Energy Company Obligation Schemes

Kerry McCarthy Excerpts

Tuesday 27th June 2023 Westminster Hall

[Kerry McCarthy (Bristol East) (Lab)]

It is a pleasure, as always, to see you in the Chair, Mr Paisley. I congratulate the hon. Member for Ceredigion (Ben Lake) on securing the debate.

We have heard from all Members who have spoken how important it is for the Government to look at the complexities of this issue. I represent a predominately urban constituency and, by and large, the other Members we have heard from represent rural constituencies. Each area will have different problems depending on its housing stock, the availability of skills and so on, but it is the Government’s job to try to iron those problems out. That is why it is important that we are having this debate so that people can put on the record some of the issues they have found.

Let me start with the broadbrush issues with retrofitting. Members have set out well that the crisis of rising energy bills has brought home to people how much energy they lose through having poorly insulated homes—energy is literally going through the roof—and how we could reduce not only bills, but our emissions if we had homes that met the EPC C standard.

I would say that this is about retrofitting existing homes, but the Government had a pledge to introduce zero-carbon new homes and then dropped it. Estimates suggest that well over a million homes have been built since then that do not meet the EPC C standard. Given that we face such a massive task in retrofitting existing housing stock, it seems ludicrous that we do not insist that new builds meet a certain standard, because we will need to retrofit them not too far down the line.

I have just come from the Energy Bill Committee, where we were talking about how we ensure that we have the skills for a just transition. This work tends to be carried out by small and medium-sized enterprises and sole traders—it is not as though there is one big company that will deliver it—and they need certainty that this is a line of work in which there will be jobs for the foreseeable future. With schemes stopping and starting as they have in the past—there was lack of consumer confidence because of the way some earlier schemes floundered—people will not move into those jobs, particularly given the shortages of construction workers, plumbers and electricians. It can be difficult to get people to do even the traditional jobs, let alone move into this area. We must address that to create stability.

The need for consumer advice was mentioned, and I just mentioned consumer confidence. Previous experience shows us that that is really important. This is about going into people’s homes, uprooting their domestic lives and putting them at risk of having to pay a lot of money. Under earlier schemes, cowboy operators did not do work to the expected standard and people were suddenly told that they needed extra—

[Liz Saville Roberts]

It seems evident to me that, since many of the people who will qualify for support through these schemes will be vulnerable, unless protections are built in for them, they may not be able to deal with it when work is not done to the expected standard, which is what we will hear about as MPs. I would have expected the Government to build that into the schemes in the first instance because of the nature of the people they are trying to support.

[Kerry McCarthy]

That is very much the case. I have been in this place for 18 years. Earlier in my career, I saw in my casework people who had been ripped off really struggling to deal with the bureaucracy of whether they would be able to get public funding and whether they had to pay the people who were literally on their doorstep asking for money.

Turning to where we are now, the ECO scheme was well intentioned and welcome, but it is not working. At the moment, the UK has the least energy-efficient housing in Europe and home insulation rates have plummeted. Many statistics have been bandied around. My numbers are slightly different and relate to a different time period. In 2013, the coalition cut energy efficiency programmes; in the same year, insulation rates fell by 92%. That is what I go back to—the period when the market crashed, setting us back about a decade to where we are now. Last year, only 159,699 ECO measures were installed in low-income and fuel-poor homes, a reduction of 59% from the 393,706 in 2021.

There is a substantial gap between Government insulation targets and delivery where ECO4 is concerned. Analysis from E.ON Energy suggests that, as of December 2022, the industry had completed around 11% of the obligation, compared with an expected 19%. We estimate that at the same point during the ECO3 scheme, the industry had completed 29%. That delay will have consequences. A report from the World Wide Fund for Nature and ScottishPower warns that the Government are on track to insulate just one sixth of the homes needed to meet their target of reducing energy consumption by 15% by 2030.

I have spoken to people from various businesses in the retrofit industry, and they fear that the same mistakes are being made. Nigel Donohue, chief executive of the Installation Assurance Authority, said the transition to ECO4 was

“really poorly managed…despite conversations with the Government about not allowing this to happen to the industry again”.

There is no getting away from the fact that the scheme is really struggling.

There are two major issues delaying delivery. The first is limitations on scoring. Aeon estimates that up to 90% of the properties eligible for ECO4 will not receive the support they desperately need because those homes do not meet the minimum improvement requirements. The goalposts that must be cleared for properties to meet the SAP score are being moved, so vulnerable, fuel-poor households have been ruled ineligible and are missing out.

The second issue is costs. Funding assumptions under ECO4 are significantly lower than actual installation costs, and rising inflation has led to costs in the supply chain escalating even further. With current inflation rates and the skill shortages, those costs are likely to be increasing incrementally, almost by the week. I am not convinced that the Government have taken that into account. Delivering loft insulation, for example, is currently 430% more expensive than the Government estimate, while cavity wall insulation is 372% more expensive. These are clearly not small discrepancies, and they have to be recognised in the ECO4 scheme.

The Department for Energy Security and Net Zero acknowledged the increased costs when consulting on the ECO+ scheme back in December, but ECO4 has not been aligned. There is also the problem I mentioned of the gaps between schemes causing confusion and a drop in uptake. There was a four-month gap before ECO4, and I think at one point prior to that there was an 18-month gap between schemes, which I am told had a major impact on the skills front. We cannot allow the same to happen with ECO+. Continuity is needed.

I have also spoken to a housing association boss who says that he thinks the schemes are working okay generally, but that timescales and bureaucracy are a big problem. Low levels of contribution to band D homes means that installers and energy companies are less likely to take them on. He would like a focus on ensuring that installers are compliant with publicly available specifications, PAS, in the long term, so that people trust retrofitting more, but at the moment the process is very bureaucratic. He cites a case where a 115-page form was needed to fit loft insulation that took only an hour to install. I do not know how long it takes to fill out a 115-page form, but I would imagine that it was considerably longer than one hour. He also said that with schemes such as the home upgrade grant, the focus on specific measures, rather than letting retrofitting co-ordinators decide what is best, sometimes means that they cannot offer support for some houses.

It would be remiss of me not to mention how well Bristol is doing at retrofitting homes through its City Leap programme. The 3Ci website has a really good account of what we are doing. One of our ambitions, for example, is to get all social housing up to EPC C by 2030, which involves an innovative arrangement with private sector finance. Under our green prosperity plan, Labour is committed to spending £6 billion a year to retrofit 19 million homes to EPC C within a decade, saving families an average of £1,000 a year on their energy bills, creating over 206,000 new full-time equivalent jobs, and cutting national gas imports by up to 15%. I hope that we will be ready to start work on that in just over a year’s time, or whenever the election is called, but it would be good if the current Government addressed some of the underlying issues, particularly the skills gap, ensured continuity of supply, and listened to what Members have said today, so that we are ready to hit the ground running. Even if we do not win the next election, I am sure the Minister would hope to get things in a better place so that we can steam ahead with this programme.