The UK’s biggest businesses are warning Andy Burnham that slashing funding for heat pumps “in the middle of a gas crisis” threatens even higher energy bills for households.
Firms including Ikea, EDF and Mitsubishi and charities such as Age UK are urging the Government to drop an announcement expected in the Budget that hundreds of millions will be cut from public subsidies for heat pumps.
At the moment, people wanting to replace their boiler with a heat pump can apply for grants from the Boiler Upgrade Scheme (BUS) – a key pillar of the Government’s £15bn Warm Homes Plan, which aims to lower households’ energy bills by kitting them out with green technology.
Under the BUS, eligible households in England and Wales can receive £7,500 towards an air-source or ground-source heat pump, rising to £9,000 for qualifying homes heated by oil or liquefied petroleum gas.
Chancellor under pressure to fund defence spending
However, sources from the clean tech sector have said they are expecting a cut “in the order of hundreds of millions” to the scheme in next week’s Budget to help cover increased defence costs.
The Chancellor is under immense pressure to fill a £4.7bn gap in the Defence Investment Plan left by Rachel Reeves, and to meet the commitment to spend at least 3 per cent of GDP on defence, amid new threats from Russia.
Equally, however, the Government wants to bring down the cost of living, particularly energy bills, which have increased since the Iran war.
Now, more than 100 businesses, industry bodies and charities have written to Burnham, as well as the Chancellor John Healey and Energy Secretary Miatta Fahnbulleh, warning them against raiding the Warm Homes Plan budget.
The list of signatories includes companies such as E.ON UK, Octopus Energy and Vaillant, charities such as Independent Age and WWF, the trade union Unison, and the New Economics Foundation think-tank, which until 2024 was led by Fahnbulleh.
A number of the businesses involved in the letter manufacture or install heat pumps and therefore have a financial stake in the BUS.
Calling for the Warm Homes Plan funding to be retained “in full”, the letter warns that “in the middle of a gas crisis, cutting any part of the plan that reduces Britain’s dependence on imported gas would work against the Government’s ambitions, and would be the wrong decision for homes, bills and for investment across the UK”.
The letter argues that cutting funding would leave households more exposed to volatile gas prices and see them missing out on long-term savings from switching to heat pumps.
Heat pumps are much more energy efficient and environmentally friendly than gas boilers, but their running costs and the potential savings on offer depend on the type of dwelling they are installed in, the standard of insulation, what tariffs are used and whether they are paired with other green technologies such as solar panels.
There are hopes that in the years ahead the expansion of renewable energy generation in Britain will help lower the price of electricity by decoupling it from the gas price, increasing the financial returns from moving to a heat pump.
Danger of cutting grants
The letter claims that an increase in energy prices over the last five years has already resulted in Britain paying “an extra £100bn for gas”, and that a previous decision by David Cameron to scale back energy efficiency improvements for homes ended up adding an estimated £22bn to households bills.
Camilla Born from Electrify Britain, the pro-electrification campaign group who co-ordinated the letter, said: “The Prime Minister has pledged to make people’s lives easier and [the BUS] is one obvious way to do that.
“Cutting it now would keep households locked into rocketing oil and gas prices and threaten thousands of jobs right across the country.”
In the letter, the companies also warn that cutting the Warm Homes Fund would deter investment in the UK by sending “the worst possible signal to the businesses building Britain’s electric heating and home upgrade supply chain”.
“Manufacturers, installers and suppliers waited 18 months after the election for a plan they could invest against,” it says. “They have invested, trained and planned on the strength of it”.
It adds: “Cutting the plan back within a year would tell every investor that Britain’s spending commitments are provisional, just as many of our competitors are sending the opposite signal.”
Some critics of public subsidies argue that they can end up inflating prices if retailers to decide to charge more. However, the letter says that heat pump installation costs have fallen 11 per cent in real terms since the BUS was launched.
The Department for Energy Security and Net Zero has been contacted for comment.