The government's environment policy to kickstart a mass overhaul of the UK's draughty homes to save energy passed the final hurdle to become law on Monday amid growing concern that the scheme has become too costly to succeed.

As the Green Deal secondary legislation was finalised by a committee of MPs, it emerged that the energy secretary, Ed Davey, has indicated that the government is assuming that the loans to home owners to make the improvements will be charged at an interest rate of 7.5% – many times the Bank of England lending rate of half of one percent.

Labour calculated that, at this rate of interest, a householder borrowing the maximum £10,000 over 25 years would have to pay back more than £22,000 – more than double what they borrowed – making the cost of any improvements such as renewable energy, loft and wall insulation or draught-proofing windows prohibitive.