As the government’s Spending Review approaches, our eyes are on Labour’s £13.2 billion Warm Homes Plan. The media reported last week that the pledge should survive – what would it mean for British homes, and what are the choices if funding does get squeezed?

In its 2024 manifesto, the Labour Party committed to investing £13.2 billion in upgrading five million homes across the UK during this parliament. The aim? Lower energy bills, healthier homes and progress towards net zero.

Under concern that this flagship promise may not survive the upcoming Spending Review, Nesta joined E3G and others urging ministers to hold the line, but we won’t know for certain the outcome until the spending review is announced on 11 June.

So what exactly does this £13.2 billion figure mean in practice? How does it compare to past spending? And if the Treasury forces hard choices, where should the money go?

Decarbonising homes is critical, but it’s not the only aim. We need to upgrade homes to make them warmer and healthier, and with lower energy bills. Upgrading homes with low-carbon heating will also increase the UKs energy independence, reducing the reliance of foreign gas imports, and there is evidence that it would increase economic growth and support new jobs.

In the past, a “fabric first” approach – insulating lofts, walls and floors – dominated government funding schemes. As the grid rapidly decarbonises and our net zero targets loom, future government funding is likely to become more balanced between insulation measures and low-carbon heating installations, such as heat pumps.

The £13.2 billion figure is spread over five years – so it would average around £2.6 billion per year. It sounds like a lot. But how does it compare to what we currently spend, and what’s needed?

The warm homes funding pledge is roughly double what the previous government committed to spend on home upgrades. Alongside using underspend from previous schemes, this constitutes a £6.6 billion increase in government spending, or £1.3 billion per year.

We also need to factor in the ECO levy, which currently raises around £1.7 billion per year from energy bills. As far as we know, this is additional funding for the Warm Homes Plan, which is targeted at upgrading fuel-poor homes. If it continues at that level, that would provide an extra £8.5 billion in total to add to the Warm Homes Plan.

The plan is expected to help upgrade 5 million homes. There are roughly 26 million homes in England (plus 1.5 million in Wales and 2.7 million in Scotland), so this represents around one-fifth of the housing stock, but we don’t know to what extent they will be ‘upgraded’. It could vary from receiving a government-backed loan for a single insulation measure to receiving a fully funded home retrofit. We also don’t know what the breakdown will be between fabric upgrades, low-carbon heating systems and other upgrades such as solar panels.

For some additional context on what might need to be spent, we can turn to the Climate Change Committee (CCC). In their Seventh Carbon Budget, which sets out a pathway to achieving our net-zero targets, they estimate that £23.5 billion should be spent from 2025 to 2029 on upgrading homes. Of this, around £3.7 billion should be dedicated to fuel-poor homes.

If the government does stick to the £13.2 billion pledge, that implies more than half of the funding required will come from taxpayers, with perhaps another 35% coming from energy bills through ECO. This together would cover most of the £23.5 billion, suggesting quite generous investment under this government.

On the other hand, a spending strategy for home upgrades doesn’t need to be limited by the carbon budget, and some of the £13.2 billion could be spent on priorities beyond decarbonisation. For context, even if the government implemented all the insulation and low-carbon heating measures in fuel-poor households advised by the CCC, that's not enough to help everyone in fuel poverty.

Additionally, although the warm homes pledge has scope to cover most of the carbon budget costs required in this parliament, in later years a much larger proportion of the costs will need to be funded by households themselves. The CCC estimates the costs needed under the next parliament to be almost three times more.

We expect the Warm Homes Plan, published after the spending review announcement, to include several key elements:

1. More support for low-carbon heat through subsidy schemes like the Boiler Upgrade Scheme and heat network grants. The Seventh Carbon Budget suggests that around 1.4 million homes in the UK will need to get a heat pump over the five years to 2030. If the Boiler Upgrade Scheme is maintained at a high rate that will have a significant cost.
2. More funding for local schemes, aiming for deeper retrofits where area-based delivery is cost-effective. The government has signalled a desire to shift towards more local delivery of retrofit, and we would expect a significant portion of the Warm Homes Plan budget to be directed through local authorities.
3. Upgrades for social housing. The Warm Homes Plan will need to continue directly funding upgrades in social housing. However, because more progress has been made to date on upgrading social housing, we might see a smaller share of funding directed this way, and a switch from fabric upgrades to low-carbon heating measures.
4. Reforms to long-running schemes, like the ECO programme which supports low-income households. The ECO programme is funded from a levy on energy bills (so not included in the £13.2 billion figure), and we expect it to remain in place alongside the core Warm Homes Plan funding from government. However, there may be scope to reform the ECO programme – and the Great British Insulation Scheme – when the current iteration ends in March 2026.
5. Government-backed loans for home owners and landlords. Alongside subsidies for low-carbon heat and home upgrades, we also expect the Warm Homes Plan to contain a new, government-backed loan aimed at households and private landlords who are more able to pay. This scheme would include some degree of subsidy from government – perhaps a lower-than-market interest rate – but should enable the government to support more home upgrades at lower cost, provided homeowners want to use the loans.

If budgets are tight, ministers will need to choose between competing goals, and may struggle to deliver all of the above elements.

Is it best to focus support on fuel-poor households, where funding is critical, and rely on other market and regulatory levers to incentivise the mass upgrading of homes?

If budgets are tight, ministers will need to choose between competing goals and may struggle to deliver all of the above elements. Prioritising a wide rollout of low-carbon heating, alongside fewer cost-effective insulation measures.

One way to stretch limited government funding and reach the most homes could be to use it to facilitate greater spending by households. Prioritising low-interest loans would mean that more households could afford measures with higher upfront costs and longer payback periods (like heat pumps). This however risks excluding those who cannot borrow, even if this was offered at below market rates. The BUS grant could be maintained and progressively reduced so that low-carbon heating remains cheaper than gas boilers. After 2028, when the current BUS funding ends, keeping it at the same level would require more and more funding as heat pump uptake grows.

Delaying spending on homes now won’t make the problem go away. It could mean higher bills, worse health outcomes and a much trickier pathway to meeting net-zero targets.

It’s not all about funding though. There is plenty that the government can do to accelerate the net-zero transition and reduce energy bills through changes to policy.

One area that Nesta has argued for is reforming levies on electricity. This presents an ambitious way to tackle some of the trade-offs government could be forced to take. By reducing the price of electricity compared to gas, then upgrading to low-carbon heating makes economic sense for most homes. In this context, the trade-off between lowering emissions through low-carbon heating and tackling fuel poverty would fade away, since low-carbon heating would reduce bills for all homes, instead of potentially increasing them.