When will we stop being dependent on subsidies?

Nigel Banks

There is no doubt that the UK’s domestic retrofit industry grew substantially on the back of the past 14 years of government-led energy company obligations.

At their peak they led to more than 2.5 million homes being upgraded in 2007-8 and more than 1.5 million homes being insulated in 2012-13. Many feared that the industry was hooked on these subsidies, as if it was some form of addiction to a class A drug.

When Green Deal finance was launched, it had grand ambitions to try and kick this addiction, with a new Energy Companies Obligation (ECO) set to be a sort of methadone for the industry.

The aim was to help replace the “full grant junkies” with a no upfront cost finance option with top-up support coming from ECO funding. However, with the various challenges of getting Green Deal finance up and running, this just led to a dependency on ECO funding.

Last year, insulation installations were at their lowest levels since 2002. However, with the drastic cuts to ECO, monthly installation levels have now reduced even further (by nearly 70% since March), and the Green Deal Home Improvement Fund (GDHIF) only lasted six weeks. So the industry is now having to go cold turkey, with many companies in England having absolutely no funding support whatsoever.

Last year, insulation installations were at their lowest levels since 2002

As you may expect, this is now starting to have quite a severe impact, with some of the main players in the market announcing further job cuts leading to significant reductions in the size of their workforce.

Yet, we have barely started the job of retrofitting the UK’s housing stock so there are clearly some massive lessons to be learnt about future policy design and implementation.

I am attending some of the party conferences for the first time this autumn to support the call for energy efficiency to be classed as a national infrastructure priority and funded as such. Given our legal commitment to tackle climate change and moral obligation to deal with the health impacts of fuel poverty, I was hopeful that there would be some strong political pledges to support this aim in the coming weeks.

At their party conference this week, Labour “declared war on cold homes” and have supported our call for domestic energy efficiency to be a national infrastructure priority, which is great news. The devil will be in the detail and the level of ambition in terms of numbers of homes insulated each year still seems far too low.

We will need cross party support if we are going to deliver retrofit as a long term infrastructure priority in the UK. Long term structural incentives together with well-designed additional financial support/subsidy mechanisms are also needed to be put in place to support key measures. Over time these can wean the industry off this subsidy, but this needs to happen gradually as demand picks up.

Finally, attractive alternative financing solutions, such as the one million 0% loans proposed by Labour, must be set up and run alongside these incentives and support mechanisms to enable customer demand to build.

Crucially, these new policies must be developed in partnership with the industry, be transitional by design and overlap significantly with what remains of ECO so the industry has a chance to adapt and grow gradually.

It is an interesting policy question to consider what level of subsidy is appropriate and how to wean industries like the construction sector off initial recession busting subsidies, such as, the new build homes market with its current Help to Buy dependency. But that is a question for another day.

Nigel Banks is group sustainability director at Keepmoat