Draft Electricity and Gas (Energy Company Obligation) Order 2022

Lloyd Russell-Moyle Excerpts

Monday 18th July 2022 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Sharma. The first thing to say in response to the Minister’s excellent setting out of the provisions of ECO4 is that it is a good scheme. We welcome a number of elements of it, which expand and in many instances are different from ECO3. Above all, we welcome the fact that it is finally on the table today. I see that the order will apply from tomorrow, so it will finally be in place, and I will come back to that problem in a moment.

We certainly welcome the fact that ECO4 sets out increased collaboration with local authorities and other social housing providers, and the increased flex to 50%, which is a slow but sure move towards recognising that local authorities can play a central role in energy efficiency, retrofit and upgrade in properties. That will enable a lot more collaboration on the private sector between local authorities, social housing providers and ECO providers.

We certainly welcome the proposal to ensure that the most poorly rated homes—those in E, F and G—are now among the priorities for treatment, and we welcome the fact that putting them up two bands is on the table in ECO4. We welcome the increased budget from £640 million for ECO3 to £1 billion for ECO4. I have to say, however, that as welcome as that increase is, two aspects ought at least to give Members pause. The main one is that the budget increase will effectively be borne by bill payers, as we see clearly from the impact assessment. If I read it in its entirety, it sounds a bit strange. It says:

“The impacts of the policy shown above are not expected to be shared equally across society, with obligated suppliers expected to incur most of the costs presented in Error! Reference source not found.Error! Reference source not found.”

I do not know what that refers to. It goes on:

“ECO4 has a spend envelope of £1 billion per year, rising with inflation, until March 2026. Suppliers are in turn assumed to recoup the costs they incur from meeting their obligation from their gas and electricity customers.”

It is clear that the money for the increased budget will come from energy bill payers. What is not in the impact assessment, however, unlike some other impact assessments, is what that represents in terms of bills; my calculation is that it roughly represents a £4 increase on bills over the period. I would welcome the Minister’s view on whether I have that about right, or whether that is more or less than it should be. That fact is that it will go to bill payers. We ought to think about whether that is an appropriate way to do such things, particularly as we have such sky-high bills at the moment, and will have for probably the whole period during which ECO4 will exist.

Our view is that an ECO4 scheme should have been substantially better funded than even the £1 billion, given the work that is ahead of us, and also that the difference between what there was in ECO3 and what there will be in ECO4 ought to be taxpayer-funded, not funded by bill payers in general. We also ought to be clear that, welcome though a number of the measures are, they will in fact be only a pinprick on the overall problem in this country with energy efficiency, energy uprates and retrofitted properties. One example of that is the—albeit welcome—carved-out slice in ECO4; that is, the 10% set aside for solid-wall housing, with 90,000 treatments to be undertaken over the course of ECO4. In the country as a whole, we have 7.8 million solid-wall homes, virtually all of which need to be substantially uprated in terms of energy efficiency and as a priority, because they are, by and large, in the lowest energy efficiency categories in the country.

[Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)]

I have many such properties in my constituency. It looks like beautiful Regency grandeur from the outside, but it is poor-quality housing on the inside, which is cold, damp and miserable for many of the tenants, who do not even have direct electricity or gas suppliers, but rather have secondary energy suppliers via their landlords. Does my hon. Friend agree that these measures are far too small in their application and that the Government need to adopt a street-by-street strategy, whereby they assess every house along every street, and develop an individual plan for energy efficiency for each of those houses? Without that, these measures will just deliver nice things and not the ambition that we need.

[Dr Whitehead]

My hon. Friend is absolutely right. Indeed, I was going to finish talking about what we would like to see by saying something along more or less precisely those lines. In the long term, we need to adopt a wholesale, locally organised and locally run, street-by-street and house-by-house arrangement, rather than what has happened with the ECO schemes in the past and still now, whereby individual houses are picked out by individual suppliers and are treated. That wholesale treatment, which my hon. Friend has rightly described, is still nowhere in view for these schemes.

My hon. Friend will know from his experience of solid-wall homes in his constituency that they are expensive to treat and need whole-house treatment. Indeed, that is reflected in the estimates for this ECO scheme. He will also be concerned to know that, in general terms, if the 90,000 treatments are discharged according to the calculations in the scheme, then we will reduce the number of homes that are outstanding for treatment by the huge proportion of 1.8%. That is to say that 97% of solid-wall homes across the country have not been treated, so 95% will still remain untreated at the end of the ECO4 period. This is a good scheme in its own lights, but it woefully falls short of what we need over the next period for serious retrofit in this country.

But my question, and what I take issue with, is this. Why are we sitting here on 18 July, passing into law—as I hope we will—the rules for a scheme that started on 1 April? Anybody with any experience of these sorts of things will know that it is a rather good idea to have the rules in place before a scheme starts. In this instance—despite what the Minister said about some of the “shutting the stable door” measures retrospectively undertaken in the interim, when ECO4 was not in place—suppliers and contractors have not known what they would be remunerated for, what they would not be remunerated for, or what risks their companies were taking in undertaking actions.

A lot of suppliers, particularly smaller contractors, have simply downed tools on measures to be carried out under ECO3 or ECO4, with an estimated 50,000 measures that could otherwise have been undertaken being lost over the period. For small contractors and suppliers, having to do all that work at their own risk, without knowing what the rules would be, or whether or when they would get their money back, was not something that they could stand.

That question was put to me by a number of suppliers some while ago, when ECO4 was still in development. As a result, I asked the Government a number of written questions about what would happen. Would there be a smooth transition and would the rules for the scheme be out in time? I must say, the answers I got were systematically evasive—and, as it turns out, systematically wrong. In answer to a question that I tabled on 25 November, the Government said:

“The current scheme ends in March 2022, followed by a successor scheme (ECO4). The publication of the government response to the ECO4 consultation is planned before the current scheme ends”.

That was wrong; it came out after the scheme ended.

I asked the Minister whether he would ensure that there was no gap between ECO3 and the start of ECO4 in April 2022. The Government’s response was that

“the Government consulted on extending the Energy Company Obligation…Scheme from 2022-26. The Government will issue a response in due course. ECO4 will commence once the Government has sought parliamentary approval. The Government will endeavour to ensure that there is a smooth transition between the end of ECO3 and the start of ECO4.”

Getting rather desperate, in May 2022—two months after the scheme was supposed to have started—I asked when the Government would lay the rules for the scheme to work. The answer was:

“The Government is working quickly to lay regulations.”

We now know that “quickly” means two months, because that is where we are now.

Of course, the Government were unfortunately rather clear with me about what would happen to suppliers who had undertaken work between the end of ECO3 and the start of ECO4 in the hope that they might get some sort of recompense for it. The answer was:

“The Government does not fund or reimburse suppliers to meet their obligations under the Energy Company Obligation. ECO is a supplier obligation, and it is up to suppliers how they dispense their obligation and recoup costs from energy bills.”

It is up to suppliers, when they do not even know the rules on whether they can get that recompense in the first place.

Finally, very late in the day, on 15 June, I asked why the Government had still not published the rules to implement the energy company obligation. The final answer was:

“The Government expects to lay regulations for ECO4 this month”,

meaning in June. Here we are, on 18 July, looking at those regulations.

Right down the line, the Government have got it wrong on what they said the progress on this was, and got it fundamentally wrong on the elementary task of ensuring that rules are in place before a scheme starts. That has made a real difference to retrofitting in this country, and it is a real difference that I fundamentally deplore.

It should have been within the competence of the Government to organise these rules in such a way that the scheme could progress reasonably fairly and seamlessly, and if they could not do so, it should have been within their competence to tell people why it was not happening and what the reasons were for it. None of those things has happened.

We have heard, I am afraid, a rather Panglossian version of these events from the Minister this afternoon, who says that, yes, people can get recompense now for work they have undertaken; it will score. However, they did not know that at the time because the rules were not there.

It has been a shambles. I hope the Minister will be able to say this afternoon that he is sorry for this shambles, and perhaps also explain—because I have been unable to get an explanation so far—why it has been such a shambles, why the rules are so late and why, as a result, the scheme was hampered in the way that it was. Finally, perhaps he could solemnly promise that this will never happen again in any schemes that he is involved with in future.

--- Later in debate ---

[Greg Hands]

This has been a good-natured and well-informed debate. I did not hear any opposition to the scheme, so I welcome the support of the Opposition parties for what the Government are doing. I will try to answer as many questions as I can. The hon. Member for Southampton, Test asked why the obligation is set low, but I disagree that it is set low. A £640 million scheme increased to a £1 billion scheme is a 56% increase—quite an ambitious increase.

The hon. Member for Kilmarnock and Loudoun tried to pick holes and asked about inflation. Well, I have news for him: inflation is not anywhere close to 56%. I remember back in the 1970s that it did get into the high teens and to 20%, but we are not anywhere close to that, thankfully. He asked whether the scheme should be more ambitious. I remind him that ECO is only part of the help available. We have other Government schemes designed to improve the energy efficiency of homes, which is why this Government have such an excellent record on that.

I have to correct what I said earlier. I said that, in 2010, 10% of homes were rated A to C on energy efficiency. I checked my own notes, and it is not 10%, but 14%, so I may have been doing the last Labour Government a slight disservice. It is not, I am afraid to say, a quadrupling of the number of homes well rated under energy efficiency; it is in fact only a tripling, so I apologise. Perhaps I have been giving too much praise for the Government, but I none the less think that a tripling in the last 12 years is a record to be proud of.

The hon. Member for Kilmarnock and Loudoun is right that ECO adds to bills, but those who benefit will of course get reduced bills for many decades, which it is important to understand. It is not a simple redistribution from non-vulnerable bill payers to other bill payers. It assists vulnerable bill payers in energy-inefficient homes to get their homes to be energy-efficient, thereby saving them a considerable amount of resources over many years. We are also providing direct help with the £400 energy bills support scheme and other measures introduced by the Treasury this year.

I am glad the hon. Member for Southampton, Test praised the co-operation with the private sector, housing associations, the NHS and local authorities. It is a whole-of-Government effort to improve the energy efficiency of our homes. He said there was an estimated £4 on bills a month, but the hon. Member for Kilmarnock and Loudoun was correct: the estimate is £37 per annum—about £3 a month. I have said that it is not the only scheme available. We have £6.6 billion deployed over the course of this Parliament on energy efficiency schemes, including the £450 million boiler upgrade scheme, the social housing decarbonisation fund, the home upgrade grant, which I have already mentioned, and the public sector decarbonisation scheme, as well as the VAT reductions announced by the previous Chancellor earlier this year.

[Lloyd Russell-Moyle]

Is not part of the problem the myriad schemes that the Minister has outlined? For the normal person in the street, who lives in a shared house where part of it is owned by a person in poverty, another part is owned by someone else and another part is rented, it becomes so difficult for people to match these schemes up and get them in line at the right time, particularly when the Government do not issue guidelines on how the money should be spent for months on end. Is it not better for the Minister to go away and think of a universal scheme to start to tackle those problems, rather than this piecemeal effect?

[Greg Hands]

The hon. Member raises an important point, but an energy consumer does not have to have an encyclopaedic knowledge of the available schemes. The important thing is that the Government provide that assistance, in some cases via energy suppliers, local authorities or social housing providers. If he wants to write to me to suggest which schemes he might seek to abolish in favour of putting it all in one scheme, I would happily receive such a representation.

The hon. Member for Southampton, Test said the solid wall insulation minimal requirement should be higher. ECO4 will focus on the least energy-efficient properties and, as I mentioned earlier, we have introduced a requirement for a minimum of 150,000 band E, F and G private tenure homes to be treated. Most of those will be solid-walled homes and we estimate that around 75% of total scheme spending will go towards improving them to band D or better. We believe the current solid wall minimum strikes the right balance between giving certainty to the supply chain and giving them the flexibility to treat homes in the most important way. The hon. Member for Brighton, Kemptown sought a street-by-street approach—an area-based scheme. We expect area-based schemes to happen as installers involved in ECO also deliver under the home upgrade grant, the social housing decarbonisation fund and the local authority delivery scheme. We already know of installers planning to work in that way.

The hon. Member for Southampton, Test asked why the scheme was delayed. It is worth stating that ECO4 is the most significant reform since the scheme began nine years ago. We have had to ensure that it is fit for purpose until March 2026—it is important to get that right. This has presented new challenges in policy design, modelling and legal drafting. As I have already mentioned, however, nearly 33,000 measures have been installed since 1 April and registered with TrustMark. We expect that number to rise by several thousand because, obviously, there is a time lag between installation and registration. That is not a bad rate. This is a scheme of 450,000 households over four years, so that is roughly 110,000 per annum, so the fact that in three months, 33,000 measures have been installed shows there has been no discernible impact on delivery from the change from ECO3 to ECO4.

The hon. Member read us a long chronology of parliamentary questions and the different points he has made. I will never forget in my first year in Parliament when I asked a point of order to the Speaker. I read out a long chronology relating to a then Labour Minister, who had failed to provide an answer. The then Speaker—the glorious late Michael Martin—replied to me with just one word, “Persevere.” That was all he said to me. I will not urge the hon. Member to persevere. I say to him that at the end of that long chronology, he was not actually able to demonstrate that there had been any deficiency, that anybody had been damaged or that any measures had not been delivered as a result of ECO4 coming in three months after the scheduled end of ECO3. We covered it due to the extension of ECO3 and the bringing forward of measures in ECO4. That has been solved, and the hon. Member should join us in celebrating those 33,000 measures that have been installed just in the last three months.

Moreover, by allowing suppliers to overdeliver against their ECO3 targets—referred to as carryover—at least 40,000 extra measures were delivered earlier than they otherwise would have been. We have engaged with energy suppliers, and the hon. Member for Kilmarnock and Loudoun asked about the supply chain.