The Warm Homes Loan Scheme is a positive step forward that will help to plug the gap for consumers that may still struggle to raise the funds for clean energy measures, as is the extension of the zero rate of VAT for electricity.
However, these measures are effectively wiped out by the missed opportunity to extend the 0% VAT on energy saving materials from April 2027, despite plans to include heat batteries in the reduced rate. This tax increase to 5% will mean that, for the first time since 1998, energy saving will be taxed more heavily than energy consumption. This introduces a perverse incentive that runs completely contrary to the stated intention of long-term lower energy bills for consumers, adding yet more industry uncertainty.
Our published analysis suggests this will cause a -£380.5 million impact to the UK economy by 2040, result in 365,000 fewer heat pump installations over the next 4 years, and reduce revenue for installers by up to £39 million per year by 2040. We continue to urge the Government not to take this retrograde step next April.
We also remain concerned at 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.