UK Budget retains heat pump grant, adds solar loans, VAT hike

The UK government has confirmed the continuation of the Boiler Upgrade Scheme (BUS), countering earlier speculation that the program might be cancelled. According to reports by pv magazine, the scheme’s funding has been reduced by approximately GBP 700 million ($932 million).

UK Chancellor John Healey stated that the BUS grant will remain at GBP 400 million for the 2027-28 fiscal year.

Heat Pump Funding Details

Following the 2027-28 fiscal year, funding for the Boiler Upgrade Scheme (BUS) is to rise broadly in line with inflation. This outlook follows earlier allocations of GBP 600 million for 2027/28, GBP 683 million for 2028/29, and GBP 709 million for 2029/30. Launched in May 2022, the program has handled 151,136 voucher applications as of August 2026, per UK government data. Among these, 98% sought grants for air-to-water heat pumps.

With a national goal of 450,000 heat pump installations annually by 2030, BUS subsidy rates have shifted over time. Originally, air-to-water systems qualified for GBP 5,000 while ground source systems received GBP 6,000. From October 2023, a standardized GBP 7,500 grant applies to both types. A GBP 9,000 subsidy was introduced exclusively for heating oil users, a response to price increases linked to conflict.

Solar Support and Tax Changes

• A sum of GBP 100 million is set aside to help social housing tenants pay for as many as 57,000 solar installations.
• These funding measures are still subject to final approval.
• Starting April 1, 2027, the Value Added Tax (VAT) on home solar panels and battery storage units will rise from 0% to 5%.
• The new Warm Home Loans program aims to lower borrowing interest rates by assuming the financial risks associated with lending.

Chris Hewett, chief executive of Solar Energy UK, stated, "With the Warm Homes Loan Scheme now in place, more homes can go solar next year than ever before... Critically, it will ensure that households across society can overcome any financial barriers..."

Broader Energy Bill Measures

The Warm Homes Plan is set to secure GBP 335 million in funding for 2027, a sum indicating a GBP 1 billion cut to its overall budget to free up resources for higher defense expenditures.

Regarding the energy market, UK authorities have opened a consultation period for the Wholesale Contracts for Difference (WCfD) scheme, with industry participants required to submit their feedback by December 9, 2026.

Structural adjustments to energy bills are also underway, as the administration intends to strip standing charges from gas accounts. Officials project this action will reduce annual costs by GBP 45 for 60% of households, with a commitment to eliminate such fees from electricity bills later. Andrew Sissons, sustainable future director at Nesta, commented that this shift "will also mean that switching to electric heating such as heat pumps is a better deal."

Lastly, the introduction of the new CATO framework will permit private firms to compete for onshore grid infrastructure contracts.

Grid Competition and Loan Mechanics

Chancellor John Healey highlighted that rivalry within offshore electricity networks has already generated hundreds of millions of pounds in savings for bills, asserting that comparable competition is set to be "shortly introduced" for offshore electricity transmission. This initiative points to the Competitively Appointed Transmission Owner (CATO) framework, a concept under development for more than ten years that would allow private companies to tender for new onshore grid infrastructure.

In terms of Warm Home Loans, instructions show that customers apply straight to involved finance partners, whether via an installer, retailer, or mortgage lender. These loans may be stacked with BUS grants or alternative funding streams. The WCfD consultation, initially revealed in April 2026, addresses eligibility, auction structure, and market effects. Chris Hewett, chief executive of Solar Energy UK, remarked that the group anticipates the yearly record for small-scale solar installations will be surpassed within weeks, forecasting yet another record year in 2027. The BUS scheme was originally launched to speed up electrification in a nation where more than two-thirds of homes depend on natural gas-powered heating.