Give heat pump users a tax break on bills to encourage uptake, Treasury told

Up to 20 per cent of running costs are green and social taxes

Heat pump users should be given tax breaks on their energy bill to encourage take up, the Treasury has been urged by lenders and energy companies.

Higher running costs have been identified as one of the reasons for low take up of heat pumps, which the Government is favouring to replace gas boilers to help meet net zero goals.

Up to 20 per cent of the running costs are green and social taxes, including payments for wind farms and subsidies for fuel for poor homes.

Sixteen organisations, including Nationwide and energy giant EDF, have written to the Treasury calling on them to remove these levies from a proportion of the energy bill for electrically heated homes.

This would include around 250,000 homes using heat pumps and another 2.3 million that use direct electric heating such as radiators.

The UK has one of the lowest heat pump installation rates in Europe, with just 69,000 installed in 2021, well below the Government target for 600,000 by 2028.

The Government has committed to removing the green levies from electricity bills to help reduce running costs for heat pumps, which tend to be higher than using a gas boiler, and intends to consult on a process later this year.

Targeting homes heated with electricity in this way is understood to be one of the options under consideration by the Department for Energy Security and Net Zero.

A targeted discount would avoid the political pitfalls of adding the green levies to the general tax burden, or moving them on to gas, which would see bills rise for the majority of households.

Annual savings of £130

The policy would reduce the costs of heat pumps to around £16 a year higher than a gas boiler, providing a saving of around £130 per household, according to green think tank E3G, which is backing the policy.

It says the policy would cost around £390 million a year for all electric heating, the vast majority of which would go to homes using electric radiators, which are also greener than gas boilers.

Around a quarter of homes that use traditional electric heating are classified as fuel poor, and would receive a discount on around 5 per cent of their bill under the scheme.

The discount would only apply to a portion of household electricity bills, representing the average amount of power needed to heat a home with a heat pump.

A Department for Energy Security and Net Zero spokesman said: “Our plans to power up Britain include rebalancing gas and electricity costs, so even more consumers can benefit from cheaper and cleaner energy and green products.

“We are looking at a range of options for longer term energy market reform, including the rebalancing of gas and electricity prices, with the impact on consumers at the heart of our approach.”

James Dyson, senior researcher from E3G, said: “Per unit of energy used, electricity is currently loaded with almost 9 times as many levy costs compared to gas – which distorts the price of running a heat pump, despite this clean tech being many times more efficient than a gas boiler.”

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