Scrapping the boiler tax ‘may jeapordise heat pump investment’

Investments being made into the UK’s heat pump industry may be put at risk if the government scraps its so-called boiler tax, industry experts have warned.

Reports emerged over the weekend that the government’s clean heat mechanism, which would see boiler manufacturers face fines if they did not produce enough heat pumps, was to be scrapped amid concerns that boiler costs were increasing for consumers.

The news has been met with concern from many in the sector, with the government accused of caving to pressure from the fossil fuel industry.

Energy and Climate Intelligence Unit (ECIU) analyst Jess Ralston warned that the proposed move could have consequences for industry investment.

She said: “If energy independence is the government’s priority, policies that lower our gas demand, like this one, should be top of the list.

“Any delay to the move towards electric heat pumps would worsen our energy security by keeping us tied into gas for longer, which will increasingly come from abroad as the North Sea continues its decline. New licensing won’t shift the dial on that.

“It would also be a disastrous signal to send to the heat pump industry which has been gearing up for the policy’s introduction in just two months’ time and may jeopardise investments that companies are already making in the UK’s heat pump industry.

“More screeching U-turns for the energy industry is not great when we’re increasingly competing for investment with international markets that are pressing on with net zero as a route to energy security, including rapidly rolling out heat pumps.”

Sharing similar concerns about investment Tom Lowe, founding director of Thermal Storage UK, told Utility Week: “Businesses welcome long-term policy certainty from the government. Such certainty generally lowers the cost of investment, which is particularly important for manufacturers developing and building consumer products.

“The UK government first proposed the Clean Heat Market Mechanism in 2021 and confirmed the scheme design as recently as late November 2023. Manufacturers and installers of heat pumps, thermal stores and gas boilers will have planned on the basis that the scheme would start in 2024 and be kept under review.

“Newspaper articles are much less reliable than government consultations. We encourage the Department for Energy Security and Net Zero to remove this latest uncertainty and confirm as soon as possible whether the Clean Heat Market Mechanism will proceed.”

Also expressing his worries over the potential move was Bean Beanland, director for growth and external affairs at the Heat Pump Federation. He told Utility Week: “We put very clearly in our response to the Clean Heat Market Mechanism consultation last year that a supply side initiative on its own is of no use and is doomed to fail one way or another and we are now seeing that potentially the secretary of state is going to cave in. Apparently there was a letter sent that said ‘you cancel the CHMM and we’ll cancel the increases’…that’s not good.”

Beanland accused the government of caving in to a “dinosaur industry”.

“The glee in fossil fuel HQ is going to be unbounded. The messaging to the general public is just appalling,” he added.

Beanland further warned against pushing the cost of electrifying heat on to future generations. He suggested ministers opt for long-term loans, as the government did in the aftermath of the Second World War in order to refinance the country.

He added: “The Second World War ended in 1945. We made our last loan payment in 2006 – 61 years after the end of the war. Were we all running around in sack cloth and ashes because we didn’t have any money as a result? No. So what this tells you is that if we can spread these massive costs over a significantly extended period of time, it becomes affordable.

“Now who can borrow over 61 years? Government can. So we could choose to look at some mechanism that enables us to start spending the money, repay it over a very extended period of time and accept that that means we are pushing some of the costs in to the future but it’s an affordable rate because we are doing it over such a long period of time that nobody actually realises.

“If that means as a result we start getting some of the economic benefits that were set out so ably by [former energy minister] Chris Skidmore in his paper then of course it becomes that much more affordable.”

Meanwhile the Association for Decentralised Energy’s (ADE) senior policy manager Chris Friedler commented: “If recent reports of the withdrawal of the Clean Heat Mechanism are true, this represents a big backwards step on the path to low carbon heating.

“While plans change and households must be protected from costs being passed-on, this raises the big question of what the Plan B for getting Britain off gas really looks like. Extraordinary targets require extraordinary policies, and if the Clean Heat Mechanism isn’t it, a more acceptable backup plan is needed – fast.”

Not all industry experts share these concerns, however.

Mike Foster, chief executive of the Energy & Utilities Alliance, told Utility Week that scrapping the measure would be a “sensible and pragmatic approach”.

He added: “The boiler tax is something that we have been campaigning against for 12 months or more and we have met with ministers and officials to express the concerns that we had over how this might play out and it has played out exactly as we have predicted in that the consumer is now having to pay the price of the policy and it isn’t shifting heat pumps in a way in which I know the department were keen to do.

“We think there are better ways of doing that…the unfairness of charging (customers) more because they had the misfortune that their boiler had broken down just seems to be not a policy that has a great deal of merit.”