Ahead of Chancellor's Spring Statement, UK100 Chief Executive, Christopher Hammond, outlines how decarbonising our housing stock can lead to economic growth.
The government came to power with a pledge to rebuild the country.
Nearly 9 months in, and after a series of challenging fiscal moments and a budget, it’s facing stagflation and high debt levels with record borrowing costs.
The latest OBR growth forecasts have wiped out the government's £10 billion headroom against their fiscal rules. This is leading to painful cuts that people across the country are feeling in their daily lives. With the Chancellor's determination to reduce debt and return the budget to surplus by 2030, we're now facing difficult choices with real human consequences.
Sticking to these fiscal rules means that economic growth is the only viable path out of this spiral of spending cuts and tax rises, which are becoming increasingly difficult for families to absorb. The Spring Statement makes this reality clear – growth is no longer just desirable, it's essential.
On the morning of the Spring Statement, tough choices abound and growth remains the top priority and route through future pain.
Growing the economy means more business transactions and higher wages to boost the tax receipts that flow into the Treasury. If we’re betting the house on growth, the government has to back industries that create new businesses and well-remunerated jobs. Some of the most effective industries to achieve this growth are linked to energy.
The Department of Energy Security and Net Zero takes up far more political attention than it takes from the budget. Consistently on the airwaves, DESNZ makes around 1% of government spending. Yet the green economy it supports is “a powerhouse of job creation and economic expansion”, according to the Confederation of British Industry which found the sector grew by over 10% in 2024.
It creates new business opportunities with good jobs — 40% more productive than the national average and paying £5,600 more than the average wage. Beyond the moral case for averting the climate crisis that's causing floods at home and fires abroad, it represents the narrow path out the stasis the UK has found itself in.
In the 1950s a war-weary Britain found itself needing thousands of health workers to support the new NHS to lift people out of disease and squalor. This created a society that was able to rebuild after being at war for 10 of the last 31 years. Today the UK faces a similar challenge, like in the 40s when people chose between health and wealth, they now face the challenge of heating versus eating. Sky-high electricity bills have eroded disposable income, leaving us colder and poorer.
Meanwhile, malevolent dictators have created energy insecurity across the world, making reducing our reliance on fossil fuels a national security measure as much as it is a climate measure. While today’s Statement will focus on the headline £2.2 billion boost to defence spending announced, we ignore the link between energy and national security at our peril.
Before the election, Labour promised to fix the economy and reduce energy bills by £300. The most effective way to bring down bills and reduce our need to use the volatile gas market, is to improve the energy efficiency of our homes and switch to alternative sources of energy. We can do this in the long term through new housing, but in the short term, the quickest returns will be through retrofitting our housing stock.
Research from Ireland finds that retrofit measures such as insulation and switching from gas boilers to heat pumps can reduce energy consumption by 1,091 Kilowatts a year, that’s about £270 off yearly energy bills at today’s prices.
Labour has ambitions to deliver these savings through its Warm Homes Plan. The government pledged £3.4bn to home retrofit schemes between 2025 and 2028 at the 2024 Autumn Budget. While ambitious, this commitment downgrades an initial £6 billion pledge and halves the annual allocations from 2022 to 2024, compared to spending under the previous Conservative government.
The government also committed to reviewing all investments at the comprehensive spending review in 2025 during the Autumn budget. Outside of health and defence, departments are being asked to find up to 11% in cuts.
Retrofitting requires high upfront costs, which is challenging for cash strapped home owners, housing associations and councils, who are responsible for the majority of the housing stock. It will require the benefits of scale that only central government investment can provide. But it will not be an endless money pit, setting up the sector will have the multiplier effect of up-skilling the labour force and supporting small businesses to expand, who will use that money in their local economies.
Analysis by the UK Green Building Society finds that the government will net a return of £13 billion in higher tax receipts by 2050 if it launches retrofit at scale. This will require £67 billion over 25 years, or £2.8 billion a year, one third of the cost of the triple lock.
If instead, the government chooses to force cuts in the sector, and abandon their pledge of £13.2 billion for retrofit over this parliament, it will lose out on the higher tax receipts from a growing sector, and increasingly have to manage an ageing population with a shrinking tax base.
Jobs and businesses will move overseas as many of our contemporaries in Europe begin to retrofit at scale. Energy bills will only come down in the medium term (after this parliament) when the renewable grid completely comes online.
Cutting retrofit spending will weaken economic growth and be tantamount to admitting defeat on the flagship pledge to bring down energy bills. To rebuild the country, we must start at home.
