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Local Authority Delivery (LAD) Phases 1 and 2: Accounting Officer assessment 2021 (HTML)

Updated 12 June 2023

Department for which the accounting officer who made the assessment is responsible:

Department for Business, Energy and Industrial Strategy

Project title:

Local Authority Delivery (LAD) Phases 1 and 2

Main scheme project stage:

Full Business Case approved by BEIS Project Investment Committee and Treasury Approvals Process in January 2021.

Introduction

It is normal practice for Accounting Officers to scrutinise significant policy proposals or plans to start or vary major projects, and then assess whether they measure up to the standards set out in Managing Public Money. From April 2017, the Government has committed to make a summary of the key points from these assessments available to Parliament when an Accounting Officer has agreed an assessment of projects within the Government’s Major Projects Portfolio.

This Accounting Officer Assessment was made of the Local Authority Delivery Phases 1 & 2, following its Full Business Case stage. I have made the assessment as the Accounting Officer for the Department for Business, Energy and Industrial Strategy (BEIS).

Background and Context

In January 2021, the Home Upgrade Grant (HUG) project was approved by the Treasury which set out an enhanced £500m Demonstration and Economic Stimulus Phase. Local Authority Delivery provided grants for Local Authorities in England to fund energy efficiency and clean heat measures to support delivery of aspects of the economic stimulus package that was announced by the Chancellor in the Summer Economic Statement on 8th July 2020.

Local Authority Delivery is focused on supporting on and off gas grid households who face some of the highest costs by supporting low-income households who are least able to afford the cost of keeping warm. This will be achieved through a fabric first approach to focus on EPC D, E, F&G homes to retain a focus on the worst quality housing with high energy costs. The policy makes an important contribution to the statutory fuel poverty target for England, provide carbon abatement for Carbon Budgets 4 and 5 and play a pivotal role in driving the update of low carbon heating in on and off gas grid homes. Installations supported by Local Authority Delivery include External Wall (EWI), Cavity Wall (CWI) and Loft (LI) Insulations ; Air and Ground Source Heat Pumps; Solar PV and other simple heating control measures.

The Local Authority Delivery project is comprised of two phases:

• Phase 1: 136 Projects, £203 million with managed closure to September 2022.
• Phase 2: £300m allocated to 5 Local Net Zero Energy Hubs with managed closure to September 2022.

Taken together the combined impact of the two projects was estimated to reduce heating bills for up to 50,000 homes and contribute up to 2.6 MtCo2e of non-traded savings (0.24 MtCo2e in CB4 and 5) and supporting 16,000 jobs.

Assessment against the Accounting Officer standards

Regularity

The Local Authority Delivery scheme is within the Department’s legal powers under section 31 of the Local Government Act 2003. The focus has been on compliance with public law and procurement regulations. I have assessed the programme in view of relevant public law and procurement regulation and found it be compliant. The programme is supported by scrutiny from external and BEIS legal advisers to ensure best practice has been applied across the programme development. The Local Authority Delivery scheme has been on the Government’s Major Projects Portfolio since Q4 2020-21

Overall assessment: My assessment is that the regularity test is satisfied.

Propriety

The Local Authority Delivery scheme has been approved by the BEIS Project Investment Committee, the Cabinet Office Commercial Spend Controls, and the Treasury Approval Point process in line with the high standards of public conduct and Parliamentary control procedures and expectations. The Local Authorities carry out fraud management activities, working with BEIS.

Overall assessment: My assessment is that the propriety test is satisfied.

Value for money

The government has set an objective to ensure that as many fuel poor homes as is reasonably practicable, achieve a minimum energy efficiency rating of EER Band C, by 2030. The LAD Phases 1 and 2 aim to support low-income and fuel poor homes with energy efficiency and low-carbon heating upgrades to reduce the prevalence and depth of fuel poverty. In addition, the scheme supports the Government’s Net Zero targets through reducing emissions in homes.

There are several market failures that necessitate government intervention to meet these targets:

• low-income and fuel poor homeowners cannot afford or finance the interventions required to improve the energy efficiency and decarbonise their homes.
  
• in the Private Rented and Social Rented sectors there are misaligned incentives for landlords to invest in energy efficiency measures where their tenants are main beneficiaries through lower fuel bills. There are existing and proposed regulations in place to address this in the private rented sector, in the form of the Minimum Energy Efficiency Standards (MEES).
  
• there are significant positive externalities associated with improving the energy efficiency and reducing the carbon footprint of homes. The social benefits include reduced energy demand, carbon emissions and air pollution, along with reduced strain on the NHS.
  
• Without intervention, the supply chain will not develop the capacity to deliver the quantity of energy efficiency improvements and low carbon heat installation to meet the Government’s targets.

LAD Phases 1 and 2 have been appraised using HMT Green Book guidance. An options appraisal has been made against a counterfactual ‘Do Nothing’ option in which no Government intervention occurs. The options appraisal has considered the trade-offs of different policy designs, including cost caps on spend per property, the amount of homes treated that are EPC D. The lead option for the scheme balances numerous objectives around, for example, supporting energy bill reductions; reducing carbon emissions; and the breadth of homes treated relative to the depth of retrofit undertaken on each home treated. In addition, LAD Phases 1 and 2 were intended to provide a short-term economic stimulus in the summer of 2020 to support jobs.

The costs of this programme fall to BEIS through provision of grants to England Local Authorities. The programme delivers several benefits including making homes warmer, reducing carbon emissions and improving the comfort, health and well-being of homeowners and tenants.

Social net-present values (SNPVs) and Benefit Cost Ratios (BCRs) have been estimated for the LAD Phases 1 and 2 schemes, with an estimated BCR of 1.1. Given the focus of the schemes on low-income households, equity-weighted SNPVs and BCRs are larger and reflect the distributional impact of the schemes; LAD Phases 1 and 2 have an equity weighted BCR of 1.5. The equity-weighting has been undertaken consistent with HMT Green Book guidance.

The strong strategic case for government intervention coupled with the cost-benefit analysis mean the scheme is likely to provide good value for money.

Overall assessment: My assessment is that the value for money test is satisfied.

Feasibility

There is a significant risk around meeting the full aspiration for the number of homes that Ministers have asked to be reached (up to 50,000), especially given the inflationary costs and supply chain, including labour shortages. . This is an ambitious aspiration, and whilst there is risk in whether this number is feasible to reach, I do not judge this a sufficient reason not to launch. This is because the overall scheme design is feasible to deliver, the programme will still deliver strategic need and value for money even if the full targets are not met.

A gateway 5 review is planned for Spring 2023 with a focus on the operational delivery phase of the programme.

Overall assessment: My assessment is that the feasibility test is satisfied, although I note the risk to achieving the full targets by the deadline.

Conclusion

As the BEIS Accounting Officer, I have considered the assessment of Local Authority Delivery Phases 1 & 2 and approved it on 15 January 2021.

I have prepared this summary to set out the key points which informed my decision. If any of these factors change materially during the lifetime of this project, I undertake to prepare a revised summary, setting out my assessment of them.

The summary included in this letter will be published on the government’s website (GOV.UK). Copies of this letter will be deposited in the Libraries of the House and sent to the Comptroller and Auditor General and Treasury Officer of Accounts.

Sarah Munby
Permanent Secretary, BEIS
15 January 2021