Lib Dems warn families face £1,530 “Green Penalty” as Govt sweeps away warm home incentives

EMBARGO: Immediate Release

Families striving to protect themselves against volatile bills face a punishing £1,530 "green penalty", the Liberal Democrats have warned. The warning comes as the Government pushes ahead with plans to reimpose VAT on energy-saving home upgrades while cutting the Warm Homes Plan budget. The Liberal Democrats are urging ministers to reverse course and back the Party’s proposals for a National Electrification Strategy in the Energy Independence Bill, to deliver lower bills and long-term energy security.

In the Budget ministers confirmed that the temporary 0% VAT relief on Energy-Saving Materials (ESMs) will expire and revert to 5% from April 2027. As a result, households installing a standard package of clean energy measures, including an air-source heat pump, a 4 kW solar array, and a home battery, face a combined £1,530 tax hike on upfront costs.

This comes as the sector warns that if current heat pump application trends continue, next year's Boiler Upgrade Scheme (BUS) budget risks maxing out before the end of the year. Such a shortfall threatens to halt the momentum of the UK's home heating transition in its tracks. The government has cut next year’s BUS budget by a third, remaining at £400m next year instead of the £600m that was set out in the Warm Homes Plan.

Households that rely on heating oil face an immediate double blow. From 1st April, they will see the upfront cost of installing a heat pump surge on two fronts: the expiration of the £1,500 BUS grant uplift and the 5% addition of VAT. These tax rises follow Government cuts of up to £2.5 billion from the Warm Homes Plan, including slashing £720 million from BUS and taking £180 million from low-income energy schemes.

With More in Common polling revealing that upfront costs remain the primary barrier for the half of Britons who want to switch to technologies like solar panels, the Liberal Democrats are urging Ministers to back their proposals for a National Electrification Strategy in the upcoming Energy Independence Bill to deliver long-term energy security.

Liberal Democrat Spokesperson for Energy Security and Net Zero, Pippa Heylings MP, said:

“Just when we need to be supporting families with the cost of energy, the Government is cutting the Warm Homes budget and penalising households with a £1,530 increase in installation costs.

“Electrifying the way we heat our homes is how we get Britain off fossil fuels and bring down bills - that’s why the Liberal Democrats are calling for a National Electrification Strategy in the Energy Independence Bill. Without it, we are sleepwalking into another decade of fossil fuel backsliding, leaving families trapped paying sky-high bills to oil and gas giants.

“Ministers must urgently reverse this short-sighted VAT hike, safeguard the Boiler Upgrade Scheme, and give households and businesses the certainty and support they need to make the switch to clean British energy.”

ENDS

Notes to Editors:

• Industry data compiled by the MCS Foundation and official statistics show that reinstating 5% VAT will add around £641 to a median air-to-water heat pump (£12,826), £422 to an average 4 kW domestic solar installation, and £467 to a standard battery storage system. Together, a household installing this clean energy package faces an extra £1,530 in tax.
• MCS Foundation Warnings:
  • Budget exhaustion: The MCS Foundation warns that sustained application rates for the Boiler Upgrade Scheme (BUS) mean the allocation risks being completely exhausted before the end of next year.
  • Double hit on oil users: Households currently using heating oil face a dual price jump from 1st April due to the expiry of the £1,500 BUS off-gas grid uplift combined with the 5% VAT introduction.
• The Government confirmed up to £2.5 billion in cuts across the Warm Homes Plan envelope, including £720 million from the Boiler Upgrade Scheme, £180 million from low-income schemes, £100 million from heat networks, and £1.5 billion from financial transactions.
• Research by More in Common found that 50% of Britons already have or would like solar panels, but upfront costs remain the dominant obstacle across all income brackets. Around a quarter to a third of households state they want a heat pump but cannot afford the upfront installation outlay