That this House has considered the implementation of ECO4 and ECO+.
It is a pleasure to serve under your chairmanship. Mr Paisley. I am grateful for the opportunity to discuss the importance of energy efficiency schemes for domestic properties in general, and more specifically the implementation of the energy company obligation 4 and energy company obligation plus schemes.
As everybody will be aware, households have had to endure wave after wave of challenges to budgets in recent months, with each adding to the financial burden on families and eroding living standards. Although we have recently received welcome news that falling wholesale energy prices will begin to feed through to households, it is unlikely that energy bills will return to pre-crisis levels any time soon.
A frequently cited statistic that bears repeating, lest we allow current prices to be normalised, is that in April 2022 the Welsh Government estimated that energy bills of £1,971 would push 45% of Welsh households into fuel poverty. Next month, when Ofgem’s price cap kicks back in, it will still be marginally higher, at £2,074. The New Economics Foundation suggests that that pressure will continue into next year, with energy bills in April 2024 estimated to be as high as 70% above pre-crisis of 2021 levels. To put it simply, for too many households energy prices will continue to be a significant pressure on their budgets for some time to come. Households will also be more vulnerable this coming winter, after being forced to use savings or take out debt to make it through last winter.
Citizen Advice Cymru has seen an increase in the number of people seeking debt advice, and reports that more people are falling into arrears on essential household bills. The number of people seeking advice on debt relating to energy bills, for example, has more than doubled between May 2021 and May of this year. Although that is not the purpose of today’s debate, it demonstrates why short-term relief with energy bills is still required, including another round of the alternative fuel payment for off-grid households next winter.
In the long term, the energy crisis has thrown into very sharp relief the urgent need to implement measures to bring down energy bills permanently for households and businesses. One solution is to transition to renewable energy sources, another—the focus of today’s debate—is to introduce comprehensive policies to enhance the energy efficiency of the UK’s housing stock.
That issue is particularly acute in Wales, given that we have some of the oldest and least efficient housing stock in western Europe. Data from the Department for Levelling Up, Housing and Communities shows the percentage of dwellings within each local authority with energy performance certificates rated level C or above. The data shows that five out of the 15 local authorities with the smallest percentage of dwellings with EPCs rated level C or above are in Wales, with Gwynedd third from bottom at 23% and my constituency of Ceredigion only slightly better at 25%.
I agree entirely with my hon. Friend, as I am sure that many would, that this is primarily a question of funding. We should take a step back and realise that Shell has directed £5 billion in windfall profits towards its shareholders in the first quarter of this year, so there is surely a good case to be made for an emergency windfall tax to enable additional work for the other households that would benefit so much from it.
I am very grateful to my right hon. Friend for that important intervention and you will be unsurprised, Mr Paisley, to hear that I agree with her that there is an important opportunity to introduce emergency measures. At the end of the day, energy companies are making eye-watering amounts of profit at a time when households across the country are struggling. I think it is very appropriate for us to consider ways of recouping some of that potential income to put against this important measure.
Adjustments are required to get the scheme back on track so it can achieve its full potential. The first adjustment requires the UK Government to look again at ECO4’s cost assumptions. They were finalised in April 2022 and do not reflect current market conditions, including the escalation in costs caused by labour shortages and manufacturing prices. More recent cost assumptions, such as those included in the Great British insulation scheme’s impact assessment, reflect those price increases.
For example, the fixed assumed costs of installing external solid wall insulation, which comprises 12% of measures installed under ECO4 to date, increased from £4,200 in 2021 to about £5,000 in 2022—by almost 20%. Meanwhile, the UK Government estimate that the cost of installing cavity wall insulation for bungalows, as well as detached, semi-detached and end-of-terrace houses, has increased by 50% to 63%. That is all without factoring in the inflationary pressures we have seen in 2023 so far. At the start of 2023, insulation and associated material prices increased significantly, many by close to 10% and some by as much as 35%, compounding similar increases seen last year.
Another aspect of the scheme that requires attention is the minimum requirements threshold, which means that a household’s energy performance certificate must be improved to a particular level. For example, if band D and E homes are to be eligible for the scheme, they have to be upgraded to at least band C, and band F and G homes must be upgraded to at least band D. We should welcome the intent of that requirement. Providing support to the poorest households in the least efficient homes by bringing them up to a significantly higher energy performance rating is an important objective. Nevertheless, the requirement is proving to be a limiting factor on the scheme’s delivery. I have spoken to installers and energy suppliers who say that the minimum requirements are too inflexible compared with previous schemes.
Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)
The hon. Gentleman is giving one of the best speeches I have heard in Westminster Hall in a long time, and he has some good evidence to back up his comments. I congratulate him on securing the debate. My constituency, like his, has a high number of rural homes. Many are reliant on oil-fired central heating and also struggle to fit into the qualifying criteria for the type of scheme that he has outlined. What advice does he have for the Government on how we can improve the flexibility of the schemes to ensure that oil-fired homes can qualify?
The reality is that a very high proportion, if not the majority, of homes in rural constituencies find it difficult to access the scheme because they are not on the mains gas network. In my constituency, some 72% of properties are not connected to mains gas and they are struggling uphill to get on to the scheme. The Government would do well to look again at whether we can change the ECO Flex pathways to allow local authorities greater flexibility to support off-grid properties in particular. That might be a way forward. We certainly need to address the issue. If we do not, I worry that rural areas, which often have an older, less efficient housing stock, will be left behind. I am grateful to the hon. Gentleman for making that important point.
As greater investment is required per property to meet the minimum improvement threshold requirements, the current iteration of the scheme appears to be more exposed, and therefore more vulnerable, to the inflationary pressures that I mentioned earlier, so we need to look again at how it is funded. I ask the UK Government to look at that very carefully.
Another aspect of ECO4 that is welcome in principle, but which is putting pressure on those delivering the scheme, is the Flex pathway. The pathway is important, because it enables local councils to identify low-income households that are in need of support, but that are unlikely to be eligible under the scheme’s standard approach. It also provides an opportunity for local councils to better tailor energy efficiency schemes to their respective areas, and I refer back to the remark from the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) about rural properties. The issue, however, is that local councils feel that the Flex pathway is too onerous and that the information required of them for each application takes up significant staff time and resources. Indeed, I am told that the level of detail required can make the Flex pathway inflexible when considering different local factors.
On that point, I would like to mention Meilyr Tomos at Gwynedd Council, who supplied me and others with advice on this debate. In relation to the ECO Flex programme, another issue in Gwynedd is second homes. Younger people are now priced out of staying in their own homes, and more non-dependant children are remaining with their parents—between 2011 and the 2021 census, in Gwynedd the figure increased by 6.8%. Given that non-dependant children artificially inflate household incomes, that has a knock-on effect on ECO Flex. The Government would be wise to give due attention to such rural issues.
I agree with my right hon. Friend. The Flex pathway offers a real opportunity to allow the policy to be tailored to the specific needs of local areas, so as to accelerate the delivery without impacting on the broader scheme that the Government have implemented.
The consequence of rising costs and a perceived inflexibility in the structure of the scheme has been that supply chains are starting to stutter, and I am told that many installers are leaving the market. The Installation Assurance Authority warns that there are now fewer than 10,000 people involved in the industry and public-funded schemes, whereas there were 54,000 in 2012. Those who have moved away from ECO4 are reluctant to return. If installers continue to leave the market at this rate, it will make it very difficult not just to deliver ECO4, but to achieve the level of home retrofitting required to meet our future climate and fuel poverty targets.
If those issues are not addressed, thousands of eligible households will miss out on crucial energy-saving measures, meaning that they will face higher energy bills this winter and beyond. I believe that the Department for Energy Security and Net Zero is consulting on the deliverability of elements of ECO4. If it intends to do so, I ask that they publish the consultation before the summer recess in order to allow sufficient time ahead of April 2024 for industry to adjust accordingly. A failure to do so may mean that even more installers drop out of delivering the scheme due to continued uncertainty.
It is not too late to get ECO4 back on track, and I would argue that a consultation could play a key part in doing so, but I would appreciate it if the Minister could explain what consideration has been or will be given in a consultation to the following points. Could ECO4’s cost assumptions be revised in line with current supply costs to reflect current market conditions? Could the eligibility of homes be widened to ensure that more people can benefit from the scheme? That could include increasing the number of fuel-poor households eligible in the private and social rental sector, or it could mean enabling the Flex channel to be more responsive to local needs in order to be able to capture more fuel-poor households, such as those in receipt of means-tested benefits or with health conditions.
I would be grateful if the Minister addressed the issue of providers who place solar panels on agricultural land, but do not guarantee against damage caused by animals. Obviously, placing panels on agricultural land is very convenient, and it makes access cheaper, although attention is not always paid to planning requirements. However, the convenience may be outweighed by the risk for the householder of damage caused by animals that is not covered by a guarantee. I very much wish the Government to address that rural issue.
I thank my right hon. Friend for raising another important point. It perhaps illustrates the need to strengthen the accountability of the scheme. In Ceredigion, households have had measures installed that were of substandard quality, and they find it almost impossible to get information about redress and holding the installers to account for the sub-par work. Her concerns would be captured by a broader effort to improve the scrutiny and accountability of the scheme. Will the UK Government consider ways of improving oversight of installations? We need a stronger mechanism by which installers can be held to account.
Before closing, I will touch on the need to incentivise those who are ineligible for the ECO scheme to invest in retrofitting—those who might have the means to do so. A few measures come to mind. First, could we look again at removing VAT from insulation products, and not just from the installation of these products, as well as from storage batteries? I appreciate that that might be a Treasury matter. What work might the Government undertake on providing interest-free loans to those who wish to install energy efficiency and low-carbon heating measures? Providing access to such support will be even more important in the face of steep interest rate hikes.
Finally, I come to another area that deserves a brief mention in a discussion on how we can help households to bring down energy bills and expand our renewable capacity: incentivising households to invest in smaller-scale renewables. I have been contacted by several constituents who are concerned that the reduction in support from the feed-in tariffs—and now their replacement, the smart export guarantee—has vastly reduced the incentive to invest. I urge the Government to consider increasing the tariffs that the energy suppliers are required to offer to homeowners who generate renewable energy. I draw my remarks to a close, and very much look forward to the comments of my colleagues.
It is a pleasure to serve under your chairmanship, Mr Paisley. I congratulate the hon. Member for Ceredigion (Ben Lake) on bringing this important debate to this place.
We are in the middle of a cost of living crisis. Bills are soaring, wages are not keeping pace with inflation, and people are struggling to make ends meet. We must not forget how harsh last winter was. The energy price cap rose by 54% and many people were trapped in cold, leaky homes. We cannot allow that to happen again.
Households in poorly insulated homes will pay an estimated £13 billion a year more in energy bills. That is because the Government have failed to bring those homes up to at least band C of the energy performance certificate rating. Some 43,000 homes in Bath have a poor efficiency rating, and the Government’s inaction has meant that some of my constituents are more than £1,300 poorer each year.
We are also in the middle of a climate emergency. The UK has some of the leakiest homes in Europe. Insulating our homes would push down energy demand and cut our country’s greenhouse gas emissions. For the past decade, the energy company obligation schemes have delivered warmer homes, cheaper bills and greener buildings for millions of vulnerable households. The ECO4 scheme is the latest iteration. It provides grants to fund energy-efficient upgrades to homes, and pays for loft or cavity wall insulation, new heating systems such as boilers, and other measures designed to increase energy efficiency, as we have already heard.
However, ECO4 installations are not keeping up with the target to improve 450,000 homes by March 2026. The Energy Efficiency Infrastructure Group has shown that, by March 2023, only 15,000 homes had been treated. That is just 3% of the overall delivery target. That is very poor, and an example of the Government’s inaction on delivering what has been promised.
The hon. Lady is making some excellent points. I am sure that in her constituency, as in mine, there are many older properties that are very difficult to convert. Does she agree that more needs to be done to ensure that those households can access the scheme, because it is harder for them to convert their house?
Absolutely; I could not agree more. In Bath, we have a lot of old, leaky homes. They are very beautiful, but they are not particularly energy efficient. People really want to do something, but ECO4 does not work for a very large number of households. If we really want to help vulnerable people and tackle the climate emergency, we must look at how the scheme has been designed and make some improvements to it. The two-jump requirement is particularly difficult in old properties.
The Government must take urgent action and improve ECO4, in order to protect the most vulnerable from cold winters and tackle the climate emergency as soon and as effectively as possible.
It is a pleasure to speak in this debate and serve under your chairmanship, Mr Paisley; I have done so in the past, and hopefully I will do so again in the future. I congratulate the hon. Member for Ceredigion (Ben Lake) on his passion for this issue. His dulcet Welsh tones seem to flow, unlike my Ulster Scots accent, which does not come anywhere near his. Like him, I have a number of park homes in my constituency that have lacked support during this great energy crisis. He has spoken about this issue in the Chamber, including in an Adjournment debate; he has been very much at the forefront of raising it, and I thank him for that.
I read with interest that Ofgem stated at the end of March that the Great British insulation scheme, which was previously referred to and consulted on by the Department for Energy Security and Net Zero under the name ECO+, will allow early delivery from 30 March 2023, and will run until 31 March 2026. On 5 April, Ofgem published a consultation, through which it sought stakeholder views on its proposed administration of the policies set out by the Department for Energy Security and Net Zero and included in the Electricity and Gas (Energy Company Obligation) Order 2023. The consultation covered areas where Ofgem exercised its discretion in administering the new legislative provisions for ECO4, and proposed further improvements to current policies.
That is where we are. That is why the hon. Gentleman raised this issue, and why it is important that we understand it better. We look to the Minister for a positive response, and I look forward to the contributions from the two shadow spokespeople. The hon. Member for Bristol East (Kerry McCarthy) has a deep understanding of these issues and brings her knowledge and interest to the debate.
We have seen the havoc wreaked by protesters, who have destroyed pieces of art, and caused disruption on motorways, to the extent that ambulances have been stuck, and people have missed operations and work. The discussion about insulation and necessary improvements has been lost in the wanton disruption caused by people who have a sound message—that is not in doubt—but whose methods do not encourage debate. Instead, they encourage righteous indignation and, in some cases, anger. That is why I am grateful to the hon. Member for Ceredigion for bringing the discussion back to where it needs to be—in this House, in Westminster Hall. Here, we can do our jobs and advocate for the change that the protesters want, but in the right way. I commend the hon. Member for that.
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It is perhaps not surprising that Ceredigion does so badly, when we consider that 35% of our homes were constructed in the 19th century. It is sobering to reflect on the fact that the vast majority of the county’s 2050 housing stock has already been built, more than a third of it in the Victorian age. The case for action is, therefore, quite clear and simple. We need to upgrade the energy efficiency of our housing to reduce people’s exposure to increased energy costs. Almost a quarter of tenants in the private rented sector live in fuel poverty, with those living in the least efficient homes spending as much as £950 more per year on their energy bills, compared with homes rated EPC level C.
The UK Government have made the case that it is unsustainable to maintain support indefinitely for households with energy bills. By retrofitting, we can mitigate the need for ongoing and future support packages. Indeed, the New Economics Foundation estimated that had all homes in England and Wales been upgraded to EPC level C by October last year, the energy price guarantee would have cost £3.5 billion less over its first six months and households would have saved an average of £530 over the year.
Of course, retrofitting would also have significant beneficial outcomes for health. We know that living in a cold home can worsen asthma and other respiratory illnesses, and increases the risk of heart disease and cardiac events. It can also worsen musculoskeletal conditions such as arthritis, as well as having a detrimental impact on mental health. Wales’s Future Generations Commissioner estimated that a comprehensive home retrofitting programme could save the Welsh NHS as much as £4.4 billion by 2040 by tackling some of those health issues.
Finally, reducing household energy demand is of course vital for us to improve energy security, reduce our reliance on fossil fuels and, of course, realise our climate targets. A coalition of charities, including Fuel Poverty Action and Green Alliance, have warned that without action on housing and buildings, there is no plausible path to achieving the fifth carbon budget or meeting the 2030 statutory fuel poverty target.
It is clear that home retrofitting is vital and that action taken now will place the UK in a good position in the future. The UK Government’s flagship fuel poverty reduction scheme, the energy company obligation or ECO, has a key role to play in upgrading our homes to permanently reduce the cost of heating for households and to address fuel poverty. ECO has operated since 2013 in several iterations and up to March of this year it had delivered a total of 3.6 million energy efficiency measures in Great Britain. The energy performance improvements that have been delivered have saved low-income customers as much as £17.5 billion in lifetime energy bills and saved the average home some £290.
ECO4 is, of course, the fourth iteration of the scheme. It began in April last year and is planned to run until March 2026. In the past year, however, installations have dropped quite significantly. All versions of ECO have experienced difficulties in some form or other, but ECO4 has undoubtedly been delivering at a slower rate than previous iterations. Energy suppliers and installers are now warning that structural issues are preventing the scheme from fulfilling its potential and I want to dwell on those issues today.
Between April last year, when ECO4 commenced, and March this year, approximately 45,000 households had received support under the scheme. Given that that is around 10% of the 450,000 households that the scheme is supposed to support over its four-year lifetime, there is concern about the pace of the roll-out so far. One reason might be that the number of measures installed per property during the roll-out of ECO4 to date has been much higher than expected, with an average of nearly 3.5 measures per property since April 2022 compared with the average of 1.8 measures expected in the scheme’s final impact assessment. In the first quarter of 2023, the figure increased to an average of 4.93 measures per household.
E.ON Energy estimates that, as result, industry could achieve its overall national bill saving target by delivering ECO4 to only 215,000 properties of the 450,000 targeted. Of course, it is not a bad thing that energy efficiency is being significantly improved for those households supported by ECO4, but it raises a question about the adequacy of the funding in place if ECO4 is to achieve its target of supporting 450,000 households, as I am sure that Members will agree.
It is suggested that the requirements are making it difficult to find eligible properties, and installers are reporting difficulties in proving how properties in higher EPC bands, such as those in band D, as well as on-gas properties, can meet the requirements. E.ON Energy estimates that around 90% of qualifying fuel-poor households cannot have works delivered to their properties, as either they fail to meet the minimum requirements threshold or it would be economically unviable to upgrade them to the levels required to meet it.
One of those factors is the nature of the housing stock in an area, and I have already mentioned that Wales has some of the oldest and least efficient housing stock in western Europe. I spoke to representatives of Gwynedd Council, who expressed concerns that the products available via ECO do not always work well with the design of older houses.
Another suggestion is that we investigate the possibility of extending the buy-out mechanism, so that others besides energy suppliers can take on obligations, and enable local councils to deliver ECO. Other suggestions are: making long-term funding available for training, so that we can boost the supply chain, and considering measures to boost recruitment and careers in the retrofitting energy efficiency industry; ensuring continuous and open engagement with installers, energy suppliers and other industry and fuel poverty experts, to guarantee that the scheme remains on the right track and to ensure that the UK Government can respond effectively to any future issues that arise; and finally, exploring the possibility of expanding the range of technologies that will be considered in scope in future iterations of ECO4 to, for example, water control technologies, which can help bring down the cost of energy used to heat water.
I will briefly touch on ECO+ or, as it is now known, the Great British insulation scheme. I of course welcome the scheme, which is designed to support households in installing single energy efficiency measures in their homes, but again possible adjustments could vastly improve delivery. Can the Minister say what consideration has been given to refining the scheme’s targeting, so that it better helps fuel-poor households? For the majority of the scheme, households are expected to make a financial contribution to the cost of the measures. That will effectively make a large proportion of the scheme inaccessible to the lowest-income households, which cannot afford to make those contributions. In a cost of living crisis, when disposable income is diminishing across the UK, surely the requirement for contributions should be taken out of the scheme, or the percentage of participants who are expected to make contributions should to be lowered.
It would be remiss of me not to mention that I have heard from constituents who were unfortunately let down by contractors delivering measures under the ECO4 scheme. Of course, any measures installed are now covered by the UK Government-endorsed quality scheme, TrustMark. I appreciate that incidents of poor delivery may be isolated examples, but in those worst-case scenarios where delivery goes horribly wrong, the protection and security for households is still inadequate.
The cost assumptions made in the ECO4 assessment are outdated and unrealistic. The modelling used to set ECO4 targets was based on estimated costs in 2021 prices, with an allowance for general inflation over time. Since that assessment was made, inflation has soared. December 2022 saw inflation having risen by 9.2% in the previous 12 months. That is more than three times what Ofgem projected it to be.
The costs of delivery far exceed what Ofgem has accounted for. Loft insulation is, on average, 430% more expensive, cavity wall insulation is 372% more expensive, and external wall insulation is 147% more expensive. The Government should ensure that those costs are taken into account and must match the cost of measures in ECO4 with inflation. That is the main point that I wanted to make; the 2021 estimates do not take into account the soaring inflation that we have seen over the past year.
The ECO4 criteria restrict the number of homes that can be improved. The eligibility requirements set out that the homes must be improved by at least two EPC bands, which makes it hard to find suitable homes. Energy Efficiency Infrastructure Group members estimate that 90% of qualifying homes miss out because they are unable to meet the minimum requirements of the scheme. To illustrate my point, E.ON attempted to deliver energy-efficiency measures to a three-bed mid-terrace property in Dagenham. The owners of the property qualified for ECO4 as their home was rated EPC band E and they were living in fuel poverty. The package of measures that E.ON proposed would have saved the family about £600 a year on their energy bill, but the installation was rejected because the measures would not improve the house enough to make it jump two EPC bands.
When it comes to tackling the climate and cost of living crises, every little helps, so why is the ECO4 scheme making perfection the enemy of the good? The Government should relax the minimum requirements when all reasonable measures have been installed in an eligible household. That would ensure that vulnerable households could still receive much-needed support. To tackle the cost of living and climate crises, we must improve the energy efficiency of our homes. We must do all that we can to ensure that the ECO scheme benefits as many people as possible, as soon as possible.
I read the hon. Member’s piece in Politico last year. His words are worth repeating, so I will quote them. I am not trying to embarrass him, but his words were very salient:
“We know that households in the least efficient properties have energy bills that are twice the cost of the most efficient homes. There is a statutory target to upgrade the energy efficiency of all fuel-poor households to EPC C by 2030 and all households to EPC C by 2035. Government needs to ensure that it follows through with its existing commitments. Ensuring the ECO 4 legislation is prioritised in Parliament to maintain installation rates, making swift decisions on minimum energy efficiency standards in the rented sectors and meeting its manifesto commitment to spend £2.5 billion on the Home Upgrade Grant this Parliament.”
Those words are even more relevant today, and I commend him for that. Each of us fully supports him. It also shows that we read the magazine—some people wonder whether we do. I look through it to see whether I know any of the authors, and I always catch up on it.
I support the hon. Member’s efforts to hold the Government to account on this issue, to the betterment of all. I always like to give an example from back home. My parliamentary aide bought a property that had been lying vacant for years. It had no heating and needed a total refurb, which was reflected in the price. When she looked into insulating that property, she could not afford to do it as well as all the other work—the new flooring, new kitchen, and new bathroom, and the work on the heating, the garden, and the front. There was lots of work to do. She is a clever girl—she writes all my speeches and interventions, so people must know that she is exceptionally clever and busy. She knows that in the long run the insulation will save money, but given the demands on the joint wages of her and her husband, and given that she is raising two children, with only child benefit to help, I understand why she made that choice. It would have been better to do the insulation, but people’s money does not stretch that far. That is why this debate is so important. The scheme gives a wee bit of a helping hand, and nudges and assists people.
We need to help more people like my parliamentary aide to do the right thing—people who get little or no help from the system as a rule, and who work extremely hard. We are talking about people who are environmentally conscious; she washes out her yoghurt pots at 11 pm at night after writing a speech for me. People want to do the right thing by the environment. I support them. We must do the same. I look to the Government and the Minister here; they can start by fulfilling their obligations, and can move on from there.
I know that the Minister is listening. I hope that we can have a positive answer, and that she will reinforce the fact that I do not need to throw orange powder around the streets, or over the Minister or my colleagues, to make my point. Orange is a good colour, Mr Paisley—you know that—but I still would not do that. My point is that insulation makes sense. We all agree that those who highlight the issues may use different methods—in this House, we use dialogue and communication—but they are trying to make change. Let us get buy-in from the average person, who his making sacrifices, and prove that we are in it with them. I am here on behalf of my constituents. The hon. Member for Ceredigion, and everyone who has spoken and will speak, is here to do the same thing. We can do it, but we need the Minister’s help to get over the line.