Select Committee on Public Accounts Forty-Fifth Report


DEPARTMENT OF THE ENVIRONMENT, TRANSPORT AND THE REGIONS: THE HOME ENERGY EFFICIENCY SCHEME

INTRODUCTION AND SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS

1. The Home Energy Efficiency Scheme, which was established by the Social Security Act 1990, and operates in England, Scotland and Wales, provides grants towards the cost of energy efficiency measures in the homes of people on benefits, the disabled and the over 60s. The Scheme is overseen by the Department of the Environment, Transport and the Regions, although its administration is contracted out to Eaga Limited (referred to as Eaga in this report), a non-profit-distributing private sector company set up by the national energy efficiency charity NEA (formerly Neighbourhood Energy Action) specifically to administer the Scheme.[1] On the basis of a report by the Comptroller and Auditor General the Committee took evidence from the Department and from Eaga.

2. The Scheme has been successful in some respects: it has been effective in increasing the take up of energy efficiency measures amongst households in the qualifying groups, and some 2.34 million people have benefited from it since it began in 1991. We consider nevertheless that the Department now needs to exercise more positive oversight of the Scheme in the following respects:

  • targeting the Scheme's resources

    Take-up of grants has been disproportionately low among those living in private rented accommodation, where some of the poorest people live in housing with the worst energy efficiency. And, although draught-proofing is the least energy efficient of all the measures available, it has been chosen by over 70 per cent of the households benefiting from the Scheme. We expect the Department to take a stronger lead in promoting the measures that are most energy efficient and in ensuring that resources reach those who need them most.


  • monitoring Eaga's accumulation of reserves

    Eaga are generating substantial surpluses from their administration of the Scheme. By March 1997, they had accumulated reserves of £3 million, and their reserves are growing at a rate of £0.5 million a year. Yet despite the fact that the contract was awarded to Eaga in both 1993 and 1996 on a single tender basis, the Department included no clawback provision, and would have no share in the assets of the company should Eaga be wound up. We are surprised that the Department are not concerned at the level of Eaga's surpluses, and are not convinced by their confidence that they will be able to rely on voluntary re-negotiation of the contract should they ever judge the surpluses unreasonable. They should let the contract competitively when it comes up for renewal in 2001; and in view of the risk-free nature of the business ensure that there is a claw-back provision in any new contract for the administration of the Scheme.


  • ensuring competition among installers

    There have been wide variations in the cost of work done by installers, even for work on similar properties in the same area, and it is striking that some installers made almost all their claims exactly at the grant maximum. This may be a consequence of the way in which Eaga have limited the competition between installers. We recognise that Eaga have needed to ensure that their installers provide a reliable and high quality service to those people, many of them vulnerable and disadvantaged, whose homes have been treated under the Scheme. We consider that there is now scope however for the Department and Eaga to promote more competition between installers, so that more can be achieved from the funds available to the Scheme.


3. Our more specific conclusions and recommendations are as follows:

On the achievement of energy savings and improved comfort

    (i)    The Scheme has provided energy efficiency measures in the homes of some 2.34 million households on benefits, the disabled and the over 60s. However, the Department should consider whether more could be done to reach those in greatest need, particularly in the private rented sector and in the poorest households. It is welcome that the Department will be carrying out more research and considering the scope to target Scheme resources at those who may need it most and where it can be most effective (paragraph 13).

    (ii)    The Scheme enables installers to promote the energy efficiency measure most convenient or profitable for them, rather than guide the householder to choose the most appropriate measure. The Committee find it surprising that more has not been done to promote those measures which are most energy efficient, and that despite changes to the Scheme in July 1997 draught-proofing still accounts for around 70 per cent of work done under the Scheme (paragraph 14).

    (iii)    The Department should do more to measure the energy efficiency and benefits in terms of warmth and comfort delivered by the Scheme, and we note the further work the Department now propose (paragraph 15).

On the Department's agreement with Eaga
    (iv)    We are concerned at the reserves which Eaga have already accumulated, which appear well in excess of those needed for Eaga to meet their contractual liabilities and to fund their diversification strategy. By March 1997 Eaga had total reserves of £3 million, including £1.7 million not allocated to any specific purpose. At current rates of surplus, these reserves will continue to grow by £0.5 million a year (paragraph 28).

    (v)    It is surprising that the Department do not consider Eaga's surpluses, which could be used to fund more grants to householders, to be a cause for concern. We are concerned that, in spite of the single tender arrangements, no claw-back provisions were made should Eaga's surplus prove excessive. We are not persuaded that the Department's reliance on voluntary re-negotiation of fees, should Eaga's profits be judged to be excessive, is sufficient to safeguard public funds (paragraph 29).

    (vi)    The Committee note the Department's justification for their decision to award the administration contract to Eaga on a single tender basis in 1996, but look to the Department to take steps which will ensure that there is genuine competition for Eaga when the contract comes up for renewal in 2001. We believe that the Department should include a provision for claw-back in their contract with Eaga and any successor, to be deployed should their surpluses prove higher than is considered reasonable (paragraph 30).

    (vii)    Eaga's constitution includes specific provisions which circumscribe what can be done with their surpluses or assets on wind up. Nonetheless, we are concerned that the Department would have no share or influence in the distribution of Eaga's assets should they be wound up (paragraph 31).

On Eaga's administration of the Scheme
    (viii)    Both NEA and Eaga are closely connected with the insulation industry, and all three have a common financial interest in the Scheme. It is therefore important that the Scheme should include sufficient safeguards to ensure that the cost of work done is kept under proper scrutiny and control, and to ensure that the Scheme does not operate to the undue advantage of installers. We look to the Department to ensure that such safeguards are in place (paragraph 43).

    (ix)    We are surprised at how little attention was paid to the cost of claims up to July 1997. The Committee note the Department's emphasis on quality rather than the cost of work done, and the consequent improvements in quality that have been secured. Nonetheless we are surprised at the degree of variation between different installers in average costs claimed, sometimes for similar work in the same area. We are also concerned that the Scheme may encourage installers to claim the grant maximum, regardless of the extent of work done (paragraph 44).

    (x)    The Department and Eaga should, under the new Scheme operating since July 1997, introduce more competition between installers when area vacancies arise, give price greater prominence in the appointment of installers, and allow price to be a key factor in allocating funds and work to installers once appointed, so that the most benefit can be achieved for a fixed amount of expenditure (paragraph 45).

    (xi)    The Department should also investigate claims by local authorities that they can get work done more cheaply than under the Scheme, by use of local competitive tendering, and if these claims are borne out consider whether the Scheme could be modified to secure similar benefits (paragraph 46).

    (xii)    The Department are now taking action to clarify Eaga's legal powers to challenge or amend unreasonable claims. If uncertainty still remains once the Department have taken appropriate legal advice, the Department should seek to clarify such powers and responsibilities by means of revisions to the governing Statutory Instrument and Eaga's contract (paragraph 47).


1   C&AG's Report (HC of Session 1997-98), paras 1-3 Back


 
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