Hundreds of thousands to lose heat pump subsidies in Reeves’s budget plan | Budget 2025

Hundreds of thousands of homeowners will lose their right to subsidies for eco-friendly heat pumps due to government plans to cut energy bills on a budgetary level.

Rachel Reeves, the chancellor, plans to announce a raft of measures to cut energy bills, as the country’s stubbornly high cost of living pushes millions of voters to vote for Reform UK.

Among these measures, according to sources briefed on the preparation of the budget, is a plan to remove energy efficiency levies from bills and finance them through the existing government plan for heated homes.

The move will involve restricting subsidies for heat pumps so that only those on certain benefits will be allowed to claim them, significantly reducing costs for the government.

Supporters of the change say the grants, which are up to £7,500, were largely going to middle-class households who could have afforded them anyway. Energy sector experts warn, however, that by removing this support ministers will slow the transition from gas boilers to more expensive but cleaner heat pumps.

Sam Alvis, head of energy and environment at the Institute of Public Policy Research think tank, said: “The urge to cut bills is the right one, everything should be on the table. »

He added: “The risk here is that, as with winter fuel payments, the added benefit of reducing clean technology support schemes will not be noticed by the majority, but rather by those who lose out. »

Leo Vincent, senior policy adviser at think tank E3G, said: “If this is really what the Government are planning, they are robbing Peter to pay Paul. This is a disastrous ‘solution’ that would let down working families across the country who need the security of predictable, low bills.”

“It would leave Britain vulnerable to the whims of fossil fuel despots, put thousands of jobs at risk and ruin Britain’s climate action plans.”

The Treasury declined to comment.

Reeves and Prime Minister Keir Starmer have been looking at ways to cut energy bills by an average of £170 a year, after promising before the election to cut them by £300. One element of the plan is to remove 5% VAT on national energy bills, which would cost the government around £2.5 billion a year and save consumers on average £86.

The rest of the savings will come from reducing levies the government imposes on energy bills, including the Energy Company Obligation (ECO).

The ECO tax funds energy efficiency programs for low-income housing, such as insulation and new, more energy-efficient boilers. To be eligible, homeowners must live in homes with poor efficiency ratings and either receive a household income of less than £31,000, qualify for certain benefits or have long-term health problems.

The project has come under fire in recent weeks after a report revealed that almost all of the exterior insulation installed under its mandate was so poorly installed that it will need to be repaired or replaced.

Rather than scrapping the ECO grants, ministers decided to integrate them into the existing Warm Homes Plan, the £13 billion fund for insulation and boiler projects, which is available to a much wider section of the population.

Those close to the budget process say the decision will mean restricting those eligible for heat pump subsidies to only those who qualify for ECO, removing eligibility from hundreds of thousands of middle- and high-income households.

It will also likely mean a reduction in the amount of funding going toward home insulation, as the program will instead focus on clean technologies such as solar panels and battery storage.

A government source said existing heat pump subsidies amounted to unaffordable payments for well-off families that could not be justified under a budget focused on easing cost of living pressures, particularly for poorer people.

Top government officials are worried about the political fallout from Reeves’ plans to raise income tax in the budget and are counting on energy bill reductions to reassure cash-strapped voters.

Reeves also plans to cap funding for the Cycle to Work scheme so workers can no longer use it to buy expensive tax-free bikes – another example of the chancellor using the Budget to target benefits to middle-class voters.