Government must rethink subsidies to expand heat pump roll-out beyond rich neighbourhoods

Britain’s roll-out of heat pumps is miles off track, particularly in poorer neighbourhoods where they are less than half as likely to be installed as in richer places, according to new Resolution Foundation research published today (Thursday).

The report, funded by the European Climate Foundation, notes that two thirds (64 per cent) of British homes are expected to be fitted with a heat pump by 2050, but progress towards this goal is slow and uneven.

Despite generous subsidies, fewer than 100,000 heat pumps were installed in UK homes in 2024, a fraction of the 1.5 million gas boilers fitted. This slow adoption is unsurprising given the costs, which remain stubbornly high.

Even with the current £7,500 subsidy available to homeowners in England and Wales through the Boiler Upgrade Scheme, a heat pump costs around £5,400 on average to install. These high upfront costs mean that less than one-in-five (19 per cent) heat pumps in use today are in the poorest third of neighbourhoods, while almost half (45 per cent) are in the richest third.

Grants were supposed to slash the cost of heat pump installation: in half by 2025, and to cost parity with a gas boiler by 2030. Instead, prices have fallen by just 6 per cent (in real terms) over the past five years.

Accelerating heat pump installation and making them accessible to poorer families will therefore require new measures on top of existing support, says the Foundation.

First, existing subsidies should be extended beyond 2028 to continue supporting a fledgling market. Second, additional £3,000 top-up grants should be offered to low-income households, so that a heat pump costs them the same as a gas boiler. The Warm Homes Plan can be used to fund schemes like these this Parliament.

An additional grants scheme that included any household with a resident receiving means-tested benefits or with gross income under £30,000, but not with assets (excluding pensions) of more than £500,000 could funnel extra help to 5 million most vulnerable families over the heating transition, costing roughly £370 million a year by 2030 (on top of universal subsidies), rising to £1.2 billion in 2035.

But subsidy alone is not enough: the Government should combine regulatory ‘sticks’ with subsidy ‘carrots’ to drive change.

An end date should be set for the sale of gas boilers, with interim sales mandates and resulting fines strengthened. This would emulate the successful approach taken with electric cars.

Regulation can make new build homes pull their weight: if all suitable properties constructed in 2024 were fitted with a heat pump, the UK market could have been nearly three times the size. Instead, just 13 per cent of homes built in England and Wales in 2024 had heat pumps installed.

Finally, the cost of running a heat pump must be lower. At current energy prices, households would see, on average, their annual bill increase by £32 when switching.

Moving levies applied to electricity unit prices onto higher-carbon gas would significantly lower the costs of running a heat pump compared to a gas boiler, with four-in-five families finding that a switch would save them over £300 a year.

Although switching levies would increase gas prices, the most vulnerable households could be protected through a social tariff. A scheme that shielded around ten million vulnerable households – those on the gas grid and on means-tested benefits, low incomes or with pre-payment gas meters – from higher gas prices would cost the exchequer £310 million this year.

Jonathan Marshall, Principal Economist at the Resolution Foundation, said:

“The mass adoption of heat pumps in our homes is vital if Britain is to hit its net zero targets. But the roll-out is miles off track, with heat pumps particularly out of reach for many poorer families.

“The Government needs to be more proactive in offering carrots and sticks to get heat pumps installed. Extending subsidies should be built on with additional targeted support for low-income households, while regulation should be used to drive change in new build homes and signal the end date for the sale of gas and oil boilers.

“Combining better incentives with reforms to levies currently paid through electricity bills could mean more households saving money when they switch to heat pumps.”