How the autumn Budget could make new energy work for households

There is a growing inconsistency in the way the UK is working towards net zero. 

The importance of decarbonising the country’s energy system is widely accepted, but how we fund the transition does not always incentivise individual households to support the change. 

Take policy costs. These green levies are added to people’s electricity bills to help pay for important initiatives such as energy efficiency measures for the financially vulnerable, the Warm Home Discount scheme, and support for renewable projects, but they also make it more expensive for households to adopt sustainable technologies such as heat pumps. 

The new Labour government will deliver its first autumn budget on October 30th, representing an opportunity to realign the nation’s climate goals with how we finance them and help people upgrade their homes in a variety of ways. 

It’s on us to make new energy work, which means both delivering on net zero and helping to make energy more affordable. That’s why we’re keen to support the Government in providing new financial incentives to help make Britain greener. 

Financial incentives to make Britain greener 

There are a number of ways the autumn budget could reward green investment and make it easier for people to contribute to the net zero transition. Here are a few of them:

Rebalancing policy costs 

Policy costs on electricity have helped finance significant investments in clean electricity generation, dramatically cutting emissions in this sector over the last two decades, but as the UK looks towards decarbonising other aspects of the energy system such as heating, this approach presents a major challenge. 

Policy costs levied primarily on electricity mean that retail electricity is currently more than four times the price of gas in the UK even though renewable generation is becoming ever more cost effective. This means that a domestic heat pump can be more expensive to run than a gas boiler despite being three to five times more efficient. 

Levies on energy bills still play a crucial role in funding energy initiatives, and the current state of the public finances would make moving them onto the Government’s balance sheet extremely difficult. But incrementally shifting policy costs away from electricity and onto gas as market conditions allow would both maintain funding for the energy transition and increase the financial benefits to households of investing in green technologies.   

In the meantime, removing policy costs for new and existing heat pump owners would encourage uptake and reduce bills, especially for lower-income consumers who have already received help to install the devices as part of a broader Government programme. 

Stamp duty rebates for green home retrofits 

Old housing stock presents a major obstacle to the UK’s aspirations for net zero, with 20% of all emissions for 2022 attributable to residential buildings. The Government’s Climate Change Committee has even gone so far as to say that the UK will fail to meet its emissions targets “without near complete decarbonisation of the housing stock.” 

We fully support the Labour Government’s commitment to the Warm Homes Plan, which aims to make existing properties more efficient. While efforts are rightly focused on supporting those who are unable to fund upgrades themselves, the upcoming budget presents an opportunity to incentivise people with some financial capability by offering a rebate on stamp duty to new homeowners who upgrade their homes with insulation or other green technologies. This would help the UK align its funding methods and tax regime with its net zero goals, which is essential for encouraging further green investment. 

Green finance 

We were pleased to see the Labour manifesto’s promise to offer grants and low interest loans for green solutions including insulation, solar PV, batteries, and heat pumps. To make this a reality, the Government could offer guarantees and grants to lenders that would enable them to reduce interest rates and provide cheap, accessible financing to landlords and owner occupiers who would like to upgrade their properties with green technologies. 

As well as supporting traditional green loans, a pilot for this approach could also support innovative new business models such as Energy as a Service, which would allow customers to install solar PV, battery storage, and a heat pump at no upfront cost, then pay for it through a subscription. With lower interest rates, these monthly subscription costs could be lowered to the point that, by upgrading their homes, consumers could be financially better off from day one. 

Bringing fiscal policy and net zero together 

It is now cheaper in the UK to produce electricity from wind and solar than it is from gas, and public support for net zero remains high. At the same time, polling from Ipsos has found that “providing more support to enable people to make their homes more efficient” is the most popular policy associated with net zero. 

With these factors in mind, the autumn budget is a clear opportunity for the government to invest in green policies and make savings for the future, build public support, and help individual households make energy more affordable and sustainable. We want to see these things happen, which is why we’re putting ourselves forward to help design and implement any new policies, lead the way with innovative financing pilots, and support the government in any way we can to make new energy work. 

You can read our manifesto for new energy here.