Private Low-carbon Investment: Green Finance Institute Report

Question

Asked by

To ask His Majesty’s Government what plans they have to respond to the Green Finance Institute’s report A Greenprint for Property Linked Finance in the UK, published in November, to accelerate private low-carbon investment into existing homes.

My Lords, we recognise the important role that private finance can play in helping us to achieve our decarbonisation ambitions. My officials have met the Green Finance Institute several times to discuss the potential for property-linked finance in a UK context. We will continue to work with industry stakeholders to explore options for working with the private sector, including banks and building societies, to scale up private finance to accelerate efforts in this area.

My Lords, I very much welcome those conversations that the Minister has had. As he knows, the way to bring down energy bills for families is to insulate their homes. Indeed, homes account for almost a quarter of carbon emissions. Perhaps the Minister could be a little more precise. These discussions can take a long time. The £6 billion, which I welcome, in the Government’s warm homes plan is just a small amount of the money that is needed to refurbish UK buildings. Given that legislation is often required to implement these schemes, can he give some sort of timetable of when bringing such private finance into this sector will happen?

My Lords, the noble Lord is absolutely right that this is an important area of policy. We reckon that buildings account for 31% of total UK emissions, and heating is 75% of that proportion of emissions, so I very much take his point that there is an urgent need to make progress. I cannot give him an exact time. Looking at international experience of these kinds of schemes, it is not altogether positive. In the US experience, for instance, it may have worked for multi-occupational commercial properties but, for individuals, it does not seem to have made much progress.

My Lords, does the Minister not share my disappointment that his Government have no plans to review the level of the warm homes discount? Given that there does not seem to be any urgency in renovating existing homes, will he use his good offices to put pressure on the Government to review the level of the warm homes discount? I refer to my interest as president of National Energy Action.

My Lords, this is the third time the noble Baroness has asked me this question in the last two weeks. I am afraid that we have not moved on from that position. On the warm homes plan, as she will know, we made it clear in the Budget that we will see a total investment of £3.2 billion in warmer homes across 2025-26. She is right that making progress in relation to energy-efficient homes is very important indeed.

My Lords, while it is important to make sure that older homes are brought up to standard, does the Minister accept that there is merit in ensuring that all developments going ahead use heat pumps for the entire development? That works in areas of Germany. Will the Minister consider doing that?

My Lords, the noble Baroness is right to raise new homes but part of the issue we have is that we have the oldest housing stock in Europe and a third of our housing was built before World War II. As far as her question is concerned, I can tell her that the Ministry of Housing, Communities and Local Government has indicated that it is working on future standards. These will set new homes and buildings on a path that moves away from relying on volatile fossil fuel markets and ensures that they are fit for a net-zero future. This is likely to see a mix of low-carbon technologies used for heating, including heat pumps and heat networks. Of course, the point the noble Baroness raises is an important one.

The Minister raised international comparisons and learning from other countries. He also said—I cannot remember his exact words—that in the United States residential market, property-linked finance has not always been successful or well taken up. Can the Minister explain some of the reasons for that and what his department has learned from that experience in the United States residential market?

My Lords, one of the issues is that home owners did not really understand what they were signing up to. In California, for instance, the state enacted a preservation and consumer protection Act, which led to an almost 90% decline in originations. More generally, the Green Deal that the coalition Government brought in shows some of the problems. First, the interest rates on offer were not sufficiently competitive; secondly, it was very complex to make an application; and, thirdly, there were lots of allegations of mis-selling. Given all that, the Government withdrew it. We need to learn a lot of lessons if we are going to make progress.

It is thought that currently owners are deterred from making a major investment in energy-efficiency improvements because they do not expect to live in the home for a sufficient length of time to get the money back through energy efficiency. The whole point about the GFI proposal is for longer-term loans that are assigned to the property, to keep interest rates low and give people a much better opportunity to make this investment.

My Lords, in an earlier Question your Lordships’ House was talking about vocational training and education. However it is funded, can the Minister assure me that ensuring we have the vocational skills and the building skills needed for home insulation is of the highest priority to the Government? That is crucial for the climate, for the health of the nation and for saving households money.

My Lords, I cannot really respond better than by saying that my noble friend answered the point thoroughly. We at the Department for Energy Security and Net Zero keep a close eye on skills needs. In fact, the whole energy sector has great potential for growth in really high-skilled jobs in the future. Since 2021 the department has invested over £28 million in skills and training, which has resulted in 33,000 training opportunities in retrofit, clean heat and energy efficiency roles. I take the noble Baroness’s point and we keep this issue under very close review.

My Lords, cold homes drive up ill health, our energy bills and our emissions. At least one-fifth of the UK’s CO₂ emissions come from home heating and our homes are some of the worst insulated in western Europe, with 27 million of our homes needing to be retrofitted. Does the Minister agree that property-linked finance makes sense? I ask him to look at it in relation to heat pumps, particularly with a view to bringing in enabling legislation and pilot programmes so that the Government can find the schemes that really work.

I agree with the premise of the challenge that we face. We responded positively, as do I, to the proposals made by the Green Finance Institute, which is why we are working on this seriously and discussing it with it, and we will be looking at the outcome of the pilots in commercial properties that the GFI is going to take forward in the next few months. But I have to point out to the House that this is not easy. Current experience suggests that unless you can ensure that a scheme is easy for people to understand and know what they are getting themselves into, and can offer competitive interest rates, it is not going to fly. We need to make this a credible scheme.

My Lords, I refer to my interests as set out in the register. How do the Government plan to balance the drive for low-carbon homes with the risks of increasing housing costs or creating barriers for those already struggling in the housing market?