Retrofit Salary Sacrifice: A financial incentive to help decarbonise owner occupied houses

Marina Topouzi¹ and Peter Mallaburn²

¹University of Oxford, UK, ²University College London, UK

The challenge for decarbonising the building stock is enormous. The slow progress in retrofitting the owner-occupied sector not only highlights the need for a radical rethinking of the current financial retrofit schemes but also need for a new narrative that simplifies the whole retrofit process for homeowners. The COVID-19 pandemic accelerated the trend to hybrid working arrangements, so that businesses are starting to see a transfer of some of their energy costs and carbon emissions to their employees’ homes. The Government’s support for energy bills to help households and businesses although welcome, doesn’t address the problem of leaky, inefficient housing.

Previous work on retrofit incentives by Topouzi & Fawcett (2022) and Topouzi & Mallaburn (2021) developed the ‘Retrofit Salary Sacrifice’ (RSS) policy scheme, a novel approach that uses the increasing trend for hybrid working as a trigger to encourage retrofit home improvements in able-to-pay households. This scheme identifies a great opportunity for multiple-benefits from working more flexibly to address and support the UK’s net zero policy ambitions for regional growth, supporting green jobs, decarbonisation of the building stock and balancing the electricity grid. Employers, through the scheme, can provide loans to employees encouraging them to carry out retrofit energy improvements in their ‘home office’, repaid through the tax system via gross salary contributions. This approach builds on a simple connection between finance, and project management and appraisal to overcome a significant deployment barrier. It also increases confidence to public revenue and private lenders to provide the bulk of the finance for the project. While benefits of the RSS for the employer also include improving reputation and staff welfare.

The authors in this paper discuss preliminary findings from work in progress that tests the feasibility of the Retrofit Salary Sacrifice concept as a catalyst to de-risk retrofit policy and markets. The RSS scheme is discussed under the lens of multiple-benefits identifying policy implications and its impact over five key actors in the retrofit process (i.e. employers, local authorities and businesses, policy makers and employees/owner occupier householders). Using semistructured interviews, surveys and workshops with stakeholders, including Department for Energy Security and Net Zero (DESNZ) and HM Treasury, the paper discusses: i. the ways these groups capture change in the current context linked to home efficiency and ii. and how the RSS scheme creates a new narrative that helps to reassess retrofit context and policy gaps. The analysis seeks to build knowledge for policy makers and other stakeholders on how the Retrofit Salary Sacrifice and other similar financial retrofit initiatives can increase benefits in economic development; health and wellbeing; productivity; and energy efficiency.