Tens of thousands of households have been left with faulty insulation that could cause damp and mould, after Government failures in the design and oversight of its flagship home energy efficiency scheme, according to a new report by the National Audit Office (NAO).
The public spending watchdog found that 98 per cent of homes with external wall insulation installed under the £4bn Energy Company Obligation (ECO) scheme require work to correct major issues, and nearly a third of those with internal wall insulation also need repairs.
The NAO said weak Government oversight, an under-skilled workforce, and a “complex and fragmented” system of consumer protection had contributed to widespread installation failures and, in some cases, health and safety risks.
The Department for Energy Security and Net Zero (DESNZ) was not alerted to the scale of the problem until October 2024, despite introducing a new consumer protection framework three years earlier.
That system, led by TrustMark as the Government-endorsed quality body, failed to detect major quality issues until after media reports of severe mould in affected homes.
The report estimated that between 22,000 and 23,000 homes with external wall insulation and up to 13,000 with internal insulation will need remedial work.
Around 900 to 2,000 properties are thought to face immediate health and safety hazards, such as exposed wiring or blocked boiler ventilation.
‘Unacceptable failings’
Energy minister Martin McCluskey said the report “shows unacceptable, systemic failings in the installation of solid wall insulation in these schemes,” and that the Government had “inherited a flawed system of oversight and regulation” that allowed “unacceptably poor standards of work”.
McCluskey said the Government would offer every household with external wall insulation under ECO4 or the Great British Insulation Scheme a full, free on-site audit. It is understood that letters will be sent to those affected within the coming weeks encouraging them to take up this offer.
“No household should be asked to pay any money to put things right,” he said. Thirty-eight installers have already been suspended.
He added that the Government would now “go much further”, creating “a single system of oversight for retrofit work with consistent standards and processes for installers” and replacing the “fragmented, privatised” system with “clear centralised oversight” and “tough sanctions”.
The forthcoming Warm Homes Plan will ensure work is “right first time” and that “in the rare cases where things go wrong, there will be clear lines of accountability”.
‘Weak government oversight’
Sir Geoffrey Clifton-Brown, chair of the Committee of Public Accounts and Conservative MP for North Cotswolds, said the findings were “stark”, adding that: “The potential impact of major issues to the health and safety of affected households must not be understated.”
The ECO scheme, launched in 2013, requires energy suppliers to fund insulation and other efficiency improvements in homes, particularly for low-income households. The Government’s two current schemes — ECO4 and the Great British Insulation Scheme — run until 2026, with an expected £280m in annual energy bill savings.
However, the NAO found “clear failures in the design and set-up” of the latest versions, including unclear lines of responsibility between DESNZ, Ofgem and private certification bodies, and weaknesses allowing installers to “game” audits by switching between certification bodies.
TrustMark’s limited funding also delayed analytical monitoring until late 2024.
In addition, the NAO said that in November 2024 Ofgem estimated that businesses had falsified claims for between 5,600 and 16,500 homes, potentially claiming between £56m and £165m from the energy suppliers operating under the scheme.
Repairs must happen ‘as quickly as possible’
Gareth Davies, head of the NAO, said the schemes are crucial for cutting emissions and tackling fuel poverty but had been undermined by design flaws and poor execution. “DESNZ must now ensure that businesses meet their obligations to repair all affected homes as quickly as possible,” he said.
A spokesperson for Ofgem said: “We have written to more than 60,000 potentially affected households explaining next steps and set up a dedicated helpline.
“We will continue supporting Government, TrustMark and Certification Bodies to strengthen protections and improve communication in line with the NAO’s recommendations.”
Gillian Cooper, director of energy at Citizens Advice, said: “Better insulation makes homes easier and cheaper to heat when properly installed. But these stark figures show why trust in energy efficiency upgrades is being eroded, with rogue traders exploiting a patchwork of complex and ineffective protections.
“The Government must overhaul this failed system, repair trust, and ensure targets to reduce bills with energy-efficient homes are met.”
How do the retrofit schemes work?
The Energy Company Obligation, known as ECO, is a government programme that requires energy suppliers to fund energy efficiency improvements in people’s homes. First introduced in 2013, it is designed to cut carbon emissions and help low-income and vulnerable households reduce their energy bills.
The latest phase, ECO4, began in April 2022 and runs until March 2026, and is worth £4bn. It focuses on improving the least energy-efficient homes by installing measures such as wall and loft insulation, heat pumps, and upgraded heating systems.
The scheme is funded by medium and large energy companies, which must meet legally binding targets set by Ofgem, the energy regulator.
Alongside ECO4, the Government launched the Great British Insulation Scheme in 2023 to offer single insulation measures — such as loft or cavity wall insulation — to a broader range of households, including those not on low incomes but living in energy-inefficient properties.
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