Could salary sacrifice unlock greener homes for less? – Inside track

This post is by Thom Groot, co-founder and CEO at The Electric Car Scheme.

The transition to net zero homes fitted with clean bill-cutting technology like solar panels, batteries and heat pumps is moving far too slowly. This is not because of a lack of support from the wider British public. In the Department for Energy Security and Net Zero’s (DESNZ) public attitudes tracker of 2024, 74 per cent of the British public agreed with the statement “I have the ability to make changes in my life that could help reduce climate change.” In the same survey, installing low carbon heating systems at home was seen as the most effective action an individual could take to mitigate climate change, chosen by 42 per cent of respondents.

So why aren’t we moving quickly enough? It’s simple. Affordability.

At a time of economic uncertainty for families and businesses alike, the high cost of technologies like heat pumps and home solar is keeping some households from making the switch. With an upfront investment cost in the region of £10,000 and a payback period of up to ten years, it’s no wonder that working families are opting to prioritise other expenditure.

Salary sacrifice could help provide a solution to this. By spreading the high upfront costs into equal monthly payments and allowing working families to pay from their gross salary, this would make green home technologies much more affordable.

Salary sacrifice has proven itself with EVs
Extending salary sacrifice schemes to include these technologies could drive the uptake of green solutions and help working families reduce their energy bills. We that salary sacrifice could support more than 600,000 heat pump and 230,000 home solar installations by 2030.

Salary sacrifice has been hugely successful in the transition from petrol and diesel to driving electric. Employees with access to electric vehicle (EV) salary sacrifice are three to four times more likely to switch to an EV as opposed to those that do not, due to the financial support that such a scheme provides.

In addition, EV drivers are estimated to be seven times more likely than non-EV drivers to adopt green technologies at home, such as home solar (the likelihood they will adopt solar is 29 per cent compared to four per cent) and heat pumps (the likelihood they will adopt a heat pump is seven per cent compared to one per cent).

Salary sacrifice makes electric cars and bicycles more affordable by allowing employees to pay for them in monthly instalments from their pre-tax salary. In the case of EVs, this allows employees to save between 20 and 50 per cent on the cost of their car, whether that be on a brand new EV or a used model. The government has made this possible by implementing low benefit in kind rates for EVs compared to petrol or diesel company cars.

For instance, when driving a new Hyundai Kona through The Electric Car Scheme, an individual earning £35,000 per annum could save nearly £100 a month by using salary sacrifice (£341 with salary sacrifice vs £436 without).

If the same applied to heat pumps, a typical installation with monthly costs of £410 over three years could be reduced to £295 per month via salary sacrifice for a basic rate taxpayer. This method of payment would help typical households achieve a total saving of around £4,500, significantly lowering the cost barrier that is currently seen as prohibitive for many considering installing a heat pump.

Affordability is holding households back
The main barrier to increased uptake is upfront affordability. A separate of 2,000 UK adults found that 42 per cent of Brits would like to install heat pumps were it not for the prohibitive initial cost. More broadly, 55 per cent of people said that there are not enough financial incentives to make greener choices, while 58 per cent believe the government should do more to encourage people to make green choices (up from 34 per cent in 2023).

A typical home solar installation can save households around £600 on their energy bills each year, a figure that can be even greater if combined with battery storage and a smart energy tariff. Electric heat pumps, which typically produce heat at around three times the efficiency of a gas boiler, could add a further saving of £100 a year to this. Yet, despite the clear savings on energy bills, adoption of some of these green technologies has been slow.

Doing this would deliver on multiple fronts
The government is due to publish a warm homes plan and new climate action plan this autumn. This is a key opportunity for the government to take action to make it easier for a wider range of  households to benefit from clean tech in homes.

Adding heat pumps and home solar to salary sacrifice is not only an effective way to increase uptake of green technology and reduce emissions, it would also boost job creation and economic output in the UK. At the same time, the savings on household energy bills would provide much need relief to those still coping with the cost of living crisis.

By adding home solar, battery storage and heat pumps to the hugely successful legislation that covers salary sacrifice EVs, the government has a real chance to deliver on its manifesto promise of warmer homes, lower bills, green jobs and a cleaner energy future.