The government should have realised long ago that small firms were best placed to deliver its flagship scheme

Matthew Rhodes

I couldn’t resist a wry smile at Greg Barker’s comments in last week’s Building blaming Carillion and the big six energy firms for the failure of the Green Deal and the Emnergy Companies Obligation (ECO). The minister feels they should adapt their business models more, and that they have let him down because they led him to believe they could deliver.

This was all completely predictable (and was in fact predicted by me and many others). Indeed the minister himself says in the same article that it’s the small firms which are setting the pace, and have potential to drive disruptive change.

If he knows this, why does he still insist on designing schemes and policies almost entirely around the needs of large firms, and making it as difficult as possible for small firms to succeed?

For example, look at the current Green Deal Communities Fund, which was expanded from £20m to £80m in the most recent set of announcements designed to reform and improve take up of energy efficiency measures. To be eligible for such funding, schemes must be submitted by a local authority and already have in place a properly procured Green Deal provider partner. This almost immediately limits eligibility to Carillion, British Gas, E.ON and the other usual suspects who have the resources and capacity to engage in the prolonged procurement processes required.

Any innovative small firm trying to access this funding must risk sharing their intellectual property with public bodies who are required to put works out to tender and are inherently risk averse. Even if they succeed in persuading a local authority to support them, they’ll more than likely find themselves required to give away all their ideas to an incumbent big six ‘partner’ (who in any case controls the lion’s share of ECO spend) – what kind of incentive for innovation and engagement is that?

If the Department of Energy and Climate Change (DECC) and Birmingham City Council had listened to my advice in 2011, Carillion would not be embarrassing the minister today

To me it’s simply common sense that small firms are the best way to drive innovation in energy efficiency and construction in general. I have argued this for years, and indeed if the Department of Energy and Climate Change (DECC) and Birmingham City Council had listened to my advice in 2011, Carillion would not be embarrassing the minister today.

Anyone who’s spent any time in industry knows big companies will always be the slowest and most expensive choice to deliver significant change (like the Green Deal) because changing their existing business models (which tend to be successful by definition) is difficult and risky for them. Small companies have less to lose, fewer vested interests to tackle, are inherently flexible, and there are lots of them (so lots can get it wrong without doing much harm).

This is how markets work, and Greg Barker not only knows this but has a strong political and philosophical commitment to it too. So what went wrong?

I actually think the problem is probably not the minister. If we put aside the often fatal attraction of all kinds of politician to large, wealthy corporations, I think the real problem lies with the civil servants tasked with designing and delivering these policies. It’s their job to advise politicians on what will work and what won’t, and the best mechanisms for delivering policy aims.

This should, in theory, be informed by some actual experience in the real world of developing and driving change. As others have said many times before me, sadly in the UK most of our civil servants simply don’t get out enough, have very little idea of how industries work in practice, and often none at all of the energy or construction sectors.

Theoretical training in economics, finance or management (at best) is no preparation for dealing with the illogical and structurally-embedded realities of the UK energy efficiency sector. How tempting, then simply to listen to the loudest and closest lobbyists – at best similarly inexperienced, but more likely simply funded to defend its business model by one of the same large incumbents the minister is eager to change.

So if the minister wants the Green Deal (or his next scheme) to work effectively, my advice to him is to stop wasting time trying to persuade successful global corporations to change their business models: instead he should look hard at something far more under his own control, and consider changing the business model of his own department.

Matthew Rhodes is managing director of Encraft