Treasury could break even on insulating millions of homes around end of Parliamentary term

*Please note* this analysis was updated on Thursday 8th September, to account for the Government announcement on the Energy Price Guarantee.

In essence, Treasury wouldn’t have to pay for the price cap freeze on energy that is saved by reducing the heat being lost through uninsulated rooves and walls.

With bills frozen at £2,500 on average, every pound invested in insulation will effectively be paid back by the end of Q1 2025, based on industry price predictions [1], and a steady gas price in 2024 and the scheme extending beyond the current two-year period, given gas prices are predicted to stay high. In addition to the saving to Treasury, the homes themselves will save £600 from their bills.

Investment of as little as £1,000 per home could cover a basic package of measures that would move an Energy Performance Certificate band D home, the UK’s average, to EPC band C, the Government’s target for 2035. Around 10 million properties lack one or both of loft and cavity wall insulation [2].

Jess Ralston, Senior Analyst at ECIU, said: “The UK desperately needs to add, not cut, the ‘green crap’ if it wants to save bill and tax payers billions. Investing in the basics of loft and cavity wall insulation for millions of homes could be cost neutral on the Treasury even before the next election but many will struggle to fund the upfront cost even though for many homes £1,000 could cover the basics.

With gas prices set to increase even further next year, expanding the Energy Company Obligation insulation scheme could reduce future bill bailouts, lock in lower bills for households, bring down inflation and cut our dependence on the volatile gas market.”

The IMF has said that in Europe the UK is being worst hit by the gas crisis because of the poor energy efficiency of our homes and a heavy reliance on gas [3].

Commenting on the analysis, Rt Hon Andrea Leadsom MP, said: “Conserving energy makes sense at the best of times but with energy prices so astronomically high, the payback from insulation measures will be incredibly quick. I’m convinced the Government will want to do more to help vulnerable households - and new funding for insulating lofts and walls could be a cost neutral alternative to the Treasury handing out subsidies for the next few years. In fact, insulation becomes a win-win option - keeping people warmer and reducing the use of energy - so good for the purse and good for the environment, while creating jobs for small businesses right across the country.”

New polling by Opinium for the ECIU [4] found that people rate energy as the most important issue facing the country – 54% of respondents said it was a top three issue compared to 50% for health. More than a quarter (28%) of people say they are struggling now with energy bills, and a further half (47%) expect to in the future.

When asked how much they might support a range of policies that the new PM could adopt, cash payments to help with energy bills came and expanding renewables came top (86%) followed by freezing the price cap (85%) and incentives and investment for homeowners and landlords to improve home insulation (82%). This compared to, for example, a third (33%) supporting cutting government spending and the same number backing an interest rate cut.

Experts predict bills being even higher next winter, at £5,887 [1], and not returning to pre-gas crisis levels by the end of the current Parliamentary term in 2024. The new Prime Minister Liz Truss has confirmed that ‘green levies’ that, in part, pay for insulating poorer homes will be moved from bills to general taxation, a decision backed by NGOs and the energy industry. But if this leads to no significant increase in the rate of insulating homes which has dropped dramatically in past ten years, many households will be locked into higher bills for years to come.

The Energy Company Obligation (ECO) has provided energy efficiency retrofit into over 2.3 million homes since 2013. The energy industry has confirmed that it could insulate 500,000 homes this winter and 1 million homes per year from 2023 through a ramping up of the scheme [5].

Recent ECIU polling of Conservative Party members found that the vast majority (85%) support incentives and investment for homeowners and landlords to improve home insulation and energy use [6].