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The Treasury should not axe the Green Homes Grant

The subsidy scheme has not worked as a stimulus policy, but scrapping it would raise questions

The subsidy scheme has not worked as a stimulus policy, but scrapping it would raise questions about whether the Treasury sees a ‘green recovery’ as anything more than a slogan, argues Colm Britchfield

When the £3bn Green Homes Grant was announced in July it was intended to signal that building back better would also mean building back greener. But the grant scheme, which offers homeowners vouchers worth up to £10,000 to help cover the costs of various energy efficiency measures or low-carbon heating systems, has been such a disappointment in terms of work completed that the chancellor is apparently weighing up whether to scrap it entirely. [1]

The administrative problems that have hampered the rollout of the scheme are frustrating symptoms of a deeper issue. The Green Homes Grant is the product of an uneasy compromise between two departments – the Treasury and the Department for Business, Energy, and Industrial Strategy (BEIS) – with very different ambitions for the policy. While the Treasury is focused on getting money out of the door, BEIS has an eye on the long-term viability of the market for energy efficiency and low carbon heat.

Rather than scrap it, the Treasury should rollover the unspent funds (95% of the £1.5bn earmarked for distribution to individual homeowners), and accept that the scheme would work better as a policy to develop a strategically vital industry in the medium to long-term, not as a stimulus measure. Failure to do so would jar with the government’s commitment to net zero.

The Green Homes Grant is not the easy stimulus scheme that the Treasury thought it was buying

When the Green Homes Grant was designed last summer, officials in BEIS were reportedly surprised at how much money the Treasury was willing to give them.[2] It seems that energy efficiency and heat decarbonisation had been identified as a “shovel-ready” infrastructure investment – a  perfect fit for an economic stimulus package.

What is more – as proponents of greater spending on energy efficiency and heat have often pointed out – these activities can deliver significant employment benefits over the longer-term. Improving the energy efficiency and decarbonising the heating supply of the UK housing stock is a genuinely national, labour-intensive task that will take place over decades, which could ultimately support 200,000 jobs by 2030. [3]

But these projects were not, in fact, so shovel-ready: there were not enough existing businesses and qualified installers to deliver the energy-efficient home improvements that people were being given the cash to buy. It was unrealistic for the government to think that these jobs would spring up immediately in response to very short-term measures. If businesses are going to invest in skills and training then they need confidence that there will be a long-term market for the products that the Green Homes Grant supports. The scheme’s short timescale meant this was not on offer.

Building the supply chain for greener homes is not a short-term objective

BEIS’s policy included a requirement for businesses registered for the grant to be accredited by TrustMark, the government-run quality assurance scheme. This should help avoid a rush of low-quality installations, which could ultimately harm consumer confidence and end up very costly (as poorly installed efficiency and heating measures need to be replaced), but it makes the short-term delivery challenge harder.

Growing the number of accredited, reliable firms capable of doing this kind of work and driving up the quality of installations would grow the market over the medium term. But with so much uncertainty around the future of government support, many eligible businesses have so far not bothered to sign up.

The fundamental problem is that BEIS’ implicit objective – to use this unexpected burst of investment to grow a more durable long term market for energy efficiency and low-carbon heat – does not match up well with the Treasury’s primary objective of injecting as much money into the economy as possible in a short space of time.

The Green Homes Grant’s wider objectives are crucial and should not be abandoned

Government spokespeople have blamed the scheme’s poor performance on low levels of public interest, but this is simply not supported by the evidence: by February over 100,000 applications had been received, but only just over 20,000 issued, and only 2,700 installations completed. [4]

Heating our homes is currently the second largest single source of UK greenhouse gas emissions (after passenger vehicles), so it is crucial that we change the way we do it if the UK is to meet its net zero target. There is clearly demand to do so, and the Green Homes Grant could be an effective mechanism in the medium-term to grow a strategically vital industry.

The chancellor needs to stop thinking of this as a short-term stimulus policy, and should use his budget to put its approach to decarbonising the housing stock on a long-term footing. He should roll over the unspent money from the Green Homes Grant into next year at a minimum, making a longer-term commitment to the scheme to give businesses greater confidence to invest.

The government’s heat and buildings strategy is expected later in March – it needs to give sustained attention to developing the supply chain, and set out clear plans for how the government intends to scale up the delivery of heat decarbonisation over the next decade. But this budget will set the mood for that strategy. The chancellor is strongly rumoured to be extending the fuel duty freeze for another year. If he also scraps the Green Homes Grant, there will be serious cause to doubt how committed the government really is to the green part of their green recovery. 

Supply chains
HM Treasury
Institute for Government

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