Hundreds of thousands of homeowners will lose their right to subsidies for eco-friendly heat pumps as a result of government plans to bring down energy bills at the budget.
Rachel Reeves, the chancellor, is planning to announce a series of measures to bring down energy bills amid concerns the country’s stubbornly high cost of living is driving millions of voters to Reform UK.
Among those measures, according to sources briefed on the budget preparations, is a plan to take energy efficiency levies off bills and fund them through the government’s existing warm homes plan.
The move will mean restricting heat-pump subsidies so that only those receiving certain benefits will be allowed to claim them, sharply bringing down costs to the government.
Supporters of the change say that the subsidies, which can be as high as £7,500, were largely going to middle-class households that could have afforded them anyway. Energy industry experts, however, warn that by taking the support away ministers will slow the transition from gas boilers to more expensive but cleaner heat pumps.
Sam Alvis, the head of energy and environment at the Institute of Public Policy Research thinktank, said: “The urge to get bills down is the right one, everything should be on the table.”
The move will mean restricting heat-pump subsidies so that only those receiving certain benefits will be allowed to claim. Photograph: fhm/Getty
He added: “The risk here is that, like winter fuel payments, the additional benefit of cutting support schemes for clean technology isn’t noticed by the majority, but really is by those that lose out.”
Leo Vincent, a senior policy adviser at the E3G thinktank, said: “If this is really what the government is planning, it is robbing Peter to pay Paul. This is a disastrous sticking plaster ‘solution’ that would let down working families across the country who need the security of predictable and low bills.
“It would leave Britain vulnerable to the whims of fossil fuel despots, put thousands of jobs at risk and blow a hole clean through the UK’s plans for climate action.”
The Treasury has declined to comment.
Reeves and the prime minister, Keir Starmer, have been looking for ways to bring energy bills down by an average of £170 a year, having promised before the election to cut them by £300. One element of that plan is to remove the 5% VAT charge on domestic energy bills, costing the government an estimated £2.5bn a year and saving consumers an average of £86.
The rest of the savings will come from cutting levies that the government imposes on energy bills, including the energy company obligation (ECO).
The ECO levy funds energy-efficiency schemes for low-income homes, such as insulation and new, more energy-efficient boilers. To qualify, homeowners need to live in houses with poor efficiency ratings and either receive a household income of under £31,000, receive certain benefits or have long-term health conditions.
The scheme has come under criticism in recent weeks after a report found almost all the external insulation fitted under its remit was installed so poorly it will have to be repaired or replaced.
Rather than scrap the ECO subsidies, ministers have decided to wrap them into the existing warm homes plan, the £13bn fund for insulation and boiler schemes, that is available to a far larger section of the population.
Those close to the budget process say the decision will mean restricting those eligible for heat pump subsidies only to those who qualify for ECO, removing eligibility from hundreds of thousands of middle- and higher-income households.
It is also likely to mean a reduction in the amount of funding for home insulation as the scheme moves to focus on clean technology such as solar panels and battery storage instead.
A government source said the existing heat pump subsidies amounted to unaffordable payments to well-off families that could not be justified as part of a budget focused on alleviating cost of living pressures for poorer people in particular.
Senior government officials are worried about the political fallout from Reeves’s plans to raise income tax in the budget and are relying on energy bill cuts to help reassure cash-strapped voters.
Reeves is also planning to cap funding for the cycle to work scheme so that workers can no longer use it to buy expensive tax-free bikes – another example of the chancellor using the budget to target benefits for middle-class voters.
