Insulation cuts to add £18bn to price freeze costs

The government’s decision in 2013 to reduce support for home insulation upgrades will add up to £18 billion to the cost of the two-year Energy Price Guarantee, according to new analysis from the Energy and Climate Intelligence Unit (ECIU).

The think tank said 2.3 million items of home insulation were fitted in the UK in 2012 but the drive by the prime minister at the time, David Cameron, to “cut the green crap” sent annual installations plummeting by 2 million – or 90%.

ECIU said this reduction could cover the installation of loft and cavity wall insulation in one million homes per year, meaning in the following decade 10 million homes – or 40% of the UK’s housing stock – could have been upgraded if the government’s support had remained in place.

Had these improvements been made, the upgraded homes would be using 15-20% less gas and total domestic gas demand would be almost 10% lower than it is now. The average annual gas bill would be £350-400 lower from this October when the £2,500 price freeze comes into effect.

ECIU said taxpayers would have saved around £9 billion over the first year of the scheme and a further £9 billion in the second year if gas prices remain high. If the Treasury had funded the upgrades, it would completely recoup its investment and still save another £8 billion.

On average, homes benefitting from this insulation would additionally have saved over £400 on their energy bills by now and another £600 by the end of 2024. Those upgraded in 2013 would have already saved £800.

Dr Simon Cran-McGreehin, head of analysis at ECIU: “Cutting the green levies on bills during the last cost-of-living crisis has come back to bite the Treasury in the coffers.

“If it had instead shifted insulation programmes on to the government balance sheet it would not only have made its money back, but saved the taxpayer up to £8 billion as well as trimming hundreds of pounds off the energy bills of millions of homes.

“Taxpayers and billpayers alike will now be wondering why insulation has not really featured in government plans to tackle the gas crisis, particularly when cold homes cost the NHS £3 billion a year. What happens next time we have a cost-of-living crisis?”

ECIU said action taken now would still have a rapid payback. Its earlier analysis suggested that an investment of £1,000 per house, which can often cover both loft and cavity wall insulation, could be recouped by the government by the next election if gas prices remain high as forecast and the Energy Price Guarantee is continued until then.