Reeves’ regressive changes to retrofit policy will hit fuel-poor households the hardest

This is an uncharacteristically regressive policy for a Labour government. The chancellor estimates that UK households will save £150 a year on bills from scrapping ECO. That’s not quite true. At £1.3bn per year across 27 million households, ECO costs around £50 to bill payers. 

Nevertheless, that’s £50 a year off bills (including for the top 1% of income tax payers, roughly 310,000 people make over £160,000 a year), paid for by 222,000 households earning less than £31,000 a year who will now have to choose between heating and eating.

Low-income private renters and poorer owner-occupiers will be hardest hit. About three-quarters of ECO funding goes to private tenures today. To qualify for ECO, a household’s total income must be below £31,000, including benefits and pension. This is not a subsidy for the middle class. 

And while separate grant programmes for social housing exist – such as the Social Housing Decarbonisation Fund Wave 2.1 and Warm Homes: Social Housing Fund Wave 3) – the government has only released £500m Warm Homes: Local Grant money through until 2028-29. This comes to around £125m a year, compared with the nearly £1bn a year in ECO funding that goes to fuel-poor private households today.

The decision also means working people will lose jobs. ECO directly supports around 10,000 construction roles in the UK. Shutting this industry down is equivalent to closing the Jaguar Land Rover Solihull plant or the Sellafield nuclear site – the UK’s two largest manufacturing centres. With no clear successor to ECO (Warm Homes Wave 3 is still largely delayed and the wider Warm Homes Plan has not been released), the retrofit industry is about to grind to a halt. 

As a result, there will now be a period of frenzied competition. ECO installers will try frantically to snap up the smaller pool of work under Warm Homes schemes.

 Two Warm Homes tranches, the Local Grant and Social Housing Fund, are collectively worth around £3bn through until 2028-29. ECO funds £1.3bn a year, or around £5bn over the same period, so a supply chain currently geared up to deliver about £8bn worth of work will be competing over just £3bn. This means ever lower bidding, inevitably reducing quality. SMEs will be the first to go and people will lose their livelihoods.

We’re also about to spend a huge amount more on administration. For all its faults, ECO, being a market-based programme, is efficient. Since 2013, 6% of funds have been spent on administration (£620m versus £9.9bn on delivery costs). This compares with 15% of the government-run Warm Homes programmes earmarked for administration. 

There are certainly issues with ECO – anyone in this sector would agree. However, it has also been the largest driver of retrofit in this country by some margin – upgrading more than 58,000 homes a year, compared with the 25,000 homes delivered to date across the entire three-year Social Housing Decarbonisation Fund Wave 2.1 programme, according to the latest figures.

“Shutting this industry down is equivalent to closing the Jaguar Land Rover Solihull plant or the Sellafield nuclear site – the UK’s two largest manufacturing centres”

It makes sense to streamline two grant programmes (ECO and Warm Homes) into one and simplify the rules. But the government has not shown it can deliver the funding it already has – either through national programmes or devolved projects. The Warm Homes: Social Housing Fund is already delayed by eight months. 

That’s equivalent to £403m that has been allocated and is sitting unspent. The chancellor has slammed the brakes on the only market-based programme that is delivering at scale and simply thrown more funding at local authorities already struggling for delivery capacity.  

To make any of this work, the government should confirm a nine-month extension to ECO4, the latest iteration of ECO. This would allow an orderly transition to Warm Homes. 

Central government must also support local authorities to deliver at scale. Councils will not be able to ramp up staffing in time to deliver additional funds. The government should earmark funding for contract administration and project management, allowing managing agents to distribute funds to the supply chain (something that has been a core part of ECO’s delivery speed, creating an efficient marketplace). Managing agents are already geared up to do this from delivering ECO’s much larger volumes. 

It’s easy to get into a philosophical debate about government-led versus market-based solutions to retrofit. That’s an argument for another time. If we’re going to deliver through the government-led Warm Homes Plan, we need to first see what that plan actually is. 

Then, the government needs to prove it can effectively administer retrofit at scale – taking the best from ECO’s market-based solutions with the higher quality bar that Warm Homes promises.

It must, or 222,000 low-income households will pay the price for a Westminster political philosophy debate. 

Anna Moore, chief executive, Domna