Government Considering Reduction of Heat Pump Subsidies to Finance Defense Budget Increases

Ministers are reportedly exploring reductions in financial support for heat pump installations to help fund increased defense expenditures, according to informed sources. Energy Secretary Miatta Fahnbulleh has been instructed to identify over £2 billion in budgetary savings to support defense investments outlined in a prior government strategy.

A planned reduction in funding for the Boiler Upgrade Scheme (BUS) in England and Wales—which offers grants of up to £9,000 for transitioning to cleaner heating systems—is among the proposed measures. While the program will not be eliminated, hundreds of millions of pounds will be subtracted from its £2.7 billion allocation, according to sources. The initiative has facilitated tens of thousands of households switching to electric heat pumps, though Treasury officials have noted its benefits disproportionately favor middle-income households.

Environmental advocates argue such cuts could weaken the emerging domestic heat pump industry and undermine the government’s climate objectives. Officials are also anticipated to sanction the Jackdaw gasfield development imminently.

Madeleine Gabriel, director at the Nesta charity, criticized the potential cuts, stating, “Energ y costs are rising again due to high gas prices. Reducing investment in heat pumps contradicts efforts to address our energy vulnerabilities.”

Greg Jackson, CEO of Octopus Energy, defended the scheme, asserting, “The Boiler Upgrade Scheme is fulfilling its purpose by stimulating an industry that is lowering heat pump costs—now comparable to gas boiler installations.” He added, “Like electric vehicles, heat pumps are becoming mainstream. Recent demand has surged, with over 500,000 homeowners requesting quotes in the past 18 months. Eliminating this support now would severely damage the sector, which promises long-term savings and energy security.”

A Department for Energy Security and Net Zero spokesperson stated, “Defense-related savings represent a fraction of our overall budget, which received substantial increases during the Spending Review. Details on funding strategies for national security investments will be published this autumn.”

The reductions align with prior commitments by former energy secretary Ed Miliband under Prime Minister Keir Starmer’s administration to address a £15 billion defense spending increase over four years. Miliband concurred that the energy department would cut its capital budget by £2 billion to support the Defense Investment Plan (DIP).

Energy officials emphasize the proposed cuts constitute a minor adjustment compared to the department’s expanding capital expenditures, one of the fastest-growing budgets in Whitehall. Chancellor John Healey, who resigned as defense secretary in June due to disagreements over the DIP’s scale, now faces the task of identifying an additional £4.7 billion in savings over four years.

Reports indicate parallel reductions in carbon capture and storage (CCS) and green hydrogen initiatives may also occur within the energy department. The government initially planned £21.7 billion in CCS funding through 2050 to position the UK as a leader in this emerging technology. Proponents argue CCS preserves North Sea oil operations while reducing emissions, though critics decry inflated cost projections driven by fossil fuel interests.

An energy minister recently acknowledged “difficult decisions” regarding CCS funding, linking them to the defense investment plan. The heat pump subsidy scheme, offering a basic £7,500 grant and up to £9,000 for rural households, has supported nearly 80,000 installations since its 2022 inception. Critics note subsidies cover just over half the median heat pump cost, favoring wealthier families, though defenders highlight that 40% of funds benefited households earning below £52,000 annually. Supporters also emphasize rapid industry growth, with annual expansion exceeding 25%.

Comparatively, the UK trails global peers like France, which installed four times as many heat pumps in 2023. However, figures like Dale Vince, a Labour supporter and energy entrepreneur, warn that rising electricity costs could negate potential savings without broader energy pricing reforms.

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