ECO4 - What A Mess!

The ECO4 Scheme in 2026: A Critical Crossroads for UK Energy Efficiency

As the Energy Company Obligation 4 (ECO4) enters its final months — now extended to 31 December 2026 following a government consultation — the scheme finds itself at the centre of a perfect storm. What was intended as a landmark programme to lift vulnerable households out of fuel poverty has instead become a cautionary tale of systemic failure, fraud, and policy uncertainty. With the scheme winding down and no confirmed successor in place, the retrofit industry and the millions of households it serves face an uncertain future.

A Legacy Tarnished by Quality Failures

The most damaging blow to ECO4's credibility came in October 2025, when the National Audit Office (NAO) published a devastating investigation into installation quality. The findings were staggering: 98% of external wall insulation installations carried out under ECO4 required remediation for major defects, alongside 29% of internal wall insulation jobs. Between 32,000 and 35,000 homes across Great Britain were left with serious problems including damp, mould, exposed electrical cabling, and blocked boiler ventilation. In the most severe cases, roughly 6% of external insulation installations posed immediate health and safety risks to occupants.

The NAO placed blame squarely on "clear failures in the design and set-up of ECO4" and its consumer protection framework. Responsibilities were fragmented across DESNZ, Ofgem, TrustMark, certification bodies, and energy suppliers, creating what the report described as unclear accountability that allowed systemic failures to go undetected for years. An under-skilled workforce, rampant subcontracting to uncertified firms, confusion over applicable standards, and widespread corner-cutting all contributed to the crisis.

Compounding the quality failures, Ofgem uncovered suspected fraud worth between £56 million and £165 million, involving falsified claims for work on up to 16,500 homes. As of late 2025, neither DESNZ nor Ofgem had sufficient data to gauge the true scale of fraudulent activity within the scheme.

The Policy Gap Problem

In the Autumn Budget of November 2025, Chancellor Rachel Reeves confirmed that ECO4 would not be directly replaced after its conclusion. The scheme, which costs households approximately £1.7 billion annually through energy bills, was characterised as having cost 97% of fuel-poor families more than it saved. Instead, the government announced that removing ECO charges would reduce average household energy bills by around £150 per year, with an additional £1.5 billion in capital investment directed toward the Warm Homes Plan.

While the nine-month extension to December 2026 provides breathing room for remediation and an orderly wind-down, it explicitly does not expand the scheme's delivery targets. No new innovation measures or demonstration learning measures will be accepted during the extension period. The Great British Insulation Scheme (GBIS) ended as planned in March 2026 with no extension.

This creates a significant policy vacuum. The Warm Homes Plan, backed by £15 billion in promised investment, has yet to be fully published. Industry bodies including MCS have warned that the gap between ECO4's conclusion and any successor scheme will cause substantial damage to the retrofit supply chain, with installers reducing staff, pausing training, and delaying investment. Nearly 400 MCS-certified installers were actively delivering work under ECO4, and the abrupt end of funded work threatens the viability of many small and medium businesses in the sector.

Potential Solutions and the Path Forward

Addressing ECO4's failures and building a more effective successor will require fundamental reform across several dimensions.

First, quality assurance must be overhauled from the ground up. Industry voices have called for mandatory site-based inspection teams with genuine enforcement authority, proper separation between assessment, compliance, and delivery roles, and routing of funding through managing agents with a vested interest in compliance rather than directly to contractors. The PAS2035 standards already call for many of these safeguards — the issue has been enforcement rather than regulation.

Second, workforce development must be treated as critical national infrastructure. The UK faces a shortfall of approximately 250,000 skilled tradespeople needed for its retrofit ambitions. Any successor scheme must include embedded training requirements, apprenticeship pathways, and competency verification that goes beyond paper qualifications.

Third, the transition to publicly funded programmes under the Warm Homes Plan offers an opportunity to redesign accountability. Consumer-funded obligations like ECO created a complex chain where no single organisation bore ultimate responsibility. Direct public funding through the Warm Homes Plan could allow DESNZ to maintain clearer oversight, establish centralised fraud detection, and report transparently on quality outcomes.

Fourth, continuity mechanisms must bridge the gap between schemes. Structured carry-over arrangements, even if modest, would prevent the boom-and-bust cycles that have plagued the retrofit sector through successive policy transitions. The industry has seen this pattern before — the Green Homes Grant collapse of 2021 demonstrated how policy discontinuity destroys supply chain confidence.

Looking Ahead

ECO4's troubled legacy should not obscure the fundamental importance of its mission. The UK's housing stock remains among the least energy-efficient in Europe, and fuel poverty continues to affect millions of households. The lessons from ECO4 are painful but clear: ambitious retrofit programmes require equally ambitious quality frameworks, a skilled and properly regulated workforce, and policy stability that allows the supply chain to invest with confidence.

The Warm Homes Plan represents a chance to rebuild on stronger foundations. Whether the government seizes that opportunity or repeats the cycle of rushed implementation and retroactive remediation will determine not only the trajectory of the UK's net-zero ambitions but the wellbeing of the most vulnerable households who depend on these programmes most.