Electricity and Gas (Energy Company Obligation) (Amendment) Order 2025
Lord Wilson of Sedgefield
That the Grand Committee do consider the Electricity and Gas (Energy Company Obligation) (Amendment) Order 2025.
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, this order was laid before the House on 11 June. This Government remain steadfast in their commitment to ensuring that homes are warmer, more energy efficient and more affordable to heat. At the heart of this endeavour lies the warm homes plan, a comprehensive and long-term strategy to reduce energy bills, alleviate fuel poverty and enhance our national energy security. I am pleased to note that this plan is underpinned by a significant investment of £13.2 billion, as announced by the Chancellor. This funding will support the deployment of insulation, solar panels, heat pumps and other technologies that will help households reduce their energy consumption and costs.
However, it is not enough to look to the future. We must also ensure that the schemes we have in place today are delivering as effectively as possible. The energy company obligation, ECO4, and the Great British Insulation Scheme, GBIS, are central to our current efforts. These schemes place obligations on larger energy suppliers to deliver energy efficiency improvements that result in measurable bill savings for households. ECO4, as noble Lords will know, focuses on whole-house retrofits for vulnerable and fuel-poor households. GBIS, by contrast, is designed to deliver one or two insulation measures to a broader group of households, including those not eligible for other forms of support.
Since their respective launches, these schemes have delivered tangible results. ECO4 has supported over 248,000 households with more than 800,000 measures. GBIS, launched in 2023, has already reached 80,000 households. These are not insignificant achievements. Nevertheless, it has become clear that GBIS in particular is not on track to meet its original delivery targets. Despite recent improvements, the pace of delivery has remained below expectations. Without intervention, we face the very real prospect of underdelivery, leaving thousands of households without the support they need.
That is why this statutory instrument introduces a series of mid-scheme changes which are both necessary and proportionate. The most significant change is to allow up to 75% of a supplier’s GBIS target to be met through the reassignment of annual bill savings achieved under ECO4. This is not, I emphasise, a lowering of ambition; it is a pragmatic adjustment that reflects the realities of delivery while preserving the integrity of the GBIS.
To ensure fairness and consistency, a conversion factor will be applied to reassigned savings. This will ensure that the GBIS remains on time, on target and within its original cost envelope. I would also like to reassure noble Lords that these changes will not result in any additional cost to consumers; the funding is already accounted for under the price cap set by Ofgem.
In addition to this core change, the instrument introduces several other improvements. These include updates to technical standards, greater flexibility in the combination of insulation measures and a new requirement to provide households with information about smart meters. These changes are designed to enhance the effectiveness of the schemes and to support our broader fuel poverty target.
Turning to consumer protection, I must address the issue of non-compliance in the installation of solid wall insulation, which my noble friend Lord Hunt brought to the attention of the House earlier this year. I am pleased to report that the expanded programme of checks, overseen by Ofgem, is progressing well. Where issues have been identified, they are being addressed.
We are also developing a more coherent and robust framework for consumer protection, which will be set out in full as part of the warm homes plan in October. This will address the current fragmentation in oversight and provide greater clarity and assurance for households.
As I conclude, I thank the Secondary Legislation Scrutiny Committee for its consideration of this instrument which ensures that the GBIS and the ECO4 scheme deliver what they were designed to deliver: warmer homes and lower bills. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I once again thank the Minister for presenting and introducing the statutory instrument before us. I declare my interest as honorary president of National Energy Action, which, as I think the Minister will realise, is based in Newcastle, not a million miles from where he used to represent.
I welcome the fact that the regulations propose to upgrade homes. I understand that upgrades and renovations such as this will attract VAT. The impact assessment does not show whether VAT has been applied. I am having a little campaign. I cannot launch it here because I have already launched it, but I would like to refer to it, if I may. It is not party policy, so it is my own little personal campaign, but our Front Bench here may want to adopt it as our policy.
If we were to reverse VAT and put VAT on new build, zero-rated VAT on renovations would mean that we would have an increasing supply of older housing stock, which, I imagine, is just the type of housing stock that the Government intend to benefit from the proposals here. Therefore, the question is to what extent will VAT be attracted and why do the figures in the impact assessment not show whether VAT is included? If the figures are VAT-free, VAT will have to be added to them, obviously increasing them by 20% under the current plans.
I will make a general comment about the warm homes discount that I was able to share with the Minister’s predecessor and that I wish to share with him in his new position. I welcome the fact that there is a warm homes discount. I regret that the sum involved, £350—I said this under the last Administration, when my own side were in government, and I repeat it now for the benefit of the current Government—has been that figure for a considerable time. Why have the Government chosen not to increase it for those who are clearly identified as being in the deepest of fuel poverty? That figure, I understand, is not being increased, but the Government have decided to give to a broader new raft of homes the smaller amount of £150.
Baroness Coffey (Con)
My Lords, these regulations come about as a consequence of a consultation. Unusually, it was only a four-week consultation, which is not unprecedented but surprising, especially recognising that it happened in November. It closed in December, and here we are in July debating these regulations. I appreciate that it may have felt targeted, but I wanted to get a sense from the Minister of how Ofgem has worked with the energy suppliers or indeed the public on why, in effect, there has been such a failure in the delivery of those targets.
I do not know the council tax of band of the Minister’s house but mine is a B. I tried to get this GBIS. I am in a pretty old house that is leaky when it comes to heat and similar. I thought I would test this scheme out because, like anybody else, I was impacted by the energy shock. It took a long time to register and get a potential appointment. But before they would even come out to the house, I had to sign an agreement that they could make any changes to parts of my house that they deemed necessary in order to put in some loft insulation, including me agreeing automatically to installing Xpelair fans in various rooms and many other things. So, I have to say, I just stopped. There was no way I was going to sign up to a predetermined agreement when somebody had not even seen my house.
My concern is the following. I have been working on fuel poverty for a long time as a parliamentarian. I set up the APPG in the House of Commons many years ago, and I managed, when I was a Minister, to make sure we got a law through to open up the data exchange across government. That meant that we could provide a considerable amount of data, particularly affecting rural homes, in order to access all this ECO, because, as the Minister may be aware, quite often with these schemes half the budget ends up going on trying to identify who could be eligible for them. That law was supposed to change that. I feel, at times, that the energy companies continue to talk the talk on fuel poverty but, when it comes to delivering and achieving a significant reduction in fuel poverty right across our country—that would be a noble achievement—they complain that it is all a bit too complicated. For what it is worth, that is not good enough. Ofgem is not challenging enough. I do not expect the Minister—especially the fabulous Minister in front of us now—to deal with every bit of this, but he should expect more from Ofgem, which is admittedly a non-ministerial department.
There were 122 responses to the consultation, as it well set out. I would like to try to understand the impact of these changes. Having floor, loft and cavity insulation coming together in a whole package is probably sensible, but how are the Government going to hold the energy suppliers to account to deliver financially, not just what is convenient for them? The summary of the responses sets out, “It is very difficult for the companies to meet their obligations”, rather than focusing on the whole purpose of this, which is to reduce energy consumption and bills. So at the moment, I cannot see any analysis of why this will make a difference and how we will not just be in the same place next year with energy companies.
I also want to get an assessment of the rural data definition changes and a sense of how many households, and homes, will as a consequence no longer be covered in rural areas. I appreciate that they will be updated every 10 years, but I do not know what rules the ONS has applied in reclassifying a home as being in a rural area or not.
As I said, I do not have much confidence in the energy companies delivering even these changes. It looks to me as though they will continue to wring their hands. It feels like this is moving the goalposts. I appreciate that these changes in legislation may be seen as being pragmatic, but what reporting will the Government provide to Parliament as a consequence to see that this will make the difference that it is supposed to make?
Earl Russell (LD)
My Lords, from these Benches we generally support the draft regulations. We commend the stated commitment of this Government to deliver warm homes that are cheaper to heat and to tackle fuel poverty. We have some of the highest energy bills and some of the coldest, dampest and worst-insulated homes in Europe. Cold homes not only waste energy and contribute to global warming needlessly but cause problems for people on budgets and low incomes and with ill health.
We generally welcome the warm homes plan in the spending review, with its ambitious £13.2 billion of investment, and the crucial steps towards reducing our energy bills and strengthening our energy security. We particularly welcome the rollout of solar panels, heat pumps, batteries and insulation.
We particularly welcome several targeted practical changes introduced by this draft instrument, targeting those in need of most support. The most significant change allows 75% of the energy suppliers’ £1 billion Great British Insulation Scheme target to be met through the reassigned ECO4 delivery pathway. This appears to be a pragmatic approach. The Explanatory Memorandum clarifies that this is necessary because the GBIS would otherwise have severely underdelivered, and this is seen as the way to maximise savings and get this done. Further, it reassures us that this will not increase consumer bills, as it is using existing funds and will be a good means of reassigning support and continuity in the ECO4 supply chain. This is considered better value for billpayers, as ECO4 is cheaper to contract.
We welcome the flexibility to enable greater allowance of installation measures, especially for low-income households. We welcome the plans to encourage the uptake of smart meters, and we welcome the updating of technical standards.
I have just a couple of questions for the Minister. A lot of previous schemes have not quite delivered as intended. Indeed, even here, a scheme that would have underdelivered is having its resources rolled into a new scheme. So, specifically how will this new programme be monitored to ensure that it actually works and delivers in practice, and does not fall foul of some of the issues that have plagued past schemes?
The Minister spoke about the issue of quality control with past schemes. I very much welcome the fact that 90% of that work has now been done—that is a tremendous achievement. But, again, under this new scheme, how will we make sure that the quality of the work delivered for households is up to the standards that we require and does not cause any further problems?
The Minister said that the Government are planning to bring forward larger-scale reforms for the warm homes plan. Is the Minister able to say anything more about that today or will we just have to wait for that?
We recognise that allowing the 75% of the ECO4 delivery for GBIS targets is pragmatic, but what measures will happen with the remaining 25% of the GBIS target? I do not want that bit to be forgotten about, so how will the Government set about making sure that that is delivered and that those houses are not forgotten about?
How do the Government plan to report on the delivery of this new scheme and make sure that it is delivering? How will the Minister report on the uptake of smart meters under this scheme? We recognise the measures that are being taken to encourage consumers to do that and that the Government are using the contact through the insulation measures to do that. Generally, we welcome what the Government are doing here.
Lord Offord of Garvel (Con)
My Lords, this order makes modest changes to the energy company obligation—ECO—scheme, and I was pleased to see the Minister in the other place recognise that ECO4 and the GB Insulation Scheme have been a key part of the effort to upgrade homes across the country. These schemes were introduced under the previous Government to support better insulation of energy customers’ homes, and I am pleased that the Minister has recognised the success of the previous Government in this area. We will not oppose this statutory instrument.
The previous Government announced that more than 300,000 homes would get insulation installed under GBIS, and they said that this could potentially save families up to an average of £400 a year on their energy bills. Claire Coutinho, then the Secretary of State, said that the introduction of GBIS would help hundreds of thousands of people, including some of the most vulnerable in society, get the upgrades their homes need while cutting their energy bills. So this is a Conservative initiative, and we are pleased to see that this Government are building on that track record.
It is concerning that some of the insulation installed under the schemes has not met the appropriate standards, and Ministers are right to tackle this as a matter of urgency. Can the Minister confirm what proportion of the identified issues has now been solved, and can he confirm that no energy customer should be out of pocket as a result of this remediation work?
We know that high energy costs are one of the greatest challenges in our economy at the moment. High energy bills contribute to growing household costs for families, but they are also holding back businesses and stifling growth. One of the key reasons that the UK manufacturing sector is finding it so difficult to grow at the moment is high energy costs, so we would welcome the Government’s continued commitment to energy efficiency and insulation—this is positive work—but we also need to tackle head-on the challenges we face on energy prices, and that means supply-side reform. We must urgently address the energy baseload challenge and get the right mix of cheap energy from all sources so that households and businesses across the UK can thrive.
We support steps to improve household insulation, but can the Minister take this opportunity to set out what steps the Government are taking to tackle energy prices more broadly for households and businesses in the UK? Can he comment on further investment—for example, new nuclear and long-term energy storage—towards that objective? What assessment have Ministers made of the impact of spikes in wind energy production on the cost of energy to consumers? We egregiously pay wind turbine operators to turn off the supply of energy when it spikes, and when we find ourselves in periods of no wind and no sun, we pay exorbitant sums to emergency energy suppliers, which burn gas as a peak supply instead of baseload. What steps will Ministers be taking to review the overall situation so that we can not only deliver better-insulated homes as part of this but, as another key part, drive down the costs of energy for families and businesses?
Lord Wilson of Sedgefield (Lab)
I thank noble Lords for their contributions, questions and general support for these technical adjustments to regulations. This Government remain firmly committed to supporting the households that need it most to live in warm homes with lower bills, while ensuring value for money and maintaining high standards of consumer protection. The instrument under discussion introduces targeted amendments to ECO4 and GBIS. These changes will help energy suppliers meet their obligations, improve scheme delivery and ensure that more households benefit from warmer, more affordable homes. Importantly, the measures will do so without increasing costs to bill payers and will support the continuity of the energy efficiency supply chain.
I thank the noble Baroness, Lady McIntosh, for her questions and her involvement with the NEA, which is obviously based in the great north-east. She asked about VAT; there is no change to VAT status due to this SI. VAT is applied to all retrofit work including that under ECO4 and GBIS. The figures in the impact assessment include VAT.
On her points about the warm home discount, we estimate that expanding the scheme in this way would offer support to an additional 2.7 million households, so around 6.1 million in total for this winter, 2025-26. Around one in four households with the required energy cost exceeding 10% of their after-housing-costs income currently receive a £150 rebate. By extending the scheme to all households on means-tested benefits, this figure will rise so that about 45% of such households will receive the rebate. Extending the scheme will also almost double the number of households with children that receive the warm home discount to about 1.9 million.
The noble Earl, Lord Russell, mentioned the timing of the warm homes plan. The Government are working hard to develop the warm homes plan as a unified, forward-looking approach that will revamp the delivery and consumer protection model. Such extensive changes necessarily take time to develop, as we are looking to make far-reaching and robust improvements to deliver this key government priority at scale.
I thank the noble Baroness, Lady Coffey, for sharing her experiences. While I am not aware of the specifics of her case, there is no specified single approach to engaging with customers in ECO4 or GBIS. We do not specify that there needs to be a legal agreement in place between installers and households before an assessment. The approach is that it is down to individual installers in the supply chain to engage with customers. We are looking at reforms to the consumer journey as part of the warm homes plan, which I hope will consider the points that the noble Baroness made.
Again, I welcome the support for these measures from the noble Earl, Lord Russell. He asked a number of questions, and I will write to him with fuller details on some of them.
I thank the noble Lord, Lord Offord, for his support for these measures. He asked a number of questions across the energy space. He will appreciate that nuclear energy storage and the other issues that he raised are wider than the measures we are here for today. All I know is that we need to decarbonise the grid. We need to move towards clean energy by 2030. We also need to invest in nuclear, which we are doing in small modular nuclear, and in wind and solar farms. We need just to have sufficient gas to make sure that the grid and security of supply are there. We are moving in the right direction, as I said earlier. The alternative is to do nothing, but that would make the situation worse.
Baroness Coffey (Con)
I asked the Minister two specific questions about the number of rural households affected by this change. I appreciate that he may not have that number to hand but I am very happy for him to write to me. The other question I asked was about the performance—what these changes will do—and how Parliament will be regularly informed about the impact of the changes that we are voting on today.
Lord Wilson of Sedgefield (Lab)
I do not have the figures in front of me about the number of homes in rural communities and how they are affected. However, I can say that we are aware that rural properties face additional costs in installing energy efficiency measures. This may be because these properties are more likely to be older and have traditional solid walls and floors—including my house, which is exactly the same, and probably the noble Baroness’s house—and because they are in harder-to-access areas, making them more expensive to treat. That is why, across GBIS and ECO4, rural off-gas properties in Scotland and Wales, for example, will receive an uplift of 35% to reflect the additional energy costs these households are known to experience more acutely. I will write to the noble Baroness with the figures. As for updating the House, I am sure that as these regulations evolve, we will be doing that in due course over the months to follow.