. This process is shown in figure 4.

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Figure 4: An energy efficiency pathway for all types of homes

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Figure 5: Street by street, locally led approach to home retrofit

Quality assurance

It is important that the scheme ensures high quality retrofits. It is recommended that all contractors installing the energy efficiency measures under the scheme operate to PAS2035: 2019, thus adhering to the same standard as other government retrofit schemes such as ECO. It is recommended that the local authority continues to work on behalf of the householders to appoint local contractors, which may necessitate the establishment of a framework, to undertake energy efficiency assessments and subsequently to install measures. For simplification purposes, it is proposed that local authorities retain the same evidence recommended in ECO3, to inform reports submitted to BEIS on an annual basis.

This would include the following: • Statement of Intent to define criteria to determine residents eligible for

support.• Copies of declarations to confirm in writing that a household is eligible for

support. • Records to support eligibility and evidence of adhering to criteria outlined

within the statement of intent. This would be obtained through the Retrofit assessment.

• Reporting received from installers on measures installed.

All homes without EPC offered one free of charge

All homes below EPC Band C pr lower are offered a retrofit assessment and ‘whole house plan.’

Properties with 3+ viable measures can be offered support provided at least 3 measures installed

Social rent / fuel poor receive 100% funding

Able to pay offered some financial support/discounted work provided undertaken at same time as other work.

Local authority applies to Local Energy Hub, setting out location/group of properties believed suitable for deep retrofit and with high proportion of fuel poor homes

Property archetypes could include Victorian terraced housing, maisonettes etc.

All work undertaken through Local Energy Hub or LA procurement framework

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Deep retrofit

Deep retrofit takes a ‘whole house’ approach to upgrading the energy efficiency of a property to bring it up from its current state to significantly higher energy performance in a single coordinated step rather than as a series of incremental improvements over a long period of time. This approach should see the scheme significantly exceed the volume of measures per property achieved under ECO support. Developing the supply chain to deliver the ‘whole house’ is essential to decarbonising the UK housing stock within the 30-year timeframe between now and net-zero.

Measures

The HUG Scheme should take the need for deep retrofit into strong consideration and offer grants where multiple measures can be installed. Funding could go to homes, for example, in need of both insulation retrofits and proven low carbon heating options. By combining fabric efficiency improvements with the deployment of low-carbon heating systems, the benefits are greater than the sum of parts, thus improving the efficiency of the heating system, lowering fuel bills and emissions, as well as avoiding higher upfront costs at a later date if separate installations were to be carried out.

Property types

All property types should remain eligible for the support, provided that there is the potential for significant reductions in energy wastage. For instance, in homes which require both loft and solid wall insulation improvements, as well as the opportunity for a low carbon heating system. However, some properties should be prioritised due to the benefits that could be realised by taking a community level approach. Tackling terraced housing where ECO Deployment has been lower than in other archetypes, for example, is likely to be easier using a street-by-street methodology. As such, there is the potential to achieve significant additionality through the HUG Scheme by targeting these properties.

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To demonstrate the benefits of such a scheme, analysis has been carried out for this report in line with HM Treasury’s Green Book guidance30. This considers the impact that the £150 million allocated to the first year of the HUG Scheme could have, compared to a Business as Usual (BAU) scenario where no improvements are carried out. The analysis shows a significant benefit from HUG Scheme with a Net Present Value (NPV) of £22.1 million compared to Business-as-Usual.

To calculate the NPV, a detailed analysis of four housing archetypes was conducted (see Table 2 below). These archetypes were selected as an illustrative cross-section of the homes that could be targeted through this scheme. These dwellings range from large detached homes to small flats and are located both on and off the gas grid. As discussed above, all offer the potential for multi-measure improvements to be made.

The funding in the analysis is being used to pay for the full installation of the eligible measures in fuel poor homes, with the estimated number of properties that fall into each specific archetype and demographic shown in Table 2.

Benefits of the scheme

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Archetype Property Description

Improvement Measures

Estimated Stock1

Dwellings Improved from Pilot HUG Scheme

1

Semi-detached, 1945-64, gas condensing boiler

Cavity wall insulation, loft insulation, double glazing

6,260 4,730

2

Low rise flat, 1965-80, direct electric heating

Cavity wall insulation, loft insulation (for top floor flats), double glazing

530 400

3

Detached, pre-1919, oil condensing boiler

Solid wall insulation, loft insulation, double glazing, air source heat pump

2,200 1,660

4

Mid-terrace, pre-1919, gas condensing boiler

Solid wall insulation, loft insulation, double glazing

5,870 4,430

Table 2 – Analysis Archetypes31

1 This figure is for England only as is taken from English Housing Survey data.

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On average, the improvement measures would cost £13,360 per home, creating significant fuel bill savings and carbon emission reductions from each home on top of wider economic and health benefits. These benefits are discussed in more detail below.

Energy Bill Savings

The direct benefit of installing the improvement measures is the reduction in the energy needed to sufficiently heat the properties. On average, across the archetypes considered, there is a 36% reduction in the energy used for heating the homes. The lower energy demand also means that savings can be made on fuel bills. The NPV of fuel bills savings from the HUG Scheme compared to BAU is £81.8 million.

For the average treated dwelling, this translates to £329 per year of savings (see Table 3) which would be especially welcome for many households following the impact COVID-19 has had on jobs and incomes.

Carbon Savings and Air Quality Improvements

Reducing demand for energy across the economy through energy efficiency improvements is a necessity to reach Net Zero in the UK32. The HUG Scheme is exactly the type of government intervention that can help to make this goal a reality, providing significant carbon savings from homes that would not otherwise pay for or be able to afford the improvements that are carried out.

The reduction in energy demand coupled with the deployment of low carbon heating systems leads to significant carbon savings compared to BAU. Across the analysis period, 1.04 MtCO2e are saved as a result of the improvements from the first year of the scheme. With the £2.5 billion of funding pledged for the scheme over its lifetime, over 17 MtCO2e could be saved, equating to an annual reduction of 2.2 tCO2e per household on average (see Table 3).

These avoided carbon emissions can bring a significant benefit to the economy. Monetising these emissions shows a Net Present Value of £81.9 million from year one of the HUG Scheme compared to BAU. This is a significant benefit that comes at a cheap cost to the Government, it is estimated that the overall marginal abatement cost (MAC) of the initial scheme would be -£21/tCO2e.

In addition to carbon savings, the lower heating demand, and switch to heat pumps for some of the properties, significantly reduces air pollution. The HUG Pilot Scheme is estimated to create an NPV of £8.5 million in air quality damage savings from the first year of funding.

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Archetype Retrofit Cost (£)

Initial Annual Heat Demand (kWh)

Annual Heat Demand after retrofit (kWh)

Annual Fuel Bill before retrofit (£)

Annual Fuel Bill after retrofit (£)

Annual Carbon Emissions before retrofit (tCO2e)

Annual Carbon Emissions after retrofit(tCO2e)

1£9,400 14, 830

kWh10,070 kWh

£760 £510 3.0 tCO2e 2.0 tCO2e

2£3,150 5,480 kWh 4,640 kWh £1,020 £860 0.30

tCO2e0.25 tCO2e

3£29,820 31,900

kWh19,740 kWh

£1,790 £1,290 8.8 tCO2e 0.4 tCO2e

4£12,340 17,690

kWh10,660 kWh

£900 £550 3.5 tCO2e 2.1 tCO2e

Table 3 – Archetype Results

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Health Benefits for OccupantsThe COVID-19 crisis has heightened the importance of the quality of our homes and the role that this has on our daily lives. With a requirement to work from home, it is likely that there will be a permanent increase in the number of people doing so compared to before the crisis. A World Economic Forum survey found that a total of 86% of parents now wish to work flexibly, compared to 46% pre-coronavirus33. In the UK, around three-quarters of workers intend to request permanent flexible working arrangements after coronavirus restrictions are fully lifted.34

The crisis has also highlighted the importance of resourcing for our National Health Service (NHS). Not being able to heat homes adequately can create associated health problems, placing additional pressure on the NHS. This can be mitigated through energy efficiency improvements, allowing people to stay warm and healthy more easily. It is estimated that the £150 million of funding for the first year of the HUG Scheme would save the NHS £63 million. If the full £2.5 billion pledged in the Conservative Manifesto is delivered, then the energy efficiency improvements could save the NHS just over £1 billion.

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Additional Economic Benefits

The HUG Scheme will also create wider economic benefits that could contribute to a recovery following the COVID-19 crisis. The government spending will create jobs (see section below), which in turn will lead to higher spending in other parts of the economy to stimulate economic growth. It is estimated that the £150 million of investment for the initial scheme could lead to a further Gross Value Added (GVA) of £126 million across the economy.

Supporting the employment

The construction sector is amongst the hardest hit by COVID-19, with 680,000 employees having been furloughed by 154,000 employers up to 31st May 202035. The Home Upgrade Grants Scheme would be the strongest possible decision that works can and should be carried out safely and at scale, providing certainty of demand to the workforce who are currently reluctant to relaunch their businesses. This would be particularly beneficial for smaller businesses in the sector. Kick-starting the HUG scheme would improve confidence that work can be carried out at scale and quickly, enabling installers and business across the country to respond.

Job Creation

The COVID-19 crisis has left many people unexpectedly out of work. The HUG Scheme could help to generate jobs, which involve a wide range of skills across a broad spectrum of local trades and are often labour intensive. In addition, the type of work involved for the installation of the energy efficiency improvements requires workers who are on site. This means that jobs created will have an even distribution geographically to stimulate a recovery across all parts of the country.

It is estimated that the pilot scheme of £150 million of funding would create over 470 jobs, which would grow to nearly 8,000 total jobs if the scheme were to be extended to the full £2.5 billion stated in the Conservative Manifesto.

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Annex: Analysis Data Table

Variable Value Source

HUG Scheme Budget £2.5 bn (£150m Year 1) Conservative Manifesto

Archetype Households (1) 6262 (2) 533 (3) 2202 (4) 5866 English Housing Survey

Retrofit Assessment cost £35 Money Supermarket

Cavity wall insulation cost £380-£950 BEIS

Loft insulation cost £1600-£3100 BEIS

External wall insulation £5300-£11500 BEIS

Double glazing £2400-£8300 BEIS

Air source heat pump cost £5770 (3kW) - £10830 (10 kW) BEIS

Cavity wall insulation lifetime 42 years BEIS

Loft insulation lifetime 42 years BEIS

External wall insulation lifetime 36 years BEIS

Double glazing lifetime 20 years Ofgem

Heat pump lifetime 20 years BEIS

Discount rate 3.5% (years 1-30) 3% (years 31-75) HM Treasury

Forecast period 42 years Assumption

Housing data Various TABULA

Condensing gas boiler efficiency 0.92 COP Boiler Plus

Condensing oil boiler efficiency 0.89 COP Boiler Plus

Direct electric heating efficiency 1 COP Assumption

Air source heat pump efficiency 2.51-2.83 SPF BEIS

Electricity emissions factor Varies yearly Treasury

Gas emissions factor 0.184 kgCO2e/kWh Treasury

Oil emissions factor 0.2467 kgCO2e/kWh Treasury

Electricity price domestic central Varies yearly 18.5 p/kWh (2020) Treasury

Gas price domestic central Varies yearly 4.58 p/kWh (2020) Treasury

Oil price domestic central Varies yearly 46.5 p/L (2020) Treasury

External wall insulation working days 8 days Snug Network

Loft insulation working days 0.5 days Insta Group

Cavity wall insulation working days 0.5 days CIGA

Double glazing working days 4 days Double glazing on the web

Heat pump installation working days 6 days Heat Pump Association

Yearly working days 236 days UIOWA

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Disclaimer

This paper has been produced by the National Insulation Association in response to the COVID-19 pandemic and the growing need for urgent policy intervention to improve the energy performance of buildings. The views and positions developed in this report are a product of dialogue and consultation between NIA Members, NIA Secretariat and wider stakeholders.

Whilst the NIA considers the data and analysis contained in this report to be reasonable based on current information, the NIA offers no warranty or assurance to the accuracy and completeness. Details of the principal sources used are set out within the document.

The NIA Secretariat is provided by Ecuity Consulting LLP and the NIA would like to thank Christina Thompson-Yates and Rory Matthews of Ecuity for their support in turning this report into reality.

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References

1. https://hansard.parliament.uk/commons/2020-05-13/debates/7F8336E1-EDA2-4AF8-9923-A65B8A9B3F7E/Engagements

2. https://www.theccc.org.uk/publication/reducing-uk-emissions-2020-progress-report-to-parliament/

3. https://assets-global.website-files.com/5da42e2cae7ebd3f8bde353c/5ddaa257967a3b50273283c4_Conservative%202019%20Costings.pdf

4. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/891249/Coronavirus_Job_Retention_Scheme_Statistics_June_2020.pdf

5. https://www.theccc.org.uk/uk-action-on-climate-change/reaching-net-zero-in-the-uk/

6. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/882404/annual-fuel-pov-erty-statistics-report-2020-2018-data.pdf

7. https://www.theccc.org.uk/wp-content/uploads/2020/05/CCC-to-Prime-Minister-Boris-Johnson-Covid-19-recovery-002.pdf

8. https://www.iea.org/articles/energy-efficiency-and-economic-stimulus

9. https://www.greenpeace.org.uk/resources/green-recovery-manifesto/

10. https://www.theeeig.co.uk/media/1091/eeig_report_rebuilding_for_resilience_pages_01.pdf

11. https://www.theiet.org/media/5276/retrofit.pdf

12. https://www.theccc.org.uk/wp-content/uploads/2019/02/UK-housing-Fit-for-the-future-CCC-2019.pdf

13. https://www.theccc.org.uk/publication/reducing-uk-emissions-2020-progress-report-to-parliament/

14. http://www.energybillrevolution.org/wp-content/uploads/2013/12/ACE-Research-Comparing-the-UK-and-Sweden-3.12.13.pdf

15. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/882404/annual-fuel-pov-erty-statistics-report-2020-2018-data.pdf

16. https://healthyhomesbuildings.org.uk/wp-content/uploads/2018/10/HHB-APPG-White-Paper-V1.pdf

17. https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/bulletins/personalandeconomicwellbeingintheuk/may2020

18. https://ca1-eci.edcdn.com/reports/ECIU_Leaky_Homes_Lockdown.pdf

19. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/829006/Annual_Fuel_Pov-erty_Statistics_Report_2019__2017_data_.pdf

20. https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/1730/1730.pdf

21. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/700496/clean-growth-strategy-correction-april-2018.pdf

22. https://www.sustainableenergyassociation.com/wp-content/uploads/2019/09/SEA-social-housing-digital-compressed-1.pdf

23. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/882404/annual-fuel-pov-erty-statistics-report-2020-2018-data.pdf

24. https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/1730/1730.pdf

25. https://www.ippr.org/files/2018-07/fuel-poverty-june18-final.pdf

26. https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/1730/173006.htm

27. https://www.ippr.org/files/2018-07/fuel-poverty-june18-final.pdf

28. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/888736/future-sup-port-for-low-carbon-heat-consultation.pdf

29. 29 https://assets-global.website-files.com/5da42e2cae7ebd3f8bde353c/5ddaa257967a3b50273283c4_Conservative%202019%20Costings.pdf

30. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/685903/The_Green_Book.pdf

31. http://webtool.building-typology.eu/#bm

32. https://www.theccc.org.uk/uk-action-on-climate-change/reaching-net-zero-in-the-uk/

33. https://www.weforum.org/agenda/2020/06/coronavirus-covid19-remote-working-office-employees-employers/

34. https://www.onrec.com/news/news-archive/13-million-brits-to-request-permanent-flexible-working-once-lockdown-is-lifted

35. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/891249/Coronavirus_Job_Retention_Scheme_Statistics_June_2020.pdf

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