Why privatised delivery models cannot deliver quality retrofit

A recent government report has revealed the catastrophic failure of Britain’s largest home energy efficiency programmes. Under the Energy Company Obligation (ECO4) and Great British Insulation Scheme (GBIS), 98% of homes with external wall insulation and 29% with internal wall insulation (also known as solid wall insulation) have been found to have major issues requiring remediation. These failures affect between 22,000 and 23,000 homes with external wall insulation and between 9,000 and 13,000 homes with internal wall insulation. The consequences are severe: water ingress, mould growth, and in the most extreme case documented, damage costing more than £250,000 to repair.

This is not simply a story of inadequate oversight or accountability. Rather, it represents the fundamental inadequacy of the privatised, market-driven model for delivering government-backed retrofit programmes. Trying to achieve high-quality retrofits through subsidies to private contractors, who are structurally incentivised to minimise costs, creates conditions in which widespread failure becomes almost inevitable.

ECO4 and GBIS are both supplier obligations – energy efficiency programmes overseen by government but delivered by private energy companies and contractors. Energy companies, which are required by government to reduce carbon emissions in the housing stock, contract certified installers, who in turn routinely subcontract to workers who are neither competent nor registered with TrustMark, the designated quality assurance body.

The National Audit Office (NAO) report concludes that the scheme incentivises them to “minimise costs to maximise profits, risking installers cutting corners” (p. 52). This leads to substandard workmanship and poor design. If roof eaves have not been extended to cover external wall insulation, for example, water will leak in. Installing insulation without adequate ventilation will make indoor air moister and lead to mould growth.

Although supplier obligations are government-backed, their oversight is designed to operate at arm’s length from the Department for Energy Security and Net Zero. The NAO report describes an overly complex structure with fragmented and poorly understood roles across multiple organisations – DESNZ, Ofgem, TrustMark, the United Kingdom Accreditation Service, certification bodies, and scheme providers – where senior leaders assumed the system was functioning correctly until pervasive failures were uncovered.

Some commentary following the report’s publication has suggested that solid wall insulation itself is problematic and should be deprioritised. But without solid wall insulation, Britain’s older housing stock – especially Victorian and Edwardian homes – will remain cold, draughty and costly to heat. When properly installed, solid wall insulation delivers significant energy bill savings and transformative improvements in thermal comfort for households living in cold, damp conditions.

The measure is undoubtedly more technically complex than loft insulation or cavity wall insulation which can be used in postwar homes, but complexity does not mean that failure is inevitable. What the evidence demonstrates is that the privatised delivery model cannot reliably handle that complexity.

The comparative performance of retrofit schemes delivered by social landlords and local authorities is instructive. The Social Housing Decarbonisation Fund and Home Upgrade Grant show failure rates of 10-12% for external and internal wall insulation. Whilst still unacceptably high, when funding is allocated directly to public or quasi-public bodies with clear accountability structures, poor quality installations are less common. However, these schemes still rely on private contractors to install measures.

The majority of Britain’s collective investment in retrofit continues to flow through supplier obligations rather than public programmes. Given the evidence of systemic failure in the supplier obligation model, this allocation of resources is no longer defensible. The supplier obligation should be ended, with funding redirected to building the public delivery capacity necessary to achieve high-quality retrofit at scale.

Public programmes should develop Direct Labour Organisations (DLOs) – publicly owned workforces with fair pay, secure contracts, and training programmes. Local authorities maintained DLOs for housing throughout the twentieth century, and many still do today. At Glasgow City Council’s City Building – one of Scotland’s largest construction firms – all staff are permanent employees, the organisation provides a comprehensive four-year training programme, and the unionisation rate is nearly 100%. A workforce without commercial pressure to minimise costs, involvement in retrofit projects from design through to handover, and clear chains of command and accountability is fully capable of installing high-quality solid wall insulation.