Ministers preparing to slash heat pump subsidies to fund defence spending

The Boiler Upgrade Scheme is a government programme for England and Wales. It gives households grants to replace old gas boilers with cleaner heating systems, especially electric heat pumps. Its purpose is to encourage cleaner heating and help build a domestic heat-pump market. Ministers now want to reduce its funding to help pay for higher defence spending.

The scheme normally offers a basic £7,500 grant for an electric heat pump. Some off-grid properties can receive up to £9,000. The government has not decided to abolish the programme. Instead, sources say hundreds of millions of pounds could be removed from its £2.7bn budget.

The proposed cut matters because the scheme has supported nearly 80,000 installations since 2022. Supporters say it is helping an industry grow by more than 25% each year. Critics fear reducing the grants could weaken that progress and undermine the government’s climate commitments, while officials argue savings are needed for national security.

The Boiler Upgrade Scheme has a £2.7bn budget for helping households in England and Wales move away from older gas boilers. It offers financial support for cleaner heating, with the grant size depending partly on the property and its connection to the energy grid. Ministers are preparing to reduce this overall funding.

The standard grant towards an electric heat pump is £7,500. Properties that are off the gas grid can claim as much as £9,000. The article says these grants cover only just over half the cost of the median heat pump, so households still need to pay a substantial amount themselves.

Since the scheme began in 2022, it has subsidised nearly 80,000 heat pumps. That support has helped the domestic industry expand by more than 25% a year. However, sources say hundreds of millions could be removed from the budget as the government seeks savings for defence investment.

The energy department is being asked to find more than £2bn because the government is redirecting money towards defence. The plan began under the previous government, when Keir Starmer sought ways to pay for a £15bn rise in defence spending over four years. Former energy secretary Ed Miliband agreed that the department would cut its capital budget by £2bn.

That reduction affects money intended for long-term energy projects and schemes. The Boiler Upgrade Scheme is one programme now expected to lose funding. Bloomberg also reported planned reductions to carbon capture and storage and green hydrogen programmes. The department’s capital budget is still growing overall, officials say, but it must contribute to the defence investment plan.

The pressure has since increased. John Healey, who resigned as defence secretary in June, argued that the defence uplift was insufficient. He now has to find an additional £4.7bn in savings over four years beyond the savings departments have already agreed. Further details are expected this autumn.

For households, a smaller grant would mean paying more upfront to install a heat pump. The article says current subsidies cover only just over half the median heat-pump cost. That could discourage people from replacing gas boilers, particularly when installation remains a major household expense.

Installers and manufacturers could also lose momentum. The scheme has helped create a fast-growing British industry, expanding by more than 25% a year. Greg Jackson of Octopus Energy said heat pumps can now cost as much to install as gas boilers after the grant. He warned that cutting support could damage businesses and tradespeople that have invested in the market.

The wider climate effect could be slower progress away from gas heating. Nesta said gas reliance helped create the energy crisis during high prices. Critics argue that cutting heat-pump support undermines climate action. Ministers are also expected to approve the Jackdaw gasfield, adding to concerns about continued fossil-fuel dependence.

The scheme has helped tens of thousands of households install heat pumps, but Treasury officials say it is used mainly by middle-class households. The reason is largely financial. Even with a grant, a heat pump costs more than many households can easily afford upfront, so people with greater savings or income are more able to take part.

The article says subsidies cover only just over half the median heat-pump cost. That leaves households responsible for the remaining expense. Critics therefore argue that a programme based on an upfront grant naturally reaches better-off households more easily. They see this as a weakness in how public money is distributed.

Supporters respond that access is broader than critics suggest. They say more than 40% of the money has gone to households with annual incomes below £52,000. They also argue that the scheme’s wider value is building an industry that can eventually reduce installation costs and make heat pumps available to more people.

A heat pump does not usually create heat by burning fuel. Instead, it uses electricity to move available heat from the outside air, the ground, or another source into a building. A refrigeration cycle raises that heat to a useful temperature for rooms and hot water. This is why one unit of electricity can provide more than one unit of heat.

A gas boiler works differently. It burns natural gas inside the boiler, producing heat that warms water for radiators and taps. The heat pump therefore replaces direct gas combustion with electrically powered heat transfer. The article describes the scheme as helping households switch from old gas boilers to electric heat pumps.

The article does not provide a technical explanation of how heat pumps work. It does report that supporters see them as cleaner heating and part of the UK’s energy future. Their climate benefit also depends on the electricity supply and the efficiency of the home, points not detailed in the article.

Switching from gas to electric heating can reduce direct use of fossil gas. A heat pump transfers heat instead of burning gas, and electricity can increasingly come from sources other than fossil fuels. The article connects heat pumps with energy security and says gas reliance contributed to the energy crisis during high prices.

However, cheaper heating is not automatic. Heat pumps require electricity, and electricity prices can be high. Installation also costs a lot: the article says the grant covers only just over half the median heat-pump cost. A home’s insulation, the system’s efficiency, and the household’s electricity tariff can all affect running costs.

The article does not fully explain this pricing mechanism. It does report that Greg Jackson believes heat pumps can cut living costs and protect households from fossil-fuel costs. It also says gas prices are soaring again. So heat pumps may reduce exposure to gas markets, but the financial outcome depends on both technology and energy prices.