Would it be acceptable to have a smaller diameter flue pipe be installed inside a larger diameter flue pipe, they have used fire retardant caulking to seal the gaps, would this be acceptable ??
Sam, that does not look professionally installed. I would recommend correction by a QUALIFIED HVAC professional.
Caulking (of any flavor) is NOT rated for pressure!
Write it up HARD!!
As Larry and Jeffrey said. Improper and dangerous.
The different diameters probably doesn’t fly with the manufacturer’s instructions either.
That would be a “No”.