I've written this paper to send to my MP, George Osbourne, Vince Cable, Chris Huhne, Grant Shapps and anyone else I can think of to try and get something of this sort going instead of another round of QE putting money into the banks. I would welcome your comments before I send it out to TPTB
Ken Neal
THE CASE FOR A NATIONAL INSULATION SCHEME
The UK faces a number of problems in the coming years which could all be mitigated by the introduction of a national scheme for the insulation of buildings to a standard which will meet the Sustainability Act’s legal requirements for an 80% reduction in energy use by 2050.
Rather than the Bank of England pumping Quantitative Easing money into the banks and seeing it swallowed with little effect in the general economy, the top down approach, a scheme such as this would send a flood of money around the economy and rejuvenate it from the bottom up. The money would end up in the banks in the end but would have done some good on the way there. The building industry has traditionally led the country out of recession and could do so again with this scheme.
This way of boosting the economy using the building industry is more efficient than by boosting new build as new build is about 70% materials and 30% labour whereas this type of refurbishment work is about 30% materials and 70% labour. There are more jobs created in refurbishment work than in new build.
Among the problems referred to in the first paragraph are:-
1 A national indebtedness problem requiring a reduction in national borrowing and spending;
2 A personal indebtedness problem requiring a reduction in spending and an increase in saving;
3 A shortage of liquidity in the banking system leading to a reduction in lending;
4 A need to spend more on a personal basis, which would have to be funded by increased borrowing, to stimulate growth in the economy;
5 An increasing balance of payments deficit caused in part by the 6% per annum depletion of North Sea oil and gas production and the necessity to import replacement fuel:
6 Fuel supply difficulties caused by political action, world shortages, high growth rates in China, India and Brazil and higher fuel use in the producing countries;
7 A 40% reduction in our electricity generation capacity in the next five to ten years as our nuclear and coal generation plants are phased out;
8 The Kyoto requirement to reduce our fossil fuel use by 80% by 2050 and the Sustainability Act setting that requirement into law;
9 An aged housing stock with low insulation, air tightness and thermal comfort levels;
10 An aging population which requires higher temperatures for thermal comfort;
11 Fuel poverty created by increasing fuel world prices and lowering pension payments;
12 Increasing unemployment levels and a lack of available investment to counter this trend.
The government has tried to address some these factors with the Green New Deal (GND) and to address energy efficiency but this will, unfortunately fail. It will fail for five reasons:-
1 The amount of money available in the GND is not enough for the work required
2 The GND requires an economically viable solution to individual installations
3 People are unwilling to spend money in the current climate of financial uncertainty
4 Interest will be charged on the sum borrowed which will increase payments by a large amount over the period of the loan.
5 The workings of the GND are too slow to address the problem.
In the first case the sum available is not enough to address the 80% reduction in fossil fuel use required by the Kyoto commitment. To address this reduction a huge increase in insulation of all the building stock is required. In an older solid walled house it would be necessary to install insulation to the walls which would not be any where nearly covered by the £6000 available, let alone all the other measures such as draught proofing, loft insulation, ventilation and window replacement. In a modern cavity walled house the 80% reduction would require not only the insulation of the cavity but also exterior wall insulation as well as the above additional measures required for a solid walled house.
In the second case, the Kyoto requirement is for an 80% reduction in fuel use and is not an economic judgement but an environmental necessity, so why judge the remediation measures required on the basis of an economic payback? We have to reduce, by legal requirement, the country’s fossil fuel use by 80% so the decision of what to do cannot be made on the basis of whether the measures taken will give an economic payback. Also with the probable volatility of future fuel prices it is not possible to calculate the future fuel saving in order to calculate an economic return. Even the government is telling us that the future trend in fuel prices will be upwards, and not by small jumps either.
People’s unwillingness to spend at the moment is fueled by the uncertainty over job and wage cuts and the near certainty of cost of living rises. With this scheme there would be no outlay to put off householders.
Fourthly, there is no reason for interest to be charged on the expenditure required to facilitate a government policy such as reaching the Kyoto requirement, especially in our current world financial predicament. There are two ways that money can be introduced into the national financial system; by the currently popular way of the banks lending money to individuals and companies and charging interest; and, secondly, by the government spending the money into existence for capital projects; that is printing it. This does not attract an interest charge.
This latter measure could be very inflationary if no measures were taken to remove the money from the system once it had done its job. In the proposed case here of a scheme of insulation there would be a saving to the householder of about 80% over their previous fuel bills which would enable them to repay the installation costs over a number of years. The repayments would be in the form of a charge on the house not the owner so that, in the case where the house was sold on, the charge, along with the benefits of the reduced fuel bills, would be passed on to the new owner.
Fifthly, the scale of the problem is immense. We have about 40 years, until 2050, in which to achieve the insulation of the 25 million dwellings in UK. This means we have to insulate 625,000 homes per year or 2,400 per working day every day until 2050. We are currently not even insulating 2.4 homes per day to the required standard, let alone 2400.
It would be essential for most of the buildings to be insulated externally as, if the insulation were fitted internally, this would necessitate the removal and refitting of the kitchen, utility room, bathrooms and much fitted furniture, necessitating the temporary rehousing of the occupants.
If the work took six weeks per house, with an average of 2.4 occupants per house that would require 2,400 x 2.4 x 6 x 7 = 242,000 temporary beds per day to accommodate the displaced people.
This would add considerably to the costs. The internal insulation would also not be as effective as external insulation as there would be considerable cold bridging and there would be a risk to the structure of many of the buildings from interstitial condensation caused as the exterior walls become much colder. So it would be best for the insulation to be fitted externally in most circumstances.
On the basis of external insulation, say it was 4 weeks work for 2 men per house. That would give 96,000 man days work per day or 96,000 new jobs in installation alone, plus work for supervisors, scaffolders, designers, trainers, plus the extra jobs in insulation manufacture and delivery.
To insulate each house on an individual contract basis to achieve an 80% reduction would cost about £20,000 on average, taking into account house sizes and the mix of detached, semi detached and terraced houses. This is unaffordable on an individual or economic basis and it would also be an inefficient use of labour. On a larger contract basis for, say, a street at a time this could be reduced to about £13,000 per house.
This would give a cost per year of £8.125 billion.
Government should print the money to pay for this, rather than borrow it from banks, which don’t have it in the first place, and tax it back from the fuel savings, as proposed in the Green Deal, in order to write off the printed money.
About 40% of the total energy used in the UK is in heating. As at least 80% could be saved by this method it would lead to a 32% saving in the nation’s energy bill, much of that on gas. As our North Sea oil and gas are depleting at about 6% per year this would make a considerable difference to the balance of payments.
Fuel poverty would be reduced to almost zero at a time of rapidly increasing fuel prices.
The nation’s housing stock would be upgraded and protected from major degradation.
We would have a surplus of gas which could be temporarily diverted into electricity generation until renewable sources of generation were bought on stream.
The increased numbers of people in work in the building industry required to carry out the scheme would circulate more money throughout the economy which would promote growth in other sectors and would help refinance the retail banks by increasing their cash flow: all this without major inflationary pressure. Even if there were some inflation this would help reduce the level of national debt, as is policy throughout the western world.
In our practice, we have already designed two house renovations of 1970s houses which have measured fuel savings from fuel bills of 72% and 79% and have achieved SuperHomes Awards . We have another such installation at the planning stage which should achieve 80% and others are in the pipeline. Other members of the AECB, The Sustainable Building Association of which we are a member, have achieved similar savings. We know from our own experience that this level of savings is achievable in refurbishments as well as new build despite what the major players in the building industry might say.
The first two insulation/renovation jobs were for people who had just retired and were using their pension lump sums to invest in a project which would give them long term, increasing savings rather than leaving the money in a bank account which wasn’t giving any significant return. This is obviously not a course of action which most house owners could undertake so is not a model to roll out 625,000 homes per year.
This amount of work could not be organized efficiently on an individual basis by individual householders. It would require contracts let a street at a time and properly supervised by a qualified person appointed by the payee, i.e. the government. Only in this way could the immense scale of this project be realized and realized to a satisfactory quality standard and in the limited time available.
Some organizations such as Transition Towns and local Greening Campaigns are trying to organize groups of householders to purchase renewable technology installations on a group basis with a significant discount but the problem of finance comes up, especially in our current constrained times and makes uptake low. Large scale insulation installation is even less likely to happen so intervention will be required if the Government’s energy reduction targets are to be reached.
It would probably be best to start with Housing Association homes as they have the organization in place to get the scheme off the ground quickly. Their tenants are probably also the most vulnerable in society to fuel poverty. Care would have to be taken in this sector over repayments as tenants, especially the elderly, might not achieve the savings possible as they would take some of the advantage in higher comfort levels. The fuel savings and publicity generated in the public housing sector would then lead to a demand from private owners to have the work done on their homes, especially as it is essentially free.. An education campaign would be necessary to explain the scheme and how the insulation would work as there is some public scepticism about the efficacy of insulation. It is not, unfortunately, seen as “sexy” compared to the “bling” of a renewable energy installation.
I commend this course of action to you.
REFERENCES
i (2002 figure from The Office of National Statistics
http://www.statistics.gov.uk/STATBASE/ssdataset.asp?vlnk=7315 )
ii http://www.superhomes.org.uk/
