The UK's energy regulator and energy firms were accused of costing some of their poorest customers hundreds of pounds in higher fuel bills after it emerged they had spent just a fraction of the money set aside, in a £350m scheme to insulate tens of thousands of homes in deprived communities.

The Government's community energy saving programme (CESP) requires gas and electricity suppliers and electricity generators to fund improvements to 90,000 homes in the 10 per cent most-deprived areas across the UK – saving 2.9 mega-tonnes of carbon dioxide in the process.

Under the scheme, which was launched in September 2009, housing associations or councils apply to the energy companies for funding – having provided details of their stock and the cost of carrying out the work to improve their energy efficiency.

The energy firms then offer successful applications a portion of the funding – under their legal obligations to cut carbon emissions.

The Department for Energy and Climate Change estimates that reaching the CESP target will cost the big six firms – British Gas, E.ON, EDF, Scottish and Southern, Npower and Scottish, around £350m in total.

But despite strong interest from social landlords, the vast majority of the funding remains untouched and hard up families who could have benefited from lower energy bills this winter will suffer.

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Ofgem\s first annual report to energy and climate change secretary revealed there was only one scheme up and running by December 2009.

And progress with the scheme has continued to progress at a snail’s pace. Only 20 applications have been approved, with another 80 being still being processed by Ofgem. The regulator has been criticised for failing to clear the backlog quickly enough and for creating a mountain of red tape for social landlords to wade through during the application process.

The energy companies face a huge fine of 10% of their global turnover if they fail to meet the target. But as time passes, the likelihood increases that they will push through the funding during the last 12 months before the deadline of December 2012. This means that thousands of tenants, who could already be saving cash from better insulated homes, could have to keep on paying higher bills for another two winters.

The Federation also said the scheme's focus on carbon reduction, meant energy firms were favouring compact, urban homes rather than rural, and other, properties that were more expensive and complex to treat.

Improving energy efficiency by, for example investing in loft insulation and cavity walling, would save £250 from the average energy bill per year.

In recent weeks, a number of energy firms have announced price increases.

SSE have announced an increase in gas prices of 9.4% – with more than 3.6m customers will be faced with an increase in their monthly bills of around £5 from 1 December.

Meanwhile, British Gas's eight million gas and electricity customers will see an increase of 7% on their bills, from 10 December, which the firm claims will equate to £1.50 per week on the average dual fuel bills.

Federation Chief Executive David Orr said: "It is absolutely shocking that Ofgem and the energy firms are dragging their feet in approving and completing these vital improvements that would bring down bills and reduce carbon emissions.

"The endless delays in the making of payments under this scheme are leaving thousands of vulnerable customers in poorly insulated homes with the prospect of a colder and more expensive winter than necessary.

"At a time when low-income consumers are facing steep hikes in their gas and electricity bills, the regulator and energy firms need to get a grip and start meeting their legal obligations sooner rather than later."

(CD/GK)