Nesta warns heat pump grant cuts would undermine market growth

Social research charity, Nesta has warned that cutting or scrapping the Boiler Upgrade Scheme (BUS) would undermine investment by heating businesses and disrupt the development of the UK heat pump market. The organisation argues that support should be withdrawn gradually as installation costs and running costs become more competitive.

The warning follows reports in the national press that the government is considering reductions to its £15bn Warm Homes Plan. According to Nesta, the BUS accounts for around £2.7bn of that funding and could face cuts or closure. No government decision confirming those changes is included in the supplied material.

Nesta argues that heating engineers and businesses, including small firms, had invested in heat pumps on the understanding that the technology would play a growing role in home heating. Abruptly withdrawing support would threaten those businesses and weaken confidence in future investment.

Nesta said July and August 2026 had been the two highest months on record for BUS voucher applications. It argued that this emerging momentum made the timing of any reduction particularly important for an industry still developing its installation capacity and customer base.

The organisation also highlighted improving running-cost conditions. According to its analysis, the electricity-to-gas price ratio fell from 4.7 in January to 3.3 in October. A lower ratio improves the economics of heat pumps relative to gas heating, although Nesta argues that a further sustained reduction is needed before subsidies can end.

Its case for retaining the scheme centres on market development. Citing the government’s BUS evaluation, Nesta said 74% of supported installations would not have happened without the subsidy. It also pointed to findings that 42% of recipients had household incomes below £52,000, challenging the view that the scheme benefits only wealthy households.

Nesta argued that grant support had encouraged new businesses, installation methods and product improvements. Citing government scheme statistics, it said the inflation-adjusted installation cost of an 8 to10kW heat pump had fallen by an average of 2.7% a year since 2022.

The organisation also warned that withdrawing support without a replacement would weaken efforts to decarbonise domestic heating and reduce reliance on imported gas. They presented heat pump adoption as a central part of the UK’s energy and climate strategy, rather than an isolated home improvement programme.

Nesta supports an eventual end to subsidies but says three conditions must first be met: a sustained electricity-to-gas price ratio of 2.5 or below, continued reductions in upfront installation costs and widespread access to finance for households.