Bright Blue, the independent think tank for liberal conservatism and conservative modernisers, has today published a report urging the government to support a new home energy improvement scheme following the end of the unsuccessful Green Deal in 2015.

The think tank shows how and why the Green Deal was a failure, and proposes new policies to incentivise people to install energy efficiency measures and decentralised renewable heat and electricity technologies in their homes.

Co-author of the report and Associate Fellow at Bright Blue, Ben Caldecott, said:

“Incentivising home energy improvements should be a top priority for the new Government. They will create warmer, more valuable homes for people to live in, boost economic productivity, and contribute to meeting the UK’s carbon targets."

The Government should create new ‘Help to Improve’ loans and ISAs to replace the Green Deal. These would support major new household investments in smart appliances, solar panels, heat pumps, biomass boilers, and battery storage, as well as energy efficiency measures such as double glazing and solid wall insulation. They would allow ‘deep’ retrofits of the UK housing stock and over time could replace direct subsidies for household renewable energy via existing Feed-in-Tariffs and the Renewable Heat Incentive.”

Bright Blue identified four main reasons for the low take-up of the Green Deal between 2013 and 2015.

Unattractive financial product. There was an unattractive rate of interest, between 7% and 10%, and a long payback period of up to 25 years. There was also the ‘Golden Rule’ constraint, which prevented loan repayments exceeding the amount saved from installing the measures. As a result, the average size of a Green Deal loan was just £3,500, insufficient to finance expensive measures like solid wall insulation or a heat pump.

Poor communication of the scheme. The communication of the scheme focused excessively on the scheme’s finance mechanism, rather than the merits of the product itself. Consumer research has found that comfort, health, and well-being are more effective ways to communicate the benefits of home energy improvements.

Poor consumer journey. The design of the Green Deal failed to take advantage of natural opportunities for improvements, or ‘trigger points’, such as when a property is sold. Consumers also found the Green Deal process burdensome and complex.

Problems with the supply chain. Some consumers experienced poor quality Green Deal installations, which undermined confidence in the scheme. Supply chain research has also revealed several barriers to new entrants: the high registration fee to become accredited, the complexity of the accreditation scheme, and the political uncertainty over the longevity of the Green Deal scheme.

Bright Blue has made a number of policy recommendations to encourage more home energy improvements, including:

Introduce minimum energy performance standards for properties at the point of sale and when other renovations on the property are carried out. At the point of sale, households must by law acquire an Energy Performance Certificate (EPC). A minimum EPC rating could be mandated in order for the sale of the home to be permitted. Second, the building code could be amended to mandate builders to improve the home’s overall energy performance whenever renovations take place. The costs of the home energy improvements could be capped so they do not exceed a certain proportion of the overall cost of the building works. The minimum standard of energy performance could be increased over time to ensure government policy objectives were achieved. The government could introduce exemptions for certain households, such as multiple occupancy properties or listed buildings.

Introduce ‘Help to improve’ loans. We propose that the government offer ‘Help to Improve’ loans to households, which would be a sister policy to ‘Help to Buy’. The loans should be underwritten by the government using the UK Guarantees scheme for infrastructure, which would reduce the interest rate below what it was under the Green Deal by passing on the government’s low borrowing costs.

Introduce a new ‘Help to Improve ISA’. We propose that a ‘Help to Improve ISA’ is established to incentivise households to save for home energy improvements, which would be a sister policy to the ‘Help to Buy ISA’. The government would top up dedicated household savings for home energy improvements by a fixed percentage. This could be used to reduce the overall amount borrowed under the scheme or the size of the loan repayments.

Scrap the ‘Golden Rule’ on home improvement loans. The ‘Golden Rule’ under the defunct Green Deal prohibited loan repayments from exceeding the estimated bill savings from the installation of the measures. Scrapping the Golden Rule would enable an attractive combination of energy efficiency measures, decentralised renewables, battery storage, and smart appliances to be financed by the new home improvement loan without an upfront lump sum being required. The Golden Rule was an unnecessary consumer protection, as a similar loan scheme in Germany has seen a very low default rate and credit checks for new home improvement loans would still be required.