There have been times throughout our house renovation when the sheer amount of cash outflow to pay for the equipment and installation has been a stretch. It would be very helpful to have had a government backed loan to cover this period.
The current BUS scheme for replacing gas boilers is intended to stimulate the market for heat pumps and create a supply chain that is ready to switch millions of homes over the next few years.
£7,500 sounds like a lot of money for the government to be giving to people, especially when it isn’t means tested. The average cost of installing a heat pump in the UK is around £12k, leaving the householder to find £4,500. Regardless of income there is a cash flow challenge for everyone.
The average UK house price is just under £300k, meaning the heat pump costs 4% of the value of the house. It’s a reasonably safe assumption that in a large £1m house the heat pump installation will cost £40k, leaving the householder to find £32k. Which leads to many questions on payback, and would you rather have green heating or a new kitchen?
Government one-off giveaways like the BUS are hard to sustain at scale, and it’s no surprise that it took a lot of political capital to save it in the recent budget. Once the money is given it disappears into the economy, and gets transformed from a decarbonisation payment into the plumber’s next holiday.
It’s time to have a think about what the next incarnation will look like.
As is already done in Scotland, the next iteration of the upgrade scheme could include an interest free loan component. The advantage of a loan scheme is that the money supports many more households.
The current scheme costs £400m per year. If we assume that half of this remains as grants, then £200m is available to finance the interest free loans. Which at 5% would provide the funding for a book of £4bn of loans – a huge leverage advantage. This government seems keen on Public Financial Institution status organisations so it should be possible to keep these loans off the national balance sheet; in Student Loans only the liability for unpaid loans sits with the chancellor.
And if that is beginning to sound a bit familiar like the Green Deal (where loans were provided that stayed with the house) or the Warm Homes Plan (where banks provide government backed loans), then I’m sure we can learn some lessons from the Green Deal (awareness, interest rates, mis-selling, low uptake) and dust off some regulations to give ourselves a headstart.
Should BUS2.0 be half grant – half loan? Where the loan provided at the same time as the BUS voucher, offered by the installer at the point of sale would provide even greater stimulus to the market.
