Ministers are lining up cuts to the money used to subsidise heat pumps as they look for ways to pay for higher defence spending, sources have told the Guardian.
Under a plan drawn up by the previous government, Miatta Fahnbulleh, the energy secretary, has been asked to find more than £2bn in savings from her department’s budget to help fund defence investment.
Sources say part of that total will be taken from the boiler upgrade scheme (BUS) for England and Wales, which hands households grants of up to £9,000 to move to cleaner heating. The programme, which sources say will not be scrapped outright, is expected to lose hundreds of millions of pounds from its £2.7bn budget.
The scheme has helped tens of thousands of households swap an old gas boiler for an electric heat pump. Treasury officials, however, have long regarded it as a subsidy that largely benefits middle-class households.
Critics argue that cutting the scheme would hurt the fledgling British heat pump industry and weaken the government’s pledge to tackle the climate crisis. Ministers are also expected to approve the Jackdaw gasfield as soon as this week.
Madeleine Gabriel, a director at the charity Nesta, said: “Bills are soaring again because of high gas prices. Our reliance on gas is the reason we are in an energy crisis, so cutting funding for heat pumps makes no sense.
“It’s a kick in the teeth for the businesses and tradespeople who’ve put in time and money to build the industry.”
Greg Jackson, chief executive of Octopus Energy, said: “The boiler upgrade scheme is doing exactly what it was meant to do. It’s kicking off an industry to drive down the costs of heat pumps – they can now cost the same to install as a gas boiler after the grant.”
He added: “Just as EVs are becoming the new normal, heat pumps are too. In the last 18 months, more than 500,000 have asked us for a quote.
“The market is taking off. Cutting the engine now would be brutally damaging. Heat pumps are undoubtedly our energy future – slashing the cost of living and insulating us against fossil fuel costs and global dictators.”
A spokesperson for the Department for Energy Security and Net Zero said: “Savings for the defence investment plan (Dip) are a small part of [the department’s] overall budget, which saw a significant uplift at spending review.
“We will set out how we will fund essential investment in our national security this autumn.”
The wider cuts were agreed by the former energy secretary, Ed Miliband, as the then prime minister, Keir Starmer, sought ways to fund a £15bn rise in defence spending over four years. Miliband accepted that the energy department would reduce its capital budget by £2bn to help pay for the Dip.
Energy officials say the reductions are small next to the overall growth in the department’s capital budget, one of the fastest growing in Whitehall.
The chancellor, John Healey, who resigned as defence secretary in June under Starmer after arguing the defence uplift was insufficient, now has to find an additional £4.7bn in savings over a four-year period on top of what departments have already agreed.
Bloomberg reported this month that, as part of the energy department cuts, ministers planned to reduce spending on carbon capture and storage (CCS) and green hydrogen schemes.
The government had intended to spend £21.7bn on CCS between now and 2050 as it tries to make the UK a leader in the still-developing technology. Supporters say CCS is the best way to cut carbon emissions while protecting Britain’s North Sea oil industry, while critics say fossil fuel companies are promoting it without being honest about the eventual cost to the country.
Asked recently about the future of the CCS programme, the energy minister Martin McCluskey said: “I’m not betraying any confidences when I say that we are having to make some difficult decisions because of what happened as a result of the defence investment plan.”
The Guardian has learned that heat pump subsidies are among the other significant schemes due to be raided to fund the rise in defence spending.
The scheme, which offers £7,500 as a basic grant towards an electric heat pump, has subsidised nearly 80,000 heat pumps since it began in 2022, with some off-grid properties able to claim as much as £9,000. Because the subsidies cover only a little over half the cost of the median heat pump, much of the money has gone to better-off households.
Supporters of the scheme say more than 40% of the money has gone to households with an annual income below £52,000. More importantly, they add, the subsidies have helped build a fast-growing domestic heat pump industry that is expanding by more than 25% a year. Other countries have far more developed industries – France sold four times as many heat pumps as the UK last year.
The technology also has loud critics. Dale Vince, the energy entrepreneur and Labour donor, wrote recently: “Cleaner heat does not yet mean cheaper heat.
“Electrifying heat without fixing electricity pricing risks shifting higher costs on to households rather than delivering savings.”
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