Taxpayers facing £18 billion bill for failure to insulate UK homes

In 2012, the UK installed 2.3 million items of home insulation, but the decision by the then government to ‘cut the green crap’ [2] sent rates plummeting by 90% – a loss of two million new measures a year. With two simple measures such as loft and cavity wall insulation typically forming the core of a package of energy efficiency improvements, one million homes could have been upgraded each year for a decade, totalling 10 million ahead of the Energy Price Guarantee – almost 40% of the UK’s housing stock.

Had these improvements been made, the upgraded homes would be using 15-20% less gas, the total gas demand from the overall housing stock would have been almost 10% lower than today, and the average household gas bill would be £350–400 lower from this October when the price freeze kicks in. With almost 24 million homes using gas, this could have saved Treasury and taxpayers around £9 billion in the first year of the Energy Price Guarantee and, if gas prices stay high as some experts have predicted, £18 billion over the scheme’s current two-year duration.

Meaningful insulation improvements can be made for just £1,000 per house in many cases. Had Treasury funded the upgrades, then it could have recouped the investment and saved taxpayers up to £8 billion over the two-year price freeze. Or, the Government could have chosen to set the price freeze at a lower level, saving energy bill payers an average of up to £350-400 a year.

On average, homes benefitting from this insulation would have saved over £400 by now, and a further £600 by the end of 2024. Homes upgraded in 2013 would have saved £800 already and £1,400 by the end of 2024. These savings would have been in addition to the £350-400 a year had the Government been able to lower the level of the price freeze.

Commenting on the findings, Dr Simon Cran-McGreehin, Head of Analysis at the Energy and Climate Intelligence Unit (ECIU) said:“Cutting the green levies on bills during the last cost-of-living crisis has come back to bite the Treasury in the coffers. If it had instead shifted insulation programmes on to the Government balance sheet it would not only have made its money back, but saved the taxpayer up to £8 billion as well as trimming hundreds of pounds off the energy bills of millions of homes.

“Taxpayers and billpayers alike will now be wondering why insulation has not really featured in Government plans to tackle the gas crisis, particularly when cold homes cost the NHS £3 billion a year. What happens next time we have a cost-of-living crisis?”

An investment of £1,000 can pay for loft and cavity wall insulation in some cases, which are lacking in 5 million and 8 million homes, respectively, along with other simple measures such as draught exclusion, and can be enough to shift the EPC rating from the average (band D) to the Government’s target (band C). For homes that are harder to treat, that budget can achieve similar energy savings (albeit not reaching band C) by upgrading some combination of insulation, draught-proofing and heating controls. There would have been scope to break even with some more costly upgrades, given potential bill savings of £18 billion.

Some progress has been made over recent years, with the Energy Company Obligation (ECO) helping an extra 110,000 low-income households each year, including by installing solid wall insulation to give larger savings for housing with worse EPC ratings. This is particularly important in areas in need of levelling-up, including the 37 of the 40 most marginal constituencies that have below average housing energy efficiency. [3]

Action taken now would have rapid payback, with earlier analysis by the ECIU finding that £1,000 invested ahead of the price freeze would break even for Treasury by around the next election, as well as saving over £600 for the household. [4]

Polling this summer found that a large majority (85%) of Conservative Party members support incentives and investment for homeowners and landlords to improve home insulation and energy use. [5]