March 6 is UK Budget day. Even without committing large amounts of new money, the government can move the energy transition forward with measures such as the creation of a green home renovation advisory service
It is a difficult economic environment for ambitious climate policy – stubbornly high inflation, stalling growth and public debt levels are constraining government spending.
Higher levels of public spending are needed as soon as possible but, in the meantime, the UK government should not let limited fiscal headroom stop it from taking important lower-cost steps now.
In the upcoming Budget, the government should seize low-cost opportunities to signal clear ambition and reclaim the leadership the UK has long held on decarbonising the economy and financing the clean energy transition.
There are two key measures chancellor Jeremy Hunt should consider. First, he should strengthen the government’s sector-specific, net zero investment road maps to create a clear link between policy measures and private capital.
Last year, UK Finance undertook detailed analysis with financial services companies and non-profits to understand what action is needed to unlock lending and investment for the transition. A lack of policy clarity was one message that came back loud and clear.
As the Climate Change Committee has said, the gap in finance remains a major barrier to accelerating climate action. We know private capital will need to play a key role in financing the net zero transition. The capital is available – we only need to look at the range of green financing commitments made by UK and international banks – but a lack of both investable projects and confidence is holding back investors.
What we need are sector-by-sector net zero investment road maps, which set out policy, spending and regulatory interventions in detail, and, crucially, set out the anticipated mobilisation needs and how we can meet them.
The road maps should also cost the investment gaps and offer a coherent set of incentives for filling those gaps, including through tax and spend measures, and by better risk-sharing between the public and private sectors.
Green the housing stock
Secondly, the chancellor should establish a public-facing retrofit advisory service to provide homeowners with free, independent retrofitting advice.
With UK homes among the least energy efficient in Europe, and the housing stock representing around 14 per cent of emissions, the scale of the challenge and the associated opportunity to green the housing stock is enormous.
An inclusive transition should allow people across the economic spectrum to make their homes warm and green affordably. This is even more important in a high-inflation environment, where living standards and spare cash are being squeezed.
Many lenders offer a range of products to encourage homeowners to install insulation, heat pumps and solar panels. Demand remains low because it is hard to know where to start — there are too many options, and no one wants to face the disruption if they are not convinced actions will align with government plans.
An advisory service could improve progress quickly. Homeowners will need independent advice from a trusted source to limit the emergence of rogue traders and ensure improvements are fit for purpose.
The leaky walls of UK properties are holding us back from the transition. While we have seen some hugely welcome government funding commitments on energy efficiency in recent years, a comprehensive plan on how to green the UK’s housing stock is needed. An advisory service announced at the Spring Budget would be a great start.
Measures to boost investor confidence and clarity, coupled with action to green the housing stock will help demonstrate delivery against the UK’s ambitious net zero targets. Big spending commitments are unlikely to feature in the budget, but we believe the measures we suggest would make a tangible impact in helping the UK move towards its net zero targets in a relatively low-cost way.
The financial services sector is ready to play its part in realising the country’s sustainability goals and to make the UK the world’s leading green financial centre.
The UK continues to lead the pack, with more banks signed up to the industry-led, UN-convened Net Zero Banking Alliance than any other country, but much-needed finance will only be unlocked if policy leads. This week will show whether the government is prepared to drive the changes we need.
Ian Bhullar is head of sustainability policy at UK Finance