Ministers preparing to slash heat pump subsidies to fund defence spending

Ministers are preparing to slash the amount of money available to subsidise heat pumps as they look for ways to fund higher defence spending, sources have told the Guardian.

Miatta Fahnbulleh, the energy secretary, has been tasked with finding more than £2bn in savings from her budget to help pay for defence investment under a plan drawn up by the previous government.

Sources say a portion of those savings will come from cutting the boiler upgrade scheme (BUS) for England and Wales, which provides grants of up to £9,000 to help households switch to cleaner heating methods. The programme will not be abolished altogether but sources say hundreds of millions of pounds will be cut from its £2.7bn budget.

The scheme has helped tens of thousands of households install an electric heat pump in place of an old gas boiler, but Treasury officials have long considered it a subsidy used mainly by middle-class households.

Critics say cutting the scheme would damage the nascent British heat pump industry and further undermine the government’s commitment to tackling the climate crisis. Ministers are also expected to give the go-ahead for 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, the 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 overall cuts were agreed to by the former energy secretary, Ed Miliband, as the then prime minister, Keir Starmer, looked for ways to fund a £15bn rise in defence spending over four years. Miliband agreed that the energy department would cut its capital budget by £2bn to help pay for the Dip.

Energy officials say the cuts pale in comparison with the overall growth in the energy department’s capital budget, which is one of the fastest growing in Whitehall.

The chancellor, John Healey, resigned as defence secretary in June under Starmer, arguing that the defence uplift was not enough. He now has to find an additional £4.7bn in savings over a four-year period beyond what departments have already agreed.

Bloomberg reported this month that as part of the cuts to the energy department, ministers were planning to reduce spending on carbon capture and storage (CCS) and green hydrogen schemes.

The government had been planning to spend £21.7bn on CCS from now until 2050 as ministers look to make the UK a leader in the still-developing technology.

CCS supporters say it is the best way to cut carbon emissions while still protecting Britain’s North Sea oil industry.

But its critics say the technology is being promoted by fossil fuel companies who are not being honest about how much it will end up costing the country.

Asked recently about the future of the CCS programme, Martin McCluskey, an energy minister, 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 one of the other significant schemes due to be raided to fund the increase 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. Some properties that are off the grid can claim as much as £9,000 to upgrade.

However, given those subsidies cover only just over half the cost of the median heat pump, much of that money has gone to better-off households.

The scheme’s supporters say that more than 40% of the money has gone to households with an annual income of below £52,000.

But more important, they add, is the fact the subsidies have helped to build a fast-growing domestic heat pump industry, which is expanding by more than 25% a year.

Other countries have a far more developed industry. France sold four times the number of heat pumps the UK did last year.

However, the technology also has vocal 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.”