The government’s decision to reduce planned funding for the Boiler Upgrade Scheme (BUS) by £792m over three years has prompted concerns about the impact on heat pump installations, investment and the UK clean heating supply chain.

Under the 28 October Budget, funding for the scheme will be £400m in 2027-28, down from the £600m previously allocated. It is expected to rise broadly in line with inflation in subsequent years.

Previous allocations totalled £1.992bn across the three financial years from 2027-28 to 2029-30: £600m, £683m and £709m respectively. A baseline of £400m a year would amount to £1.2bn over the same period, a difference of £792m before inflation-linked increases in the final two years.

Designed to help property owners in England and Wales install eligible low-carbon heating systems, the BUS offers grants of £7,500 for most qualifying air-to-water and ground-source heat pumps. Eligible off-grid properties replacing oil or LPG heating can receive £9,000 until 31 March 2027.

Although individual grant amounts remain unchanged, lower planned funding raises questions about how many installations the scheme will support in future. Ministers have maintained the target of 450,000 heat pump installations a year by 2030.

Alongside the BUS, the government has highlighted the Warm Homes Loan Scheme, which offers low- and zero-interest finance for heat pumps, solar panels and battery storage. Loans of up to £20,000 are available for air-to-water heat pumps and £35,000 for ground-source systems, with some repayment terms extending to 30 years.

A further change affecting installation costs is the scheduled end of the temporary zero rate of VAT on qualifying energy-saving materials on 31 March 2027. From 1 April, the reduced rate of 5% will apply again.

Industry reaction:

Charlotte Lee, chief executive of the Heat Pump Association UK (HPA UK):

“Reducing planned funding for the Boiler Upgrade Scheme, at a time when applications are growing strongly is incomprehensible and risks creating a hiatus in the market whilst the sector waits for the full implementation of the Warm Homes Plan. The dual blow of tax rises on heat pumps and programme cuts risks fuelling yet another boom and bust cycle, threatening the existing supply chain and future investment in the UK.

“Meeting the government’s target of 450,000 heat pump installations a year by 2030 could generate £3.2bn in economic activity, but we need lower electricity prices relative to gas and greater certainty over clean heating support. The VAT hike on heat pumps in the face of the second global fossil fuel crisis in less than five years is reckless and undermines this Budget’s emphasis on national security.”

Sachin Vibhute, technical consultant and product training manager at LG Electronics:

“The Boiler Upgrade Scheme (BUS) has been a catalyst in the drive for low-carbon energy. September saw 9,738 applications, the highest number ever, reflecting growing momentum in homeowner adoption and upward growth across the sector.

“That said, the industry needs a confident, clear roadmap if it is to deliver capacity in line with customer demand. Skills remain a sticking point, and questions over the BUS’s longevity prior to the Autumn Statement could undermine the public confidence in green energy that these schemes have worked so hard to build.”

Yselkla Farmer, CEO of trade association BEAMA:

“The government’s decision not to renew 0% VAT on energy saving materials doesn’t make sense. On the one hand it is cutting VAT on household electricity bills, but on the other it is adding VAT back onto the products that help people use less energy.

“Energy-saving technologies can save a typical three-bed semi up to £250 a year on electricity bills. This relief has helped incentivise households to invest before their boilers reach end of life. Ending it risks slowing the rollout of smart energy technologies and forcing manufacturers to reconsider investment in facilities and jobs.”

Paul Rose, CEO of OFTEC:

“The Boiler Upgrade Scheme has been the main driver for growing the heat pump market. Yet at the same time the government is proposing to continue to fine boiler manufacturers who don’t produce a target number of heat pumps through its Clean Heat Market Mechanism. Given the dependence of the heat pump market on public subsidy, this approach will only serve to damage the ability of our industry to invest, and is likely to lead to higher prices for customers. Despite cuts to BUS, the government’s message is still that heat pumps are the preferred solution.”

Jeff House, External Affairs and Policy Director at Baxi.

“Fears and speculation in past weeks over the Boiler Upgrade Scheme appear to have been well founded: there is a significant cut to the scheme budget for future years tucked away in the detail. Looking at the commitments in the Warm Homes Plan, published earlier this year, the overall BUS budget for 2027-30 would appear to have reduced by some £750m plus, or around 100,000 fewer funded heat pump installations at the current £7,500 grant level.

“So, whilst we have immediate continuity, the planned BUS expansion becomes broadly flat for the rest of this decade, perhaps an acceptance that growth in the domestic retrofit market remains slow and any significant volume gains will now come from the new build sector.”

Hamid Salimi, product manager at Daikin:

“Upfront cost remains one of the main reasons households hold back from switching to a heat pump. Giving people the option to spread that cost over time, at low or no interest, could put the technology within reach of more homeowners.

“The Warm Homes Loan Scheme provides an additional finance route, although its accessibility will depend on the participating lenders, their eligibility requirements and how their products are made available. We hope to see the range of lenders and products expand as the scheme develops.

“Importantly, the loans work alongside the Boiler Upgrade Scheme rather than replacing it. Continued funding for the Boiler Upgrade Scheme provides important certainty for households, installers and the wider supply chain at a time when interest in heat pumps is growing.”

Dan Marsden, director of renewables at Wolseley Group:

“It’s encouraging to see additional support for consumers to cover the cost of heat pumps with the new loan scheme announced yesterday.

“However, with no confirmation of extending 0% VAT on energy saving materials beyond 2027, and a Boiler Upgrade Scheme funding cap at £400 million minus inflation, we call on government to confirm their revised renewables installation targets to give businesses and installers renewed investment confidence.

Dave Sowden, chief executive of the Sustainable Energy Association (SEA)

“We are concerned about effective cuts to the Boiler Upgrade Scheme (BUS) budget, capping the scheme at £400 million. Levies on electricity bills will prolong higher running costs for electrified heat, and cutting capital grant funding is another step backwards in moving away from the volatility of international fossil fuel prices.

“With the BUS being the main market driver for growth in retrofit electrified heating and market growth already stagnating, reducing the funding not only decelerates growth further, but also sends the wrong signal to the 20% of households where the government considers heat pumps may not be the most cost-effective solution.”