On the 22nd March 2023, the UK Department for Energy Security and Net Zero announced the Social Housing Decarbonisation Fund and the Home Upgrade Grant. In total this provides £1.4billion over 2 years towards supporting energy efficiency improvements in residential properties in England. Moreover, there will be additional contributions, totalling £1.1billion, by charities, social housing providers and local authorities. Thus, the total amount made available will be £2.5billion.
This is a welcome development, with targeted support for those less-able-to-pay and often ‘fuel poor’ households living in social housing, as well as those in homes not on the gas grid. Furthermore, the requirement that the benefited properties have an energy performance certificate (EPC) currently in Band D or lower aligns with the existing UK Government target to bring fuel poor homes to EPC Band C by 2030 (as detailed in the 2021 Net Zero Strategy).
Moreover, not only will this action help reduce the energy bills of those households directly benefiting from energy efficiency measures, where Government estimates annual average savings in the order of £220-£400, delivering energy efficiency upgrades could support thousands of jobs in retrofitting supply chains.
Here, the 22nd March announcement states that around 20,000 jobs could be supported by the new spending on energy efficiency. This figure is broadly in line with the results of our own research at CEP, where we use economy-wide models for scenario analysis of different decarbonisation actions. In CEP research reported in 2021, we estimated that 18,000 full-time equivalent jobs could be supported by the second year of a 2-year energy efficiency retrofitting programme associated with a spend of around £2.9billion.
Understanding and quantifying the potential wider economy impacts of improving residential energy efficiency is one of our main research themes at CEP. We have explored the economy wide implications of not only the spending on retrofitting actions (with which the 20,000 jobs identified in the announcement are associated) but also of households realising energy efficiency gains and lowering their energy bills, which increases and frees up disposable income to spend on other things. Here we have also examined how the costs and benefits accruing to a range of sectors and actors across different timeframes might be affected by who pays for retrofitting and how, where public funding through grants plays a key role in easing the constraints of household budgets, set against the ’who pays’ considerations associated with the public budget implications.
In short, our research has shown that delivering energy efficiency improvements in the housing stock is generally a good thing for the economy, and this adds to the directly welfare-enhancing characteristics for more energy efficient households, with jobs and income gains spreading across other households and boosting GDP. Thus, we would argue that government (at national, devolved and local authority levels) should endeavour to support and incentivise broader and more ambitious energy efficiency programmes. For example, the 18,000 jobs figure cited above is reported within a wider set of scenario simulations from CEP’s 2021 research that considered the wider economy impacts of a fuller, £68.5billion, programme aimed at delivering the objective of bringing as many UK houses as possible to EPC Band C by 2035.
This project involved analysing a range of options on how the required retrofitting activity may be spread over a 15-year period. The analysis took into account supply shortages in the UK labour market and the potential impact on wages and prices of engaging in what is extensive infrastructure investment activity in a constrained economic environment. The headline outcome is that, depending on how retrofitting action is funded, such a programme could ultimately deliver a sustained annual GDP boost of at least 0.07% (3% of Government’s current 2.5% growth target). It would also support a permanent uplift in the spending power of many UK households, through a combination of energy bills savings and income from employment.
However, our research shows that it is important to address labour supply and skills shortages, particularly in the construction sector and supply chains that will be primarily responsible for delivering retrofitting programmes. Ultimately, if there was to be action to shift most UK households to EPC Band C by 2035, our results suggest that up to 120,000 additional construction workers could be required from the early stages of a programme such as the £68.5million one we simulated. Where labour shortages mean that wage and other cost pressures are triggered, the outcome will be some increase in the cost of living and doing business in the UK.
Our results suggest that while this is unlikely to entirely offsetting overall gains, such cost and price pressures will certainly erode wider economy benefits relative to what they could otherwise be, with some economic congestion meaning potential net losses in some timeframes. It could also trigger displacement of jobs particularly in lower wage but more labour-intensive sectors of the economy, meaning gross losses for some, including in those low-income working households that energy efficiency actions have significant potential to help. Thus, it is essential that government actors and agencies take a lead in coordinated planning to ensure that the potential multiple gains of energy efficiency to households, business and the macroeconomy can be fully realised.