Thursday 22 October 2026Energy The Budget Defence

Are ministers right to cut heat pump grants to pay for defence?

In 30 seconds

The story

The energy secretary has reportedly been told to find more than £2bn for defence, and hundreds of millions of it may come from heat pump grants of up to £9,000.

The numbers

The scheme's £2.7bn to 2030 is under a fifth of the £15bn Warm Homes Plan. From April to August it paid 13,323 grants, roughly £100m of this year's £400m.

My verdictPartly right

Take this year's saving from money the scheme will not spend, protect vouchers already issued, and give any cut to the grant a published, dated taper.

Why

What happened

On 12 October the Guardian reported that the energy secretary, Miatta Fahnbulleh, had been told to find more than £2bn of savings for the defence investment plan. Her predecessor, Ed Miliband, had agreed the cuts. Sources told the paper that hundreds of millions of pounds would come out of the Boiler Upgrade Scheme's £2.7bn budget, though the scheme would not be abolished. The Budget falls on 28 October.

The scheme pays households in England and Wales to replace a fossil-fuel boiler with a heat pump and opened in May 2022. The standard grant is £7,500. Since 21 July 2026, homes heated by oil or LPG with no mains gas get £1,500 more, making £9,000, until March 2027. The scheme sits within the Warm Homes Plan, a £15bn programme published on 21 January 2026, which gives it £2,687m from 2025/26 to 2029/30.

An MP asked on 16 October whether that funding would survive the Budget. The energy minister Martin McCluskey answered that the scheme has £400m this year and that the government "does not comment on speculation ahead of fiscal events".

What's really going on

The latest official figures, covering August, were published on 24 September. The next arrive the day after the Budget, so the decision rests on data to the end of August.

The scheme cannot supply the sum on its own. Its £2.7bn to 2029/30 is under a fifth of the £15bn plan, and this year's share is £400m. Most of the saving must come from elsewhere in the department.

The scheme pays a grant only once an installation is finished. From April to August 2026 it paid 13,323 grants, roughly £100m at the standard rate in five months of a £400m year. Demand is rising: applications topped 7,400 in both July and August, the two highest months on record, and 34% of them were for the £9,000 rate.

The median air source heat pump installation cost £12,908 in April to June 2026, 11% less in real terms than in the same quarter of 2023. The £7,500 grant covers about 58% of that, leaving a household about £5,400 to find. The Warm Homes Plan says it will keep "the grant level and eligibility of BUS funding under review".

The constraint is people. The Warm Homes Plan counts about 10,000 trained installers, equal to about 4,000 full-time, and says that must reach about 12,000 full-time by 2030, a threefold increase.

The strongest case on each side

The case for trimming the grant

Defence must be paid for, and a grant that paid about £100m in five months of a £400m year has room to give.
A £7,500 grant on a £12,908 installation still leaves about £5,400 to find, so it mainly helps owner-occupiers with savings.
The Warm Homes Plan itself keeps the grant level under review, and the real median installation cost is 11% below its 2023 level.

The case against cutting it

The Warm Homes Plan set out rising grant budgets to 2030 nine months ago; cutting them now tells installers the plan cannot be relied on.
The plan needs the full-time installer workforce to triple by 2030, from about 4,000 to about 12,000, and firms train to the grant's demand.
Oil and LPG homes got £9,000 from July and took 32% of the grants paid in August, so cutting that rate would hit them first.

My verdict: partly right

Ministers are right that part of the £2bn can come from this scheme without any household losing a grant. It paid roughly £100m in five months of a £400m year, and some may go unspent, though demand has jumped since July. But cutting the £7,500 and £9,000 rates nine months after the Warm Homes Plan would be a mistake.

The plan itself needs the full-time installer workforce to triple by 2030, and installers train against the grant they expect. The scheme's defenders also skate over who benefits, because a grant leaving about £5,400 to find mainly reaches owner-occupiers with savings. And six days before the Budget, the government's only public answer is that it does not comment on speculation; it has not said whether vouchers already issued are safe.

What I'd do instead

I would take this year's saving from grant money the scheme will not spend and promise that issued vouchers will be paid. Any cut to the grant itself should follow a published, dated taper.

Take this year's saving from unspent grant money, and protect issued vouchers

Return to the Treasury whatever the scheme will not spend by March 2027, and promise in the Budget that every voucher already issued will be paid.

The problem: Grants are paid only once an installation is finished. The scheme paid 13,323 grants from April to August, roughly £100m of its £400m for 2026/27.
How it would work: The Chancellor states on 28 October that issued vouchers will be honoured. DESNZ forecasts the scheme's 2026/27 underspend from its monthly figures and returns it to the Treasury.
What it costs: No new money. The saving is whatever the scheme does not spend; no forecast has been published, and it could be small if the summer rise in applications lasts.
Who it affects: Households holding vouchers lose nothing, and applicants keep the £7,500 and £9,000 rates this year. Installers get a written promise that issued vouchers will be paid.
The risk: If demand keeps rising, the underspend shrinks and the Treasury gets little. It covers only part of the £2bn, so other cuts in the department still follow.

If the grant must fall, publish a taper tied to installation cost

Announce any reduction to the £7,500 grant as dated steps from April 2027, linked to the median installation cost DESNZ already publishes.

The problem: A flat cut announced on Budget day gives installers no notice, and nothing published ties the grant to what a heat pump costs to fit.
How it would work: DESNZ publishes a schedule under which the standard grant falls by a set share of any fall in the median installation cost in its own quarterly statistics.
What it costs: Less saving than a flat cut in 2026/27. Savings grow later and depend on costs falling from the £12,908 median; if costs stay flat, the grant stays at £7,500.
Who it affects: Households installing from April 2027 may get less if costs fall. Installers get notice of each step instead of a Budget-day surprise.
Tried before?: The grant rose from £5,000 to £7,500 in October 2023, and the Warm Homes Plan keeps the level under review. I found no published rule linking the grant to installation cost.
The risk: Installers could hold prices up to stop the grant falling, and a dated cut pulls demand forward and then leaves a gap, as any pre-announced subsidy change does.

The trade-off

Returning only unspent money and tapering gives the Treasury less from this scheme in 2026/27, perhaps very little. It would have to find more from the rest of the Warm Homes Plan or elsewhere in the department.

How we'd know it worked

If DESNZ releases after the Budget show monthly applications holding near the July and August level of more than 7,400 a month, the signal to installers held. A fall of a quarter or more would show it did not.

What to watch

The Budget on 28 October
The DESNZ Boiler Upgrade Scheme statistics for September, due on 29 October 2026
The £1,500 top-up for oil and LPG homes, due to end in March 2027

Each of these is logged as an open call on my track record.