The UK government has retained the boiler upgrade scheme (BUS) despite widespread speculation the heat pump subsidy program was set to be scrapped, although the total budget for the program has been cut by around GBP 700 million ($932 million).
BUS grants of up to GBP 9,000 have been offered to UK consumers in a bid to accelerate the electrification of home heating in a country where more than two thirds of households use a natural gas-fired heating system.
In the first Budget delivered by UK Chancellor John Healey, the government committed to maintaining the BUS grant at current funding levels of GBP 400 million in 2027-28, rising “broadly in line with inflation” thereafter. Previously, GBP 600 million was allocated for the 2027/28 financial year, GBP 683 million for 2028/29 and GBP 709 million for 2029/30.
Social housing tenants should also benefit from an additional GBP 100 million of funding, subject to final approvals, to support the delivery of up to 57,000 solar installations for households this financial year. Further grant support for residential solar, battery storage and heat pumps will continue to be available through the government’s Warm Homes Plan, which receive an additional GBP 335 million investment in 2027, however the multi-year program’s total budget is being cut by GBP 1 billion as a contribution to defense spending.
The Chancellor has made changes to value added tax (VAT) rules that will affect solar and battery storage. UK consumers currently pay no VAT on home solar and battery but this will rise to 5% from Apr. 1, 2027.
Budget day also saw the UK government publish guidance for the Warm Home Loans program, which will see the UK government subsidize some of the risk associated with financing, allowing lenders to offer lower interest rates.
Solar, battery storage and heat pump installations qualify for Warm Home Loans support and can potentially be used in conjunction with grants or money from other funding programs. The loans themselves are offered by finance partners participating in the program, meaning consumers apply directly to a lender, through an installer or retailer when arranging finance for the improvement work, or through their mortgage providers.
Chris Hewett, chief executive of Solar Energy UK, welcomed the launch of the Warm Homes Loan program.
“With the Warm Homes Loan Scheme now in place, more homes can go solar next year than ever before, taking control of their energy and insulating themselves from high energy bills. Critically, it will ensure that households across society can overcome any financial barriers, making sure that the benefits are felt where they are most needed.”
Hewett added that Solar Energy UK already expects the annual record for smaller-scale solar systems to be broken within a few weeks, and the association is confident the loan program will deliver another record year in 2027.
Progress was also made on a fixed-revenue offer to existing utility-scale solar plants. The government has launched a consultation on a proposed Wholesale Contracts for Difference (WCfD) program, first announced in April 2026. Available on the UK government website, the consultation covers eligibility, allocation and auction design, commercial arrangements, and potential electricity market impacts. Industry stakeholders have until Dec. 9 2026 to respond.
The UK Chancellor also pledged to drive down electricity system costs following up the recent announcement state-owned Great British Grid would work alongside existing network operators to increase competition. Healey added that competition in offshore electricity networks “has delivered hundreds of millions of pounds of bill savings” and therefore competition will “shortly be introduced” into offshore electricity transmission, in a nod to the Competitively Appointed Transmission Owner (CATO) regime which has been in development in Great Britain for more than a decade. If implemented, CATO would allow private companies to competitively bid for the right to build and run new onshore grid infrastructure.
There was movement on electricity bills too, with Chancellor Healey committing to remove standing charges from gas bills. Standing charges are applied to bills for all connected households regardless of usage and are used to cover gas network upgrades. These fixed costs will be paid on the unit rate – the amount paid for each kWh of gas consumed. The government estimates the change could save 60% of households around GBP 45 per year. Healey said the government also plans to remove standing charges from electricity bills in the future.
Andrew Sissons, director in sustainable future at innovation charity Nesta welcomed the change. Sisson said it would provide relief to the poorest households who ration their gas use, “but it will also mean that switching to electric heating such as heat pumps is a better deal for some households that use more gas.”
The Boiler Upgrade Scheme (BUS) has been the main policy tool supporting UK heat pump deployment since it was introduced in May 2022. The program initially offered GBP 5,000 grants for air-to water heat pumps and GBP 6,000 grants for ground source heat pumps for households installing a heat pump, before increasing to 7,500 GBP for both technologies in October 2023. Following the outbreak of conflict between the United States, Israel and Iran, the UK government added a GBP 9,000 grant option for those households using heating oil systems due to their increased exposure to energy price hikes.
The rate of installations has increased since BUS grants were introduced, but volumes remain significantly below what is needed to achieve a government target of 450,000 heat pump installations per year by 2030. The government reported 151,136 BUS voucher applications had been received from May 2022 to August 2026, with 98% applications for air-to-water heat pump grants.
Guidance for Warm Home Loans suggests that BUS grants and other funding support can be used in conjunction with the state-backed financing, potentially further lowering the cost to consumers.
The following lenders are offering Warm Home loans according to the UK government: HomeServe Finance, Hometree Finance, The Money Co-Op, Propensio, Secure Trust Bank, Selina Finance, South Manchester Credit Union, Sunsave Energy, Tandem Bank, This Bank.
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