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The Green Deal: a bad deal for consumers?

With only 57 deals completed in 10 months, a cross-party parliamentary group has met to recommend ways to turn the troubled Green Deal around.

The Green Deal was launched in January this year as the government’s flagship policy to make the UK’s existing homes stock more energy-efficient.

The pay-as-you-save model means that the cost of any installed green measures are paid back through resultant savings on energy bills. The policy’s so-called ‘golden rule’ states that any savings made must be greater than the cost of installation.

In theory then, the policy should be quite attractive to consumers. Climate minister Greg Barker backed this up with strong words earlier this year, telling BBC Radio 4 in March that he “wouldn’t be sleeping if we didn’t have 10,000 [Green Deal plans] by the end of the year.”

Mr Barker must be suffering from insomnia at the moment, as the latest figures for the end of September revealed that only 57 Green Deals had been completed.

In addition, there were 392 new Green Deal plans – where a customer has a quote and wants to get the work done – plus 505 pending plans, where a deal is signed and work has begun.

Saint-Gobain is one of the firms that have been disappointed at the lack of volume provided by the scheme.

“We’re not seeing a lot of work from it,” says Saint-Gobain advocacy leader Jade Lewis. “We’ve seen a disappointing drop-off in insulation of more than 60 per cent and solid wall insulation hasn’t really got off the ground with the Green Deal like it was supposed to.”

Report and recommendations

To try to address the shortfall between the stated ambition of the scheme and the actual numbers, the All-Party Parliamentary Group for Excellence in the Built Environment recently produced a report titled Re-energising the Green Agenda.

This report stated that the government must commit to the Green Deal if it is to have any chance of meeting its target of reducing CO2 emissions in the existing building stock by 50 per cent by 2025.

“There have been a range of logistical and process issues with the Green Deal, but it’s strange that you could get an assessment long in advance of financing thanks to the soft launch,” says UK Green Building Council director of policy and communications John Alker, who was part of the APPG.

“It’s very frustrating that the Green Deal didn’t get a fair crack of the whip at the start”

John Alker, UK Green Building Council

“It’s very frustrating that it didn’t get a fair crack of the whip at the start.” Federation of Master Builders chief executive Brian Berry echoes this view.

“Having two launches did not help,” he says. “Builders are practical people and a soft launch made the government sound hesitant.”

Communication to the public about the benefits of the policy also needs to be improved. “People need to be able to relate to it,” says Rob Pannell, director of the Zero Carbon Hub.

“For example, if the government says ‘eat your 5-a-day’, we all know what that means for each of us personally.

“But when they say ‘act on CO2’, it’s not clear. I’m not even always sure myself and I’m an expert that works in the industry. We should get the message across that it will save you money on your energy bills, with the by-product that it will save carbon.”

Financially unattractive

Beyond marketing and confidence issues, finance has cropped up repeatedly as a reason that people are put off.

The APPG recommended that the government “urgently review ways in which it can reduce the interest rate on the Green Deal, which is likely to be through underwriting the financing, in much the same way it has done with the new-build mortgages”.

“The Green Deal doesn’t stack up financially. Consumers will invest if they see a return but the interest rate of 7 per cent is far too high”

Brian Berry, Federation of Master Builders

Mr Berry highlights the interest rate as a source of the problems. “It doesn’t stack up financially,” he says. “Consumers will invest if they see a return but the interest rate of 7 per cent is far too high.

“And people are also worried about having the charges attached to their property. What impact will this have on re-selling? The Green Deal is currently a difficult concept to sell.”

Mr Alker agrees that interest rates are too high but argues that if people make green improvements to their homes it doesn’t ultimately matter whether they’re using Green Deal finance to fund it – but installation figures suggest that it isn’t happening using either method.

The Green Deal Finance Company is responsible for making money available to all accredited Green Deal providers on an equal and open basis.

“The current lending figures are based on the Green Investment Bank’s terms and we are lending as cheaply as we possibly can under the current legislation,” says a GDFC spokesman.

State involvement

Government intervention could help subsidise the Green Deal, or at least better incentivise it for consumers, with Mr Alker saying that incentives around stamp duty are the “front runner”.

The APPG proposed that a revenue-neutral adjustment could be made to stamp duty on sales of homes, so that the least energy-efficient homes attract more stamp duty and vice-versa.

Ms Lewis agrees: “The lack of incentives is the main reason it’s missing its targets. Changes to stamp duty would mean that energy-efficiency is linked to value of homes, embedding it in the market.”

Mr Alker also cites the German approach as an example that could be learned from, where their equivalent of the Green Investment Bank – the Kreditansalt für Wideraufbau – is subsidised by the government and offers loans with interest rates of 1 to 2 per cent.

“Changes to stamp duty would mean that energy-efficiency is linked to value of homes, embedding it in the market”

Jade Lewis, Saint-Gobain

The GDFC is clear on this, saying: “To have state subsidy would involve changing the legislative remit of the Green Investment Bank and their Market Economy Investor Principle. 

“The European Commission would also have to be convinced that a subsidised scheme did not amount to state aid.

“The German KfW model involves a very substantial interest rate and direct subsidy; bringing the GDFC’s rate down to KfW rates of about 1 per cent would cost £1.2bn. It is clearly a matter for parliament and government to take a view on how affordable that is right now.”

Cutting VAT on refurbishment work was also proposed, a stance supported by the FMB. The APPG report did add, however, that “in the current climate of EU clampdowns on variations in VAT, this would be highly unlikely”.

New hub for existing homes

So with government subsidies politically difficult and VAT cuts probably off the table thanks to the EU, what other options are available? One intriguing proposition is linked to the fourth of the APPG’s seven recommendations to the government: the establishment of an Existing Homes Hub.

“It could look at the practical application of the Green Deal, particularly over hard-to-treat homes, and could bring together people from across the built environment,” says Zero Carbon Hub director Rob Pannell.

”It would be similar to what the ZCH does for new homes in that the factors we examine are exactly replicable [for existing homes].”

However, financing a new hub could prove problematic for the government, particularly in the current economic climate.

“The ZCH receives government funding on a project-by-project basis now, but a new existing homes hub would probably need five years of majority funding from government initially,” Mr Pannell says. “This would get it to a position where it would be largely self-sufficient going forward.”

New build could support old homes

In terms of finding money to help subsidise the Green Deal, there is potential that zero-carbon new-build housing could help through Allowable Solutions.

The concept of Allowable Solutions is simple: when it is not economically viable for a new build to achieve zero-carbon through onsite efficiencies and technology, the developer would be able to make a payment to secure emissions reductions through near-site or offsite carbon-saving projects.

“There is the potential that this money paid towards Allowable Solutions could be used to support the Green Deal,” Mr Pannell says.

“This is something that a hub for existing homes could do and we firmly support the proposal.”

“Labour see a political opportunity to put the boot in here, and why wouldn’t they?”

John Alker, UK Green Building Council

The UKGBC has launched a 16-member industry taskforce including Carillion, Keepmoat and Saint-Gobain, among others, to try to find ways of reducing the interest rate and making the scheme more financially viable.

“It’s all very well saying the cost is high,” Mr Alker says. “But there are no easy solutions – and the opposition will find this, too.”

The Labour Party has openly talked about reworking or replacing the Green Deal with a new policy since its party conference last month.

“They see a political opportunity to put the boot in here, and why wouldn’t they?” Mr Alker says.

“But when you scratch the surface, their proposed replacement is still a pay-as-you-save scheme, but they’d like to see a greater variety of funding solutions offered to consumers.

“I think it’s more of a rebranding than a fundamental change of approach.”

Ms Lewis says Labour’s proposed changes would be an “opportunity to get it to work”, but that scrapping it completely would cause problems.

Hope for the future

Most agree with Ms Lewis in wanting the Green Deal to be reworked and rethought rather than abandoned.

“I’m optimistic over the Green Deal’s future in the sense that it’s desperately needed,” Mr Pannell says. “We at the Zero Carbon Hub are really hopeful that it will be successful.”

Mr Berry is worried that the policy’s failings so far have had a wider impact.

“I think it has made firms more cynical about government initiatives generally, so it’s been particularly damaging,” he says.

“It’s a major change for the market and for consumers and it was probably inevitable that it would be slow to get off the ground. It’s too soon to damn it”

Jade Lewis, Saint-Gobain

“But the government can address this by getting a funding mechanism in place for small builders to use so that they can contract the work, as well as making it more attractive for consumers.”

Intervention is seen as necessary by most. “It will not meet its targets without major change,” Ms Lewis says. “There are pockets of good work going on but it’s not enough.

“I would say that it is still early days for the Green Deal. It’s a major change for the market and for consumers and it was probably inevitable that it would be slow to get off the ground. It’s too soon to damn it.”

Mr Alker believes that energy-efficiency is only going to feature more prominently on the political agenda in future, forcing government to rethink.

“As the price of wholesale gas and electricity bills go up, this is going to become a very big issue,” he says. “That will force the coalition and the next government, whatever colour it is, to take a long, hard look at the policy landscape and get it to work.

“It feels like we still have a long way to go.”

The recommendations of the APPG for the Built Environment

  • Set clear shorter-term targets for the construction sector, monitor and report on progress
  • Be clear on its priorities
  • Give the Green Construction Board more teeth
  • Set up an Existing Homes Hub
  • Review the Green Deal
  • Consult on a new Green Deal for Registered Social Landlords
  • Make retrofit more financially attractive

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