Valuing the Energy Performance of our Homes
The Energy Saving Stamp Duty Incentive will provide a fair and flexible nudge for homeowners, valuing energy performance in the housing market and creating a strong, stable, sustainable competitive market.
In the UK, our homes are our castles and home improvements are big business. However, in the midst of a cost-of-living crisis, our 29 million homes waste unnecessary energy and energy bills stay high whilst guzzling 35% of the UK’s energy and accounting for 20% of our UK carbon emissions.
The reality is that energy costs, energy security and net zero cannot be cost effectively delivered without tackling these leaky homes.
However, over the last decade, programmes to improve the UK’s owner-occupied homes (circa 65% of all homes) have effectively ceased and the industry supporting and delivering these improvements collapsed.
One solution to tackle this largest tenure is to put in place policy which helps to value the energy efficiency of our homes, drives crucial energy efficiency improvements whilst being cognisant of the economic reality and political context. A solution that is not simply throwing out more short-term grants and subsidies into the market.
Not simply more grants
Whilst targeted subsidy programmes form a part of any energy saving and net zero strategy for those that don’t have means or access to finance, in reality the prospect of grant funding simply causes homeowners who can pay to hold off until grants are available. It doesn’t create the sustained competitive market which is desperately needed and keeps government on the hook for ongoing grant support.
Private finance is pivotal in delivering the majority of these home improvements alongside a market-based approach which gives householders and home buyers choice, is fair and becomes part of the existing home improvement culture. The introduction of long-term ‘structural-incentives’ such as nudging Stamp Duty, can create these conditions to produce this thriving energy efficiency market.
Policy Stability and Flexibility
Transforming the existing Stamp Duty tax to an Energy Saving Stamp Duty Incentive, combined with grants for lower value homes would be a practical and effective structural solution, working seamlessly with existing green policies, grants and subsidies as well as driving innovative new approaches to delivering home upgrades.
This mechanism strongly catalyses industry engagement with any short-term initiatives the Government may introduce because it provides confidence that the market created will not simply fall away again when the grants are reduced or withdrawn. It supports green jobs (circa 300,000), skills especially in levelling up areas and stimulates the housing market to value improvements in energy efficiency. This is all set within a homeowner low energy retrofit market worth circa £17bn per annum, with £8bn directly attributed to the Energy Saving Stamp Duty Incentive associated with homes sold in that particular year. In addition to this £8bn there will also be the wider benefits from the positive ‘halo effect’ on the market.
Critically, the incentive is revenue neutral to HM Treasury and can reasonably be expected to remain in place as, and when, administrations change, but also remaining flexible for Treasury to amend to reflect changing economic or market circumstances. Such a stable approach will provide the long-term demand so essential for success and provide the certainty for businesses to invest and drive efficiencies and higher standards in the market, whilst making energy-efficient homes cheaper to buy.
Fair and Flexible
Homeowners are given choice and are only ‘nudged’ to take action on energy efficiency in a way that is proportionate to the home’s value, which doesn’t impede housing sales, affordability or social mobility.
The stamp duty incentive rewards homebuyers who want to act (at a time every buyer has cash or is arranging finance) but also encourages purchasers to seek advice, understand the improvements needed, appreciate the likely costs and to develop a plan – alongside their other home improvement ideas.
Importantly, it is fair and flexible. Homeowners chose whether to get money back from HMRC or forego the rebate opportunity. It is their decision to improve the energy performance of their home to pay a lower stamp duty. For those who are unable to pay or have access to finance, it allows more efficient targeting of existing grants or blended grant funding and the channelling of investment into worst performing homes through a low value homes enhanced rebate.
Planning and Preparing
To give sufficient time to perfect the policy, prepare the market and the homeowners, Government could make an announcement or statement of intent now, with implementation in 18 months to 2 years, sending the right signals to both businesses and homeowners.
This approach would encourage immediate action from the market whilst also smoothing roll-out and allowing companies to ramp-up capacity, skill up and train up, and get supply chain-ready to deliver – ensuring a quality retrofit programme for all, giving certainty to businesses that there is guaranteed market demand. The benefits will be felt well before the policy starts.
Support for the Energy Saving Stamp Duty is gaining momentum across the board with a recent public opinion poll for No.10’s ‘Nudge Unit’ showing that 78% support of the policy in addition to a rapidly growing number of organisations adding their support, from banks and estate agents to manufacturers and installers and beyond.
Sarah Kostense-Winterton, Executive Director of MIMA and Chairman of the EEIG, says: “Transforming the existing stamp duty land tax into an energy saving stamp duty incentive will help stimulate the housing market to ‘value’ energy performance, in the same way it does the kitchens, bathrooms, state of repair, in a manner that is fair to all.
It will encourage mass scale retrofit, whilst building a sustainable market for the longer term. Crucially the market will be stimulated to deliver more energy efficient homes without on-going Government intervention and lower energy bills across the UK.”
How an Energy Saving Stamp Duty Incentive could work
- Home’s energy demand (total kWh) is calculated using data behind the home’s EPC
- Stamp Duty adjusted up or down - better energy performance = lower stamp duty
- Improvements made within 2 years of purchase, with an updated EPC, trigger a rebate
- Lower value homes could receive an enhanced rebate to subsidise cost of measures
- Energy efficiency improvements e.g. fabric, heating, services would reduce Stamp Duty
- Provisions would be made for particular challenges e.g. listed homes
For further information please contact Sarah Kostense-Winterton (sarah@mima.info) or click here.
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