Local government strongly supports the overarching ambition of the Warm Homes Plan to reduce energy bills, tackle fuel poverty and accelerate decarbonisation.
Martin McCluskey MP
Minister for Energy Consumers
By email
22 July 2026
Dear Martin,
I am writing in response to the Department’s Call for Evidence on the design of the Warm Homes Fund. This submission reflects perspectives informed by local government experience and recent discussions with sector partners, including insights emerging from the NESTA–DESNZ Warm Homes Funding workshop.
Local government strongly supports the overarching ambition of the Warm Homes Plan to reduce energy bills, tackle fuel poverty and accelerate decarbonisation. The scale of ambition — £15 billion to upgrade homes and lift households out of fuel poverty — reflects the urgency of the challenge. However, there are significant concerns about whether the proposed financial transaction (FT) model, as currently framed, can deliver these outcomes at scale, particularly for low-income households and place-based delivery.
1. Strategic case: over-reliance on repayable finance
While we recognise the potential role of loans and equity investment in mobilising private capital and overcoming upfront cost barriers, the consultation places substantial emphasis on financial returns to the Exchequer. This risks constraining impact in areas where returns are uncertain, diffuse, or long-term — particularly in low-income or complex housing markets.
Evidence from both local delivery and national programmes suggests that:
- Demand for green finance remains persistently low, with upfront cost only one of multiple barriers
- Consumer willingness to take on debt - especially unsecured debt — is limited
- For fuel-poor households, repayable finance models are often inherently unsuitable.
The 11 May 2026 Nesta and DESNZ workshop on the warm homes fund discussions reinforced that private capital will not engage at scale without demonstrable, de-risked models, and that this market is not yet proven.
As such, we urge government to reconsider the balance between:
- Grant, concessional finance, and financial transactions (FT) products, and
- The expectation that investments generate a direct financial return.
Without this recalibration, there is a significant risk that the fund prioritises financially viable projects over those with the greatest social and carbon impact i.e. it will reduce bills for those who least need it, while not reaching those on lowest incomes
2. Unresolved questions on risk and balance sheet treatment
A critical issue insufficiently addressed in the consultation is where risk ultimately sits.
Workshop discussions consistently highlighted:
- The need for clarity on whose balance sheet investments sit
- Concerns regarding ONS classification and fiscal treatment
- The potential political and financial risk exposure for local authorities: The current assumption that local authorities cannot be end recipients of FT funding without balance sheet implications creates a structural tension
- Authorities are expected to lead place-based delivery, yet are constrained in directly accessing or holding finance
Without resolution, this risks creating overly complex delivery vehicles that fragment accountability and slow delivery.
3. Need for a clearer delivery model and defined end-state
The consultation sets out a wide range of possible interventions across the value chain but lacks a clearly articulated delivery model or prioritisation.
Consistent with the local government perspective, we recommend that government:
- Defines a small number of priority delivery archetypes, rather than an open-ended menu
- Starts with the desired outcomes (e.g. number of homes upgraded, fuel poverty reduction) and works backwards
- Aligns financial instruments to clearly defined delivery pathways.
Workshop insights emphasised that “the question should be flipped” from financing structures to outcomes.
Without this clarity, there is a risk that:
- Funds are spread thinly across pilots
- Market actors face uncertainty
- Delivery at scale is delayed.
4. Early-stage market development requires public risk capital
There is broad agreement that innovative models, such as:
- Special Purpose Vehicles (SPVs)
- Energy-as-a-service models
- Area-based investment funds
may play a role in scaling retrofit.
However, these models are not yet proven at scale. Workshop discussions highlighted:
- A need for first-loss or catalytic capital
- The reluctance of private investors to enter until models are demonstrated
- The importance of government-led market shaping.
This aligns with wider experience: markets for retrofit finance have repeatedly failed to scale without substantial public underwriting.
The Warm Homes Fund should therefore explicitly:
- Allocate a portion for high-risk, first-loss positions
- Accept lower or slower returns where this unlocks system-wide benefits
- Recognise its role as a market creator, not just a co-investor.
5. Demand generation and community engagement are underdeveloped
The consultation correctly identifies weak demand as a key barrier, but underestimates the scale of intervention required to address it.
Local delivery experience shows that:
- Demand must be actively created, not assumed
- Trusted intermediaries (local authorities, community groups) are essential
- Households require whole-house advice, not just finance products.
Workshop participants highlighted the need for a “top-slice” of funding for community engagement and demand stimulation.
We strongly recommend:
- Dedicated funding for place-based engagement and pipeline development
- Integration with existing local retrofit programmes
- Recognition that demand generation is a core cost, not an optional add-on.
6. Constraints of using loans for low-income households
The consultation acknowledges the limitations of loans for low-income groups, but proposed solutions remain insufficiently developed.
There is a fundamental tension between:
- The requirement for FT investments to generate returns
- The policy objective to reach those in greatest need
Even zero-interest loans create repayment burdens that are often incompatible with:
- Low or volatile incomes
- Existing energy debt
- Short tenancies.
The artificially high cost of electricity is also a barrier to introduction of heat pumps both for households and for local authorities - were electricity prices lower councils would be on it like a shot but can’t install measures that will increase energy bills for tenants so instead focussing on solar and battery
We therefore recommend:
- A significantly larger grant component for low-income households
- Exploration of third-party financing models (e.g. landlord- or system-level repayment)
- Greater use of whole-system benefits (health, social care savings) to underpin investment models.
7. Timing and delivery risks
Finally, we note the expectation that funding will begin deployment from April 2027.
Given the scale of unresolved design questions, there is a material risk that:
- Delivery models are not sufficiently mature
- Local capacity is not in place
- Supply chains remain constrained.
A phased approach will be essential, with early investment focused on:
- Market development
- Pilot programmes
- Institutional capacity building.
Conclusion
The Warm Homes Fund has the potential to play a transformative role in scaling retrofit and delivering on the UK’s fuel poverty and climate objectives. However, in its current form, the approach risks overestimating the readiness of financial markets and underestimating the complexity of delivery.
To maximise impact, we urge government to:
1. Rebalance the Fund away from strict return requirements where they constrain impact
2. Provide clarity on risk allocation and balance sheet treatment
3. Prioritise a small number of scalable, place-based delivery models
4. Deploy catalytic capital to de-risk early markets
5. Invest in demand generation and local delivery capacity
6. Ensure low-income households are supported primarily through non-repayable mechanisms.
We would welcome continued engagement as the Fund is developed and would be pleased to provide further evidence from local government delivery.
I look forward to hearing from you.
Yours sincerely,
Local Government Association Neighbourhoods Committee
Cllr Arooj Shah (Chair), Cllr Emily O’Brien (Vice Chair), Cllr Robert Alden (Deputy Chair), Cllr Victor Chamberlain (Deputy Chair), Cllr Darren Grimes (Deputy Chair).