Labour has a chance to finally insulate Britain – but there’s a big hole in its plans

The UK’s new Labour government has made clear that improving housing and tackling climate change are among its top priorities, with announcements on housebuilding targets and onshore wind turbines being made within its first few days in office.

But we’ve yet to hear any more substantial detail about a policy that would make a major contribution towards both these goals: Labour’s warm homes plan to improve housing insulation and cut domestic emissions to net zero.

Almost three years ago I wrote about the scale of the challenge to insulate Britain’s homes, and how it can be illustrated with five numbers. With little progress made under the previous government, the challenge is arguably now even greater.

Now in government, Labour has the chance to turn things around, and its warm homes plan points in the right direction at least. However, another look at the numbers shows the new government needs to get serious about how to pay for it.

1. 17% of emissions

Roughly 56 million tonnes of carbon dioxide (CO₂) came directly from UK homes in 2022, mostly from boilers burning gas for hot water and heating. This is down from 68 million tonnes in 2019. But as total UK emissions are declining, residential emissions now account for a bigger share of the national total – 17% versus 15% in 2019.

Household energy use fluctuates year-on-year depending on the weather, and energy use plummeted during the COVID lockdowns. Whatever the cause of the recent decline, the housing sector is lagging behind others in reducing carbon emissions.

2. 26 million homes

The UK has 29 million homes and it is estimated that around 26 million of these will still be standing in 2050. All of these houses must be retrofitted to net-zero standard before then.

The Labour manifesto says the party will upgrade five million homes by investing an extra £6.6 billion over the current parliament. Given a parliamentary term of five years, that equates to a million homes a year on average – exactly the rate needed to retrofit 26 million homes over the next 26 years. So far so good.

3. More than £26,000

In 2021, renovating a typical family home to net-zero standard was estimated to cost an average of £26,000, according to an analysis of data obtained by government advisory body the Climate Change Committee. This amount is likely to have increased significantly given how much construction costs have risen in the last few years.

It was Labour that published this analysis, but the party seems to have forgotten about it. That extra £6.6 billion promised by Labour amounts to just £1,320 when divided among five million homes.

The party notes that this would double existing government investment, bringing it up to a total of about £2,600 per house. But that would still only be 10% of the estimated £26,000 cost – never mind the inflated costs of today.

Who should pay for the mass renovation of UK homes? This debate is only beginning. It is generally accepted that homeowners, the so called able-to-pay sector, will need to provide some of their own money, whether from income, savings or borrowing. Banks are picking up on this.

A government trial saw banks lending to their mortgage holders to help them raise their EPC rating, while Santander recently backed subsidised bank loans for energy-efficiency upgrades.

However this discussion pans out, the level of public finance committed by Labour is woefully inadequate.

4. 20 years

A net-zero house would, in theory, save and generate as much energy as it uses. The average annual energy bill in the UK is £1,568, which means a £26,000 retrofit would pay for itself with lower energy bills in 16.5 years.

That implies retrofitting is an even better deal for UK households than it was three years ago, when I estimated the payback period of retrofitting at 20 years. However, the increase in construction costs since then could still mean the actual payback period is near the 20-year mark, and 20 years is longer than most people would be willing to wait to break even.

In either case, retrofitting homes is essential to achieve net-zero emissions and it is carbon payback (how long it takes to offset the emissions from the building works through reduced energy use) that matters. This could be as little as one to five years.

5. 20% VAT

Revisions to a VAT relief scheme in 2023 meant any energy-efficiency improvements to properties were free from VAT. This is positive, but knowledge of this scheme is minimal within the construction sector, let alone among homeowners. And so it is hardly ever applied and, in most instances, retrofitting work is still subject to VAT at 20%.

It has at least become the default for renewable installations, such as solar panels and heat pumps, to be zero-rated for VAT. This is generally assumed to have boosted their uptake. Sadly, the whole scheme is scheduled to end in April 2027.

Labour has not stated a position on this, but the party must be aware of it. It is absurd to apply VAT to retrofitting when there is a drastic need to ramp it up. This discrepancy has been flagged by the industry for years, including numerous petitions to parliament. The 2027 end date will be halfway through this parliament – hopefully by then the VAT relief scheme will be made permanent.

Labour’s main offer on the environment is to “make Britain a clean energy superpower”, which includes a commitment to insulate “millions of homes”. There is ample evidence that people and business have been put off prior measures by mixed messages from the government, policy rollbacks and a lack of clear direction on net zero.

Labour has at least recognised these issues. But as things stand, the new government is committing nowhere near the amount of money needed to make a difference.

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