Watchdog MPs have called on the Department for Energy Security and Net Zero to refer two domestic-insulation schemes to the Serious Fraud Office after widespread failings left more than 30,000 homes with defects.
A National Audit Office report last year found poor installation work on two Energy Company Obligation schemes left 98% of external wall insulation and 29% of internal insulation with major issues that need fixing.
In their follow-up investigation, members of parliament’s Public Accounts Committee said senior officials at DESNZ had taken two years recognise the scale of problems with ECO4 and the Great British Insulation Scheme, launched under the last Conservative government.
MPs said the situation had led to many faulty installations that could have been avoided. “This is unacceptable and demonstrates very poor overall supervision,” they said.
The report adds: “The department designed the schemes in a way that exposes it to both poor quality work and fraud. It accepts there have been failures at every level of the system it designed. There was virtually no attention from senior officials and the department did not know whether the scheme as a whole was or was not working for at least two years.”
The PAC report notes that energy regulator Ofgem has so far only identified fraud worth 1.75% of the total value of relevant ECO schemes. But MPs said the figure is likely to be a “significant underestimate” because of the high levels on non-compliance identified. They added that no single organisation in the system has overall responsibility for tackling fraud – or the data to do so.
“We think it is inconceivable that with the high level of non-compliance the level of fraud will not be higher, and we think that the Serious Fraud Office should consider this matter,” MPs said.
They also made reference to DESNZ’s £15bn “Warm Homes Plan”, launched this week to drive the installation of solar panels, batteries, heat pumps and insulation to help reduce energy bills. MPs said it would be “vital” that measures introduced under the plan were accompanied by a “proper oversight of quality” that was lacking in ECO4 and the Great British Insulation Scheme.
‘The most catastrophic fiasco’
Committee chair Sir Geoffrey Clifton-Brown said that a 98% failure rate – as indicated with the external wall insulation conducted under the ECO scheme – represented “the most catastrophic fiasco” he had seen in his 12 years as a PAC member.
“Our report finds the project was doomed to failure from the start,” he said. “Government behaved inexplicably in redesigning a similar scheme which was working reasonably well into a highly-complex number of organisations with siloed responsibilities, which did not respond to failures anything like quickly enough to prevent damage being done to people’s homes.
“Potentially thousands of people are now living with health and safety risks in their homes, and despite government’s protestations we have nowhere near enough assurance that they are not financially exposed to unaffordable bills to repair the defective works.”
Clifton-Brown said DESNZ and other bodies involved in the scheme now needed to move “at far greater pace” to make the faulty installations good. In November DESNZ said it expected an audit of poor-quality work to have concluded within 15 months, and that repairs to affected properties should be completed by installers within a further 12 weeks.
“The public’s confidence will have rightly been shaken in retrofit schemes given what has happened, and government now has a self-inflicted job of work on its hands to restore faith in the action required to bring down bills and reduce emissions,” Clifton-Brown said.
He added that the correct thing for DESNZ to do was to refer the insulation schemes to the Serious Fraud Office.
Among their recommendations, MPs said DESNZ should review its risk-management and internal escalation systems so that issues identified within specific schemes are escalated swiftly and appropriately. They said this should apply equally to schemes funded through consumer levies as well as those directly funded by the taxpayer.
MPs added that the department should publish an annual report to parliament on all its retrofit schemes, their level of non-compliance and estimated fraud, and whether or not the schemes are working as intended.
They also said HM Treasury should amend its Managing Public Money guidance for senior officials to require a fraud-risk assessment on all new major areas of public spend to include levy-funded schemes instigated by the government, such as ECO.
DESNZ said it is working with Ofgem, TrustMark, certification bodies and others within the oversight regime to conduct audits to understand the extent of the issues with ECO insulation work.
The department said it had also suspended installers and introduced a “rigorous process for reinstatement” following remediation of issues at homes so-far identified to have problems.
A DESNZ spokesperson said it was “categorically untrue” that there were “widespread health and safety risks” resulting from the ECO insulation work.
“For the vast majority, this means a home may not be as energy efficient as it should be,” they said.
DESNZ did not address the call for a Serious Fraud Office referral or the performance of senior officials in its response.