Reform Plan to End ECO Funding: Environmental & Financial Risks

Reform UK’s Proposal to End ECO Funding: Assessing the Environmental and Financial Implications

Reform UK, a political party positioned to challenge the current political consensus, has recently proposed the termination of all Energy Company Obligation (ECO) funding for domestic properties in the UK. While the party claims this move aligns with its broader agenda of reducing energy levies and cutting bills for households, this policy position warrants closer scrutiny.

In practice, such a decision could have profound consequences for the UK’s economy, its environmental commitments, and the financial welfare of its citizens.

This analysis explores the potential repercussions of discontinuing ECO funding, focusing on three core dimensions: environmental impact, financial ramifications for households, and the broader socio-economic costs for the UK.

The Energy Company Obligation (ECO): A Critical Instrument in Enhancing Energy Efficiency

ECO is a government-mandated scheme requiring energy suppliers to help households improve the energy efficiency of their homes. Launched in 2013, the programme has evolved through various iterations (from ECO1 to the current ECO4) and operates as a vital tool in achieving the UK’s net-zero targets. It funds energy-saving measures such as wall insulation, boiler upgrades, heat pumps, and other efficiency-enhancing technologies, particularly targeting low-income, fuel-poor, or vulnerable households.

Critically, ECO funding plays a dual role:

Environmental Benefits: By reducing overall energy consumption, ECO reduces greenhouse gas emissions, aligning with the UK’s legally binding carbon neutrality goals by 2050.

Financial Relief: Home energy efficiency upgrades help households lower their energy bills—a crucial consideration amidst persistently high energy prices.

Economic Growth: ECO stimulates the green construction industry, creates jobs, and incentivises the development and deployment of sustainable technologies.

Reform UK's intent to eliminate this funding abandons a proven mechanism for addressing climate change and alleviating energy poverty.

Environmental Implications: A Step Backwards in Climate Commitments

The UK has heavily committed itself to reducing greenhouse gas emissions, with the Climate Change Act (2008) serving as the legal foundation for emission reduction targets. Within this framework, ECO has facilitated tangible progress.

For example, according to official government statistics, ECO schemes since 2013 have subsidised energy efficiency improvements in over 3.5 million homes. These improvements contribute directly to lowering household energy consumption, reducing Britain's dependency on fossil fuels, and mitigating carbon emissions.

Removing ECO funding risks stalling, or even reversing, this progress. Without financial assistance, households are less likely to undertake costly energy efficiency upgrades. As a result, energy demand remains static or rises, perpetuating emissions from power generation.

Furthermore, delaying energy upgrades now will make it significantly harder to meet key interim targets, such as reducing emissions by 78% by 2035 compared to 1990 levels. Non-compliance with these milestones will not only incur penalties under international agreements but will also damage the UK's reputation as a global leader on climate change.

Reform UK’s proposal thus disregards the long-term environmental costs attached to near-sighted fiscal policy.

Financial Implications: Higher Costs for Households and the Economy

On the surface, cancelling ECO funding might appear to reduce energy bills by removing green levies. However, detailed analysis suggests that the opposite is likely true over the medium to long term.

Higher Energy Bills

Energy efficiency measures such as wall insulation or the installation of modern boilers have a demonstrable effect on reducing energy bills. For example, insulating a gas-heated semi-detached house can save an average household £300-£1000 annually on heating costs. Eliminating ECO funding—on which many low-income households rely—would make these upgrades unaffordable, locking vulnerable households into high energy costs for years to come.

Fuel Poverty

According to the government's own figures, approximately 3.26 million households in England alone were experiencing fuel poverty in 2022. ECO support has been vital in tackling this issue, enabling low-income households to improve their energy efficiency and reduce heating costs. Scrapping this funding risks deepening the fuel poverty crisis, with dire consequences for public health, particularly during harsh winters.

Increased Public Expenditure

Leaving homes inefficient can increase the reliance on government support in other ways. For instance, higher energy costs can drive demand for heating subsidies, while the health impacts associated with poorly heated homes can strain NHS resources. Consequently, while ECO funding represents a cost to the government, its removal could lead to greater financial burdens elsewhere in the public sector.

Economic and Employment Impact: Undermining the Green Economy

The ECO programme not only benefits individual households but also drives economic growth and employment within the energy efficiency and construction sectors. Insulation manufacturers, heating engineers, and contractors collectively form a critical workforce that supports the UK's green economy.

Ending ECO funding would damage this industry. Consider the supply chain effects: reduced demand for energy efficiency upgrades would ripple throughout the sector, reducing output, eroding private investment, and resulting in job losses. At a time when Britain’s economy is navigating post-pandemic recovery, any reduction in green sector productivity could undermine growth prospects further.

Moreover, a diminished green economy weakens the UK's competitiveness in the global transition toward sustainable industries. In this context, Reform UK's proposal risks squandering opportunities for innovation, market leadership, and export growth in fields such as high-efficiency building technologies.

Reform UK's Economic Argument: Flawed and Shortsighted

Reform UK has argued that abolishing ECO funding—effectively cutting so-called 'green levies'—would reduce energy prices. While this may deliver marginal short-term savings, it fails to consider the broader context in which energy costs are determined.

Wholesale energy prices are the dominant factor in determining consumer rates, and rising global gas prices in recent years have been the principal driver of increases. Green levies, by contrast, account for less than 10% of an average household energy bill. Scrapping ECO funding may offer superficial reductions but could leave households exposed to higher costs in the long run, due to inefficiencies in energy use.

Conclusion: The Case Against Eliminating ECO Funding

Reform UK’s plans to abolish ECO funding for domestic properties reflect a narrow focus on short-term cost reductions at the expense of long-term environmental and financial stability. This policy fails to account for the critical role ECO funding plays in reducing emissions, lowering energy demand, alleviating energy poverty, and fostering growth in the green economy.

From the perspective of stakeholders—be they policymakers, energy providers, or households—the implications are clear: rolling back ECO funding risks amplifying greenhouse gas emissions, trapping households in higher energy costs, and undermining economic progress in a high-growth, future-facing sector.

Decisions on energy policy must consider the interconnectedness of environmental, social, and economic factors. In this regard, the proposed eliminations of ECO funding fall far short, presenting a step backwards for the UK at a time when bold leadership on climate and energy is more critical than ever.