The UK government’s long-awaited Warm Homes plan is expected to launch in October, and it will be one of the Labour government’s most important and challenging policy plans. While home heating may not seem the most glamorous topic for those in Westminster, it plays a central role in many of the government’s aims - including being a key complement to the Clean Power 2030 mission and playing a central role in reducing energy bills.

Heating our homes creates a significant share of the UK’s carbon emissions, and it is widely recognised as the most challenging aspect of reducing carbon emissions over the next decade. Heating has a huge influence on our energy bills, which is perhaps the single biggest political problem facing the government. And rising energy bills have exacerbated the UK’s longstanding issue with fuel poverty, with too many people unable to heat their home adequately - too often causing misery, damp and serious health problems.

The Warm Homes plan, then, needs to address all of these issues at once. It must support those most in need, it must bring down bills for households across the board, and it must reduce carbon emissions while doing so. At Nesta, we’ve spent the last five years grappling with these issues, including advising the government on what policies it should adopt. What do we think the Warm Homes plan needs to do to address this triple challenge?

Most of the problems with home heating in the UK stem from gas. Around 85% of British homes burn gas to stay warm, and this emits carbon - around 14% of the UK’s total. For a long time gas was cheap, and much of it was produced in the UK, but gas is now expensive: a typical household’s gas bill is now twice what it was five years ago. Now that it is expensive and mostly imported, the UK needs to find an alternative to gas - and quickly.

That alternative in most homes will be electricity. Electricity is fast becoming cleaner and more plentiful as the UK invests in electricity generation and wires to transmit it to our homes. Electric heating devices, such as heat pumps, are also far more efficient than gas boilers; they typically produce three or four times more heat for each unit of energy and they are proven to work in some of the coldest parts of Europe. The Warm Homes plan must create the conditions for households on all incomes to be able to switch to clean, efficient, homegrown electricity for their heating.

This shift from gas to electricity can only work, though, if electricity gets cheaper. Electricity is more expensive in Britain than in most other countries, making clean electric heating less attractive than it should be. It also creates a conflict between making heating cleaner and more affordable.

This problem is entirely within the government’s gift to fix, however. The Clean Power 2030 plan is already aiming to reduce bills in the long term, but a key reason Britain has expensive electricity is that it applies high taxes to electricity bills. Easing the burden of these ‘policy costs’ on electricity would transform the economics of clean heating, and could reduce energy bills. 

Once electricity is cheaper, heat pumps can become a powerful tool for reducing fuel poverty. Not only would they lower energy bills immediately, they also give households the opportunity to lower bills much further, by using flexible energy tariffs, by adding solar panels or batteries, or by seeking more efficient installations.

The Warm Homes plan must take action to reduce the cost of electricity and ensure that everyone who gets a heat pump, whatever their circumstances, should have lower energy bills as a result. Providing this guarantee, and making the changes to electricity taxation that underpin it, would mean the Warm Homes plan can tackle climate change, energy bills and fuel poverty all at the same time.

Previous government strategies on home heating have often put a lot of emphasis on upgrading the fabric of homes. There has sometimes been a division between fuel poverty schemes - with an emphasis on insulation and whole-home retrofits - and schemes aimed at better off households, which have tended to focus more on heat pumps.

But many of the more cost-effective fabric upgrades - such as cavity wall and loft insulation - have been done, pushing more emphasis onto expensive measures such as solid wall insulation. These measures are usually far less cost effective, and have not always been well-installed. At the same time, heat pumps have become more efficient, electricity has become cleaner, and the spread of solar panels and home batteries has created an alternative, electricity-based route to lower bills.

The aim for the Warm Homes plan should be to strike the right balance between good-value fabric upgrades, cost-saving technologies like solar and batteries, and ensuring every home can access efficient, electric heating. Getting that balance right requires a clear focus on value for money, and a degree of flexibility to find the right fit for every home.

The switch to clean, affordable heating is an inherently local affair. Many of the key factors to consider - the right heating system for different homes, electricity grid capacity, what will happen to the gas grid - can only be considered at a granular, neighbourhood level. Nesta’s work on “clean heat neighbourhoods” has shown there are big opportunities to make clean heating an easier sell by taking a more coordinated local approach.

There are many pockets of innovation in local areas around the country, but most local authorities lack the capacity, skills or mandate to step into this role. The Warm Homes plan should put this right, initiating a partnership between Whitehall and local areas and providing the funding and support to make local leadership work. Nesta has previously called for new local heat bodies to be formed in every part of England, and for a new national agency to provide support and expertise to local areas.

The transition to clean heating ultimately relies on the many businesses that keep our homes warm, from the manufacturers of heating systems to the skilled engineers who install them. All of these businesses will need to switch from fossil fuels to clean heating, the kind of change which is not easy for any business.

There is specific support the government should provide to the heating industry, in the vein of Nesta’s Start at Home scheme, which gives newly-trained heat pump installers a free heat pump to install at home. But just as importantly, the government also needs to set a clear direction that the whole industry can follow, reducing uncertainty about how government policy may change in the future.

Previous government policies left considerable confusion, from the failure to make a decision on hydrogen for home heating, to the delays in the “future homes standard” and “clean heat market mechanism”. The Labour government has begun to address some of these uncertainties, but the Warm Homes plan needs to give the heating industry a clear, credible direction on what it needs to do over the next decade and beyond.

Low-carbon heating generally comes with a financing challenge: while it can and should lower energy bills, it tends to cost more upfront. The easiest way to tackle this is to ensure all households can access affordable finance, so they don’t have to pay anything upfront for a heat pump or similar.

Despite many banks’ enthusiasm for green lending, so far there are only limited options for households wanting to access finance. Personal loans for heat pumps tend to have high interest rates, while uptake of green mortgages has been low, for instance.

There are various ways the UK government can and should support finance for clean heating - from underwriting loans to households or subsidising interest costs, to working with lenders to remove barriers to lending, or considering new regulations around green finance. Whichever route it follows, the Warm Homes plan will need a way forward on finance.

Finally, the Warm Homes plan must ensure that clean heating is always a good deal for households. This has not always been the case, as the scandal around faulty solid wall insulation under the Energy Company Obligation scheme, and frequent cases of sub-standard heat pump installations attest. The journey to getting clean heating can also be confusing, with conflicting advice and long lead times.

Well-installed heat pumps or insulation work well in any home and the majority of heat pump owners are happy with their purchase, but poor installations are still too common. Too often, consumers who are let down by their installers cannot easily access the support needed to put it right. The Warm Homes plan needs to ensure it is easy for households to get trustworthy advice and to ensure their installation meets the required standard.

If the Warm Homes plan can tackle each of these issues, it could help to solve some of the government’s biggest problems. With the right policies, there is no need to trade off between cutting energy bills and carbon emissions. The government should aim to do both, and make our homes warmer and greener in the process.