Electricity and Gas (Energy Company Obligation) (Amendment) (Specified Period) Order 2026

Monday 9th March 2026 Grand Committee

Considered in Grand Committee

18:09

Moved by

[Lord Whitehead]

That the Grand Committee do consider the Electricity and Gas (Energy Company Obligation) (Amendment) (Specified Period) Order 2026.

[The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)]

My Lords, this draft order was laid before Parliament on 26 January 2026. This Government remain fully committed to ensuring that households, particularly those on low incomes or at risk of fuel poverty, can live in warmer, more energy-efficient homes that are affordable to heat. At the heart of this endeavour lies the new warm homes plan, a comprehensive and long-term strategy to reduce energy bills, alleviate fuel poverty and enhance energy security. We have committed to investing £15 billion—the biggest-ever public investment to upgrade British homes and cut energy bills. Of this amount, £5 billion is allocated to support low-income households.

The energy company obligation—ECO—has played a key part in helping households to reduce their energy bills. The energy company obligation was first launched in 2013. Since its launch in 2022, ECO4 has delivered slightly over 1 million energy-saving measures to approximately 300,000 households. The scheme places an obligation on the larger energy suppliers to deliver energy-efficiency improvements to vulnerable and fuel-poor households that result in measurable bill savings.

While ECO4 has delivered a significant volume of home energy-efficiency improvements, it has not been without challenges, as set out recently by the National Audit Office, among others. There have been widespread, systemic issues in the delivery of solid- wall insulation, which we have taken urgent steps to tackle. We are bringing forward comprehensive reforms to the retrofit consumer protection system to make it stronger, more transparent and more accountable so that this cannot happen again. We expect all installers to ensure that households receive timely and high-quality remediation of any non-compliance identified.

Given these systemic issues and inflation that is still too high, we have taken the considered decision not to replace ECO4, therefore easing pressure on household energy bills. This, in combination with the Government funding 75% of the domestic cost of the legacy renewables obligation, will remove around £117 of costs on average from household energy bills across Great Britain.

This statutory instrument introduces a small and necessary change to the existing scheme by extending the end date of ECO4 by nine months from 31 March to 31 December 2026. This extension provides obligated suppliers with additional time to meet their existing targets and, most importantly, it allows them time to focus on remediation of non-compliant installations. I emphasise that the instrument does not change targets, impose new obligations, or increase supplier costs or consumer bills.

As I conclude, I thank the Secondary Legislation Scrutiny Committee for its consideration of this instrument and for not drawing it to the special attention of the House. The changes made by this instrument, which is in essence a very simple one, are limited but important. By extending ECO4, we are ensuring a stable period of delivery and an orderly closure to the scheme, and are safeguarding consumers. I beg to move.

[Earl Russell (LD)]

My Lords, I will respond on the Electricity and Gas (Energy Company Obligation) (Amendment) (Specified Period) Order. While appearing to be only a minor adjustment today, this SI is important, as it involves the need to protect the most vulnerable in our society from poorly insulated homes and fuel poverty.

The ECO4 scheme has been a fundamental component of our national strategy to address the dual crisis of fuel poverty and the climate emergency. We have always supported its ambition to reduce the costs of heating for low-income households. This amendment seeks to extend the scheme’s duration by nine months to 31 December 2026. The reasons for doing this require a little bit of scrutiny. The Government say that this extension is necessary for the remediation of non-compliant installations and to ensure the orderly closure of the scheme.

18:15

The truth is, as the Minister alluded to, that remediation is really due to the very significant volume of work that has already been carried out under this obligation that was substandard or failed to meet the necessary criteria. The level of poor and incompetent work done to date is, obviously, deeply concerning for all of us. We believe that the quality is as important as the targets themselves.

Can the Minister say a few words about how many families have been living in homes where the promised energy efficiency measures were installed so poorly that they now require remediation? Can he give any information on the percentages of ECO4 installations affected, particularly in relation to cavity wall insulation where there have been complaints?

I am not against the Government’s strategy. We welcome the warm homes plan. We are not necessarily against ending ECO4. I also recognise that much of this predates this Government. As the Minister said, the Government have taken considerable action to deal with these past problems. They are conducting audits and systematically checking, and there are plans to try to make sure, through either removing trademarks or cost recovery, that schemes actually deliver the home insulation to the standard that we require.

I want to ask the Government about the decision to leave the annual bill savings target stagnant. I am just a little bit concerned about this. As was talked about in the last SI today, we have a new energy crisis because of events in the Middle East, and we still have millions of homes facing fuel poverty. Can the Government really justify nearly a year of long extensions that does not include a corresponding increase in the obligation? By failing to raise these targets, are we not effectively just giving a free pass to the big energy suppliers in this delivery of these programmes?

I wanted to also ask about the absence of a full impact assessment with the SI. The department asserts that this is because

“There is no, or no significant, impact on”

the private or voluntary sectors. I want to just question that a little bit. This is a nine-month delay in the completion of a multi-billion-pound energy efficiency programme. To my mind, that most certainly has impacts. It has impacts on supply chains, and they need certainty. It has impacts on local authorities, which are trying to co-ordinate these efforts. It has impacts on households, which are waiting for work to be put right where they need remediation.

While the scheme is extended, a hard deadline of 31 March 2006 is set for certain applications regarding innovation and data-light measures. Why are we closing the door on innovation for nine months before the scheme itself ends? I just want to clarify: is this because the Government are expecting these areas to be picked up in the warm homes plan? Is that where that stands?

Finally, I must ask about the transition after December 2026. The Explanatory Memorandum talks about an “orderly scheme closure”, and obviously we are moving over to the warm homes plan. When we talked about the warm homes plan, we talked about the need for suppliers, installers and the industry not to have a cliff edge. Can the Minister confirm again that there will be an orderly co-ordination between the end of the extension of this scheme and the picking-up of the warm homes plan, so that the industry will be able to cross that continuation without any financial problems?

With the SI, we have the extension, and then we have a hard end to that. What happens if, during the period when all the remediation work is being done, there are problems with that work itself? Obviously, we all hope that there will not be any further problems but, if there were—particularly with trying to fix cavity-wall insulation, given where that has gone wrong and where the fixes do not work—where would recompense and fixing all that fit in, considering that this scheme ends in December 2026?

[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank the Minister for his introduction of this statutory instrument. This order extends the energy company obligation end date by nine months to ensure an orderly transition for consumers and suppliers to help meet existing targets. This extension was determined following consultation and following the calls of business. On that basis, we on these Benches support the order.

The ECO was established to help households reduce energy consumption and lower heating costs. Since it was launched in 2013, around 4.4 million measures have been installed in 2.6 million properties, up to the end of September 2025. ECO4 is the latest version of that scheme, beginning in 2022. It has meant that approximately 949,800 measures have been installed in around 281,000 households.

It is of course right that, where there were non-compliant installations, installers fund the repair work, overseen by Ofgem and insured by further on-site audits. We have already committed to working cross-party to ensure that affected households receive the remediation they deserve. We understand that the Government now seek to end this scheme and replace it with their warm homes plan to provide loans and grants to households instead; indeed, they have claimed that this will result in a £150 cut from the average household bill.

However, although the end of the ECO scheme means that households will no longer pay the levy through their energy bills, the new plan will be funded through taxation. There is no clarity, therefore, that this will end up saving taxpayers money in the long term; indeed, the new taxpayer funding initiative, coupled with rising energy costs—particularly now—and already high installation costs, mean that it looks increasingly unlikely that the Government will be replacing the ECO with an improvement. Have the Government made any assessment of how much taxpayers will save overall? To what extent are these projections reliant on projected energy costs, which will now be redundant? Oil prices are already 50% higher than in the OBR’s projection last week.

I appreciate that these questions are about issues that are outside the Minister’s control, but they have ramifications for the Government’s policy. Is it really wise to push forward with tax-and-spend green policies, which will likely do little to reduce costs, at a time of global instability? I understand that these are also developing events and that they do not directly relate to the functioning of the ECO.

Returning to that, it would be helpful to clarify how much money taxpayers will now be expected to pay to cover the cost of this new extension period. As I have stated, I support the extension to ensure an orderly transition, but the public must know what they will pay. I restate our support for this order to help consumers and suppliers but, more broadly, we remain concerned that the Government’s plan will, ultimately, not save taxpayers money. I look forward to hearing the Minister’s response.

[Lord Whitehead (Lab)]

I thank noble Lords for their constructive contributions to this afternoon’s debate; I hope to respond to their points in a similarly crisp and succinct fashion.

First, the noble Baroness, Lady Bloomfield, asked how much taxpayers will pay for the extension of the ECO. The answer is: nothing. The ECO will continue exactly as it has previously, except it will be extended by nine months. There will be no new obligations, only the continuation of obligations that are already in place. Of course, there will be an opportunity to make sure that the remediation that will be necessary for a number of treatments is carried out in good time, and will be sorted out and finished by the time the ECO comes to an end.

Of course, the ending of ECO4 will in itself save bill payers a considerable amount of money. Indeed, as the noble Baroness knows, ECO4 is, in effect, an obligation on energy companies, which they passed on to customers in the form of bills. Alongside the cost of some other legacy obligations, such as the renewable obligation, the removal of that obligation and the end of ECO4 will remove, as I said, around £117 of costs on average from household energy bills across Great Britain.

It is true that the new warm homes plan is underwritten from general taxation, but it is a substantial transfer from direct customer bills to general taxation, with the resulting saving that I have outlined. The warm home scheme is a far more far-reaching programme over a longer period, with a substantial investment of up to £15 billion in it. In the long term, that will be judged by the difference between what has been put in it and what has resulted from the energy savings coming about as a result of the warm homes plan— this will, obviously, be further savings to customers’ bills—as well as by the efficiency with which the warm homes plan is put into place.

The noble Earl, Lord Russell, asked about the arrangements for remediation in properties that the Government consider should be undertaken during the period of the extension of the ECO4 programme for nine months. As I am sure he will know, the NAO report considered that almost all of the external wall insulation measures had major issues requiring remediation; to put that into context, that is about 40,000 treatments, as compared with the 1 million-plus treatments that there were in ECO4 overall, but external wall insulation was a particular problem for the scheme. To a lesser extent, that applies also to internal wall insulation: 29% had major issues requiring remediation, and the NAO considered that a smaller number of treatments had possibly falsified claims attached to them.

Part of the task of this extension is to ensure that those remediations, which are down to the installers to put right, can be done during the period of the ECO extension. The noble Earl raised the possible issue of what the position is if we have got to the end of the period of extension and some of the remediations have not been done. I emphasise that these remediations are being done by obligated installers, first, but also under a strengthened trust mark arrangement for oversight, with increasing audits, site inspections and various other things as regards non-compliance detection and enforcement. So, the people who have to do that remediation will be known about, clearly, and Ofgem has taken the action of writing to all of the people who are possibly in a position where they can have remediation undertaken in order to offer them the opportunity to go on a register for remediation.

This is driven to some extent by installers and to some extent by customer demand for that remediation, and it is backed up by a strong code that makes sure that it gets done. Even if that strays beyond the end of the extension of ECO, it is not the end of the story as far as that remediation is concerned. It will be done. If it is in danger of life and limb it has to be done immediately, but if it is less serious, as it were, it has to be done during the course of that extension.

We think the Government have a good belt-and-braces position as far as those remediations are concerned, and that ECO can come to an end in an orderly fashion. That is quite important in terms of the issues that both the noble Earl and the noble Baroness mentioned about whether there is a cliff edge between what is happening with the end of ECO4 and the beginning of the warm homes plan. Among other things, this extension will mean that there is less of a cliff edge. Indeed, in conjunction with industry, the Government are active in holding round tables to enhance the ability of industry that has invested in ECO4 to transition to activity under the warm homes plan. I hope that it will not be such a cliff edge as the noble Earl mentioned and will run reasonably smoothly—if not necessarily entirely smoothly—into the warm homes plan itself, and therefore a lot of the investment that various companies have put into ECO4 can be realised through the warm homes plan.

Motion agreed.