The UK government has published its long-awaited Warm Homes Plan, which aims to spend £15 billion to make our home energy use cleaner, cheaper and more comfortable.

It has been four years since the government last published a major strategy for heat and buildings. Back then, gas was four pence per kWh, Prime Minister Boris Johnson was enthusiastically hosting COP26 in Glasgow and the energy crisis of 2022 was several months away.

The Warm Homes Plan arrives today in a different context. Energy is expensive and vulnerable to geopolitical shocks. Much of the progress on home upgrades envisioned by the last strategy has not materialised. Energy bills are an acute issue for households and the government, with the cost of living routinely cited as the top issue of concern for voters. The UK’s consensus on the importance of net zero has fractured, even as public support for tackling climate change remains high.

This challenging context makes the Warm Homes Plan even more important. Heating accounts for nearly half of a typical energy bill, and around 14% of the UK’s carbon emissions. Given its importance to the cost of living, fuel poverty, the climate and the nation’s health, the Warm Homes Plan should be one of the most important domestic policy plans this government will publish.

On the whole, the new Warm Homes Plan rises to the challenge. It will increase investment into upgrading homes to £15 billion over five years . It reflects the development in technologies for heating homes by prioritising electric technologies - solar, batteries and heat pumps - over fabric insulation. And it recognises the need for more coordinated delivery mechanisms, creating the Warm Homes Agency.

That said, there are two challenges that the plan leaves unresolved. First, it does not further reduce the high cost of electricity relative to gas, which makes clean, electric heating more expensive. Second, it is not clear that the policies it sets out go fast enough to meet the UK’s climate commitments, either the near term carbon budgets or the longer term commitment to net zero by 2050. 

While these challenges will require further work, the Warm Homes Plan is a step forward for home heating.

The central idea of the Warm Homes Plan is electrification. Up until now, most of the work of cleaning up our energy system - such as building offshore windfarms or electricity transmission lines - hasn’t been that visible to most people on a day to day basis. The Warm Homes Plan aims to change that by bringing the clean electricity revolution inside the home.

To date, the plan for home heating in Britain has focused on upgrading the fabric of homes, to make them more energy efficient and warmer. This approach has led to many homes being improved - especially in the social rented sector - but it has begun to hit its limits. Many homes that would benefit from cheaper insulation measures have already been upgraded - 67% of lofts are insulated, and 71% of cavity walls. Those homes that remain tend to need more expensive measures, such as solid wall insulation, which is less cost effective.

At the same time, Britain’s electricity grid has become a lot cleaner, and the key technologies of electrification - heat pumps, solar panels and batteries - have become cheaper and more efficient. For most homes, electrifying makes more sense, both in cost and climate terms, than further fabric upgrades. The new Warm Homes Plan reflects that changed reality.

Electrification can dramatically reduce energy bills. Nesta’s analysis suggests that by getting a heat pump, solar and a battery and using them with a smart tariff, a typical household could reduce their yearly energy bill by £1,000. This reflects the benefit of being able to generate free electricity from the sun, store it for when it's needed with a battery, and use it to power a highly efficient heat pump. It also includes a substantial saving from using a smart tariff, with lower prices for using electricity at times during the day when there is more available.

Although electric technologies have huge potential to reduce energy bills, they also come with an upfront cost. The Warm Homes Plan sets out plans to help different kinds of households with these costs.

The chart below sets out the breakdown of funding allocated in the Warm Homes Plan each year. The funding is split between support for better off households (the Boiler Upgrade Scheme and consumer loans), support for low-income households, and other spending, including heat networks and an investment fund. The overall funding increases slightly year-on-year compared to previous plans, with the abolition of Energy Company Obligation (ECO) (funded by a levy on energy bills) offset by a big increase in government spending.

Support for low-income households

The Warm Homes Plan will offer fully funded home upgrades - particularly solar and batteries - to low-income households. This accounts for £5 billion over five years, a third of the total spending in the plan. The emphasis is on lowering bills for low-income households in the most cost-effective way possible.

The criteria for being eligible for this funding are not set out in the plan, but we expect eligibility to be broader than for the outgoing ECO scheme. 

Consumer loans

One of the key new policies in the plan is the introduction of government-backed retrofit loans. These will allow home owners and landlords to access low-interest loans to upgrade their homes, including with solar panels, batteries, heat pumps and insulation. We expect interest rates for these loans to be between 0% and 3%.

Rather than being a direct loan from the government, these loans will be provided by banks and other lenders, with the government providing support to lower the interest rate. The Warm Homes Plan allocates £2 billion over five years to supporting these loans.

Offering low-interest-rate loans could significantly reduce the cost of installing clean technologies. As the chart below shows, buying an air source heat pump with a zero-interest loan would save a household around £350 per year compared to a 10% interest rate (a typical rate for an unsecured personal loan).

Nesta’s previous work has shown that there is strong demand in theory among households for government-backed loans for home upgrades. However, making these loans attractive enough to consumers will be a big challenge, and previous green loan schemes such as the Green Deal failed.

Our research suggests the key success factors for consumer loans are:

1. a low interest rate
2. flexible repayment terms (eg, over how long the loan lasts)
3. complementary support, such as advice and guidance

If the UK government can get its new consumer loans scheme off the ground and prove that there is sufficient demand, it could spark further investment from the Treasury and become a very important tool for upgrading the nation’s homes. Solar is likely to play an important role in driving early demand for the consumer loans, but in time the loans should aim to support a full range of home upgrade measures.

Boiler Upgrade Scheme

The Boiler Upgrade Scheme (BUS) will also continue as the key measure for supporting heat pump uptake in England and Wales, and will see its budget gradually expanded. BUS has supported over 72,000 heat pump installations since it launched, and the scheme is growing steadily by 30% year on year. Its budget will increase by 26% per year on average over the next four years, peaking at just over £700 million per year. The funding profile outlined in the Warm Homes Plan implies that BUS may be cut to a £5,000 grant for air-to-water heat pumps in 2029/30, because there is little rise in funding available for BUS from 2028/29 to 2029/30 but heat pump installations are set to keep increasing.

BUS will also cover air-to-air heat pumps from April, with a smaller £2,500 grant. Air-to-air heat pumps have the potential for rapid uptake, and could make the BUS budget go further.

Minimum standards for private and social rented homes

The Warm Homes Plan will require all privately and socially rented homes to reach a minimum standard of energy efficiency by 2030. The minimum will be to reach EPC C on two out of the four new metrics, as proposed by the government in its reforms to EPCs. Exemptions will apply to these regulations, and there will be a cost cap of £10,000 per home.

These minimum standards will drive the bulk of the home upgrades promised by the Warm Homes Plan. Of the “up to 5 million” homes that the plan aims to upgrade, the government estimates that 2.9 million of those will be achieved through minimum standards. That includes 1.6 million private rented and 1.3 million socially-rented homes upgraded.

Rented homes have been getting steadily more energy efficient over time, although the private rented sector lags a long way behind social housing. We estimate that, without the new policy, around a third of private rented homes would be below EPC C standard by 2030, with only 4% of socially rented homes in that situation. This looks particularly steep for the private rented sector, and combined with the lower £10,000 cost cap, it may be challenging to get all private rented homes to a good standard by 2030.

Heat networks

The Warm Homes Plan sets out a significant increase in funding for heat networks, at £1.1 billion over five years. It also sets out new policy on consumer protection for heat network users and designating heat network zones. This should mean more homes in urban centres can access clean heating, with the government targeting 7% of all heat demand being met by heat networks by 2035.

Although the Warm Homes Plan marks a significant increase in government investment in home upgrades, it is not clear whether this will be enough to meet the UK’s climate commitments.

The UK government has a series of legally-binding commitments on carbon reductions - the carbon budgets - which set how much emissions must fall in every five year period, before reaching net zero by 2050. The key factor in whether the UK can meet these targets is the number of low-carbon heating systems - such as heat pumps and heat networks - installed, because these are the main route to cut carbon emissions from homes.

Targets for heat pump installations

The Warm Homes Plan sets a target for 450,000 heat pumps to be installed annually by 2030. This includes new builds as well as existing homes. According to the plan’s technical annex, it assumes around 200,000 heat pumps in new builds in 2030, suggesting the plan will support 250,000 in existing homes. This is a significant downgrade from the previous government’s target of 600,000 heat pumps installed by 2028, which also included new builds. 

Meanwhile, the Seventh Carbon Budget Balanced Pathway envisaged that the UK would need almost 450,000 heat pumps per year installed in existing homes in 2030, with new builds in addition. That suggests that the Warm Homes Plan is likely to miss the Balanced Pathway by around 200,000 heat pump installations a year in 2030, raising questions about whether the UK can meet its climate commitments.

No further action to reduce the electricity-to-gas price ratio

There is also no further action on the electricity-to-gas price ratio in the Warm Homes Plan, beyond the measures announced in the Budget in November. This means the price ratio is likely to stay at around 4.1 from April 2026. This means heat pump running costs will stay close to gas boilers, although more efficient installations and smart tariffs can help make them cheaper to run. For clean heating to take off at scale, reducing electricity prices relative to gas is critical. This is a significant gap in the plan, and something the Treasury should look to address further.

No phase-out date for boilers

The Warm Homes Plan also does not include any provision for phasing out the installation of new boilers. The previous Heat and Buildings strategy in 2021 did outline a 2035 phase-out date for new gas boiler installations, as recommended by the Climate Change Committee. With a lower overall target for heat pump uptake, and the electricity-to-gas price ratio remaining high, there is a risk that the Warm Homes Plan will not keep the UK on track to meet its climate obligations.

Arguably, the most important aspect of the Warm Homes Plan is its approach to delivering home upgrades. Many previous green homes policies - including ECO, the Green Homes grant and various locally delivered grant schemes - have fallen down on delivery. 

The Warm Homes Plan proposes a number of new delivery arrangements to avoid a repeat of these failures. The flagship measure is the creation of the Warm Homes Agency, a new public body that will support local areas to deliver home upgrades and provide advice and guidance to households. 

The plan emphasises the importance of strategic planning, coordination and delivery of home upgrades at a local level, and notes roles for a wide range of organisations in this, including distribution network operators (DNOs), local and combined authorities, energy suppliers, community energy groups and others. Details on what these organisations will do is relatively thin. The plan hints at an expanded role for DNOs, and promises further detail in spring 2026. Local government capacity for upgrading homes is uneven, and the plan does not indicate whether there will be additional resources to support this work. 

The other key areas of uncertainty is on how schemes for low-income homes will be delivered in future. To date, most delivery has been through ECO, which was abolished in the November budget. Some ECO delivery will continue through to the end of 2026, alongside existing schemes delivered by local authorities and social landlords. The government anticipates bringing these schemes together from 2027 onwards, and shifting to area-based delivery, again with further detail promised in spring 2026. 

To deliver the scale of upgrades set out in the plan, the UK government needs to move quickly to get delivery arrangements up and running, but still has a lot of questions to work through.