There are reports that the UK government plans to make cuts to its £15 billion Warm Homes Plan, which is due to be devolved to mayors and other strategic authorities in England. The Boiler Upgrade Scheme (BUS), which makes up around £2.7 billion of the total funding, could be scrapped or cut as part of that.

We wrote last week that devolving the BUS would be a mistake, as it would actually make it harder for local government to upgrade homes. Cutting funding for heat pump subsidies altogether would be a far more serious mistake. Here are four reasons why, and what a route to removing subsidies sustainably in the long term should look like.

The most immediate problem is that abolishing BUS would effectively wipe out the heat pump industry in England and Wales overnight. Many heating engineers and businesses - including very small firms - have invested in heat pumps believing it to be the future of their industry and the right thing to do.

Without the BUS, the sector would likely collapse - as large parts of the installation industry did when the Energy Company Obligation (ECO) scheme was scrapped and as the rooftop solar industry did after the feed-in tariff abruptly ended in 2016. Not only would this cost jobs, it would likely scar the heat pump industry for a long time as businesses do not tend to invest in areas where government policy is so capricious.

Making cuts to the BUS budget, while not as bad as scrapping it altogether, would still send a damaging signal to businesses, especially as heat pump installations are well placed to grow with soaring gas and heating oil prices.

While heat pump installations have grown only modestly in recent years, there are signs that uptake is beginning to gather pace. The last two months have seen BUS applications grow significantly, with July and August 2026 being the two highest months on record for voucher applications.

This has been helped by a fall in the electricity-to-gas price ratio, which is crucial in influencing heat pump running costs. It has fallen from 4.7 in January to 3.3 in October, and is likely to fall again in January. Likewise, heating oil prices have risen sharply since February this year, affecting many rural households (the BUS has been temporarily increased to £9,000 for replacing oil boilers).

This shift in the price ratio is partly due to the sharp rise in oil and gas prices following the invasion of Iran, with electricity prices increasing much more modestly. But it is also partly due to positive action by the UK government, including removing some levies from electricity bills in April and cutting VAT on electricity in October. It would be self-defeating for the Chancellor to throw away that hard-won progress by scrapping or curtailing the BUS now.

A common argument against the BUS is that it is a subsidy for wealthy households. While this is not entirely true - 42% of BUS recipients have a household income below £52,000 - it also misses the central point of the scheme: to develop the market.

Britain’s heat pump market is still in this phase (unlike in most other European countries) and needs support to mature and become a mass-market technology. These early adopters are often, though not always, more affluent households that can afford the additional upfront spending that heat pumps sometimes require.

There is evidence that the BUS is proving effective in developing the heat pump market. According to the evaluation of the BUS, 74% of installations it supports are additional - they would not have happened without the subsidy.

Moreover, the BUS is supporting considerable innovation in heat pumps. Various companies have entered the industry and developed new methods to reduce the disruption involved in installations, while the quality of heat pumps has gradually improved. As a result, the real cost (that is, adjusted for inflation) of installing a heat pump has fallen in recent years. For a heat pump between 8-10kW in size - the most common type - the real cost has fallen by an average of 2.7% a year since 2022.

Cutting the BUS now would take the wind out of an industry at a critical stage of development, impacting installers across the country and leaving early adoption of heat pumps in the UK exclusively to more vulnerable low-income households.

Decarbonising home heating is the challenge on which the UK’s climate efforts will stand or fall this decade, and heat pumps are the key technology to do this. Domestic solar and batteries, although they can reduce energy bills, have very little direct impact on carbon emissions and cannot compensate for heat pump installations.

The UK is already off track on meeting the trajectory set out under the Seventh Carbon Budget, and it would likely be in breach of the upcoming Fifth Carbon Budget target, as well as its international commitments. It is hard to see how the UK government could win any legal challenge on its Carbon Budget Delivery Plan if the BUS were scrapped and not replaced.

Not only would the Labour government compare unfavourably to the 2010-2024 Conservative government’s record on climate change, cutting the Warm Homes Plan may also mean spending less than the previous Conservative government had planned to do.

Cutting the BUS is also the exact opposite of what the UK government should be doing while facing another gas crisis. Heat pumps are by far the most effective way to destroy gas demand, and are one of the best tools Britain has to reduce its dependence on imported gas in the long term. Cutting heat pump subsidies at a moment when alternatives to gas are so badly needed would be a significant act of economic harm. It would leave Britain’s whole climate and energy policy in disarray.

The central principle for any technology subsidy should be to make itself redundant over time. In the long term, the BUS should be part of a wider plan to make the heat pump market self-sustaining, so that it can become competitive without the need for UK government subsidy.

We think the BUS should become obsolete in the mid-2030s, as long as government policy changes in the right direction. In our 2024 policy plan for delivering clean heat, we proposed the following trajectory for the Boiler Upgrade Scheme over time.

The chart below uses Nesta modelling to give an example of how subsidies could be gradually reduced. It shows the lifetime cost of installing a heat pump and a gas boiler each year until 2035, with the subsidy reducing as in the table above. Heat pumps remain cheaper than a gas boiler throughout, even as the subsidy ends. In this scenario, gas prices remain at October 2026 levels, while electricity prices fall by 2% per year in real terms and heat pumps save 15% on their bill by using a time-of-use tariff. The upfront cost of installing a heat pump falls by 2.5% each year in real terms.

Three things need to happen before heat pump subsidies can end. First, the ratio of electricity-to-gas prices needs to fall substantially and permanently, to 2.5 or lower. Second, the upfront cost of installing a heat pump needs to fall gradually - we think a 2.5% reduction each year is feasible. Third, finance for heat pumps must become widespread so that households can afford the upfront cost.

There are promising signs of progress on each of these fronts, but not yet enough that the BUS can be cut. The electricity-to-gas price ratio has fallen, but remains at 3.3. Upfront costs are falling, but will take time to compound. The UK government is due to launch a new loan soon, but it will take time to scale up.

If the UK government can stay the course on this, it should be well placed to begin lowering the BUS in the coming years. We envisage the BUS falling to £5,000 from 2029, before gradually reducing to reach zero by the mid-2030s, if everything else goes right. But if the BUS is cut too soon, or if the rest of the policy landscape goes astray, none of this will be possible. The UK government would probably have to bring back its ban on new boiler installations from 2035 if it wants to avoid breaking its own climate laws.