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Almost all the external insulation fitted under the previous government’s energy efficiency scheme was installed so poorly it will have to be repaired or replaced, an investigation has found.

Thousands of homeowners who took advantage of the home insulation schemes have been left with incompetently fitted cladding that in some cases is likely to cause damp and mould.

Of the roughly 23,000 homes fitted with external wall insulation under the Energy Company Obligation (ECO) and Great British Insulation Scheme (GBIS), 98% need repairs, according to a National Audit Office (NAO) investigation.

A further 9,000 to 13,000 homes fitted with internal insulation also have major problems – 29% of those who had these works carried out, the NAO said.

And more than 3,000 installations of both kinds are likely to pose health and safety risks that need immediate remediation.

“The report reveals a system that has let cowboys through the front door,” said Simon Francis, coordinator of the End Fuel Poverty Coalition, “leaving thousands of victims living in misery and undermining public trust in efforts to tackle the cold, damp homes crisis facing many households.”

He added: “Insulation and ventilation, when done properly, are among the safest and most effective ways to bring down energy bills and keep people warm. But substandard delivery and weak oversight by the last government has turned what should have been a national success story into a cautionary tale.

“Now we need to fix the system, not abandon it.”

The ECO and GBIS initiatives sought to tackle fuel poverty and reduce carbon emissions across Britain by requiring energy companies to fund the installation of energy efficiency measures in homes.

But, the NAO said, weak government oversight and inadequate audit and monitoring led to thousands of poor-quality installations, leaving homes at risk from damp, mould, blocked ventilation shafts and exposed electrical cabling.

As a result of poorly executed works, homeowners were left unable to remortgage or sell homes, with insulation so badly fitted it could make cold, damp conditions worse. In January, almost 40 companies were blocked from installing insulation as part of the schemes as the outcry grew over the substandard works.

“People’s homes and lives have been damaged by these faulty installations, many living in fuel poverty, and lots have faced very difficult times as a result,” said Jess Ralston, an energy analyst at the Energy and Climate Intelligence Unit.

The NAO said: “The government created an overly complex system that ultimately failed.” It blamed “unclear and fragmented roles, responsibilities and accountabilities” among the scheme providers, the certification bodies, the regulator Ofgem, and the Department for Energy Security and Net Zero (DESNZ).

Installers were able to “game” the audit process either by being certified by multiple certification bodies or transferring their certification between bodies, meaning they would have less history with each.

Fraudsters were also able to scam millions out of the scheme, the NAO report revealed. Last November, Ofgem estimated that retrofit businesses had falsified claims for ECO installations in between 5,600 and 16,500 homes, potentially claiming between £56m and £165m from energy suppliers.

Sir Geoffrey Clifton-Brown MP, the chair of the Commons’ public accounts committee, which oversees the NAO, described the “failures” of the retrofitting schemes as “stark”.

“Despite allegations of fraud, lack of sufficient quality data means that overall levels of fraud in ECO remain unknown,” he said. “DESNZ and Ofgem have been quick to act after becoming aware of widespread problems, but their efforts remain hampered by weak government oversight and an overly complex consumer protection system.

“It is imperative that households receive clarity on how they can fix their homes and a system is put in place whereby these failings do not recur.”

Installers are liable for the whole cost of putting right any faulty insulation installations under the scheme. Affected households have been encouraged to contact Ofgem.

The minister for energy consumers, Martin McCluskey, said: “Today’s report shows unacceptable, systemic failings in the installation of solid wall insulation in these schemes, which have directly affected tens of thousands of families.”

He said the government had taken “decisive action” to protect households and ensure all poor installations of solid wall insulation were fixed at no cost to the consumer.

“We are fixing the broken system the last government left by introducing comprehensive reforms to make this process clear and straightforward, and in the rare cases where things go wrong, there will be clear lines of accountability, so consumers are guaranteed to get any problems fixed quickly,” McCluskey said.