£90m of boiler upgrade funding lost after not being spent

Almost £90 million allocated to the Boiler Upgrade Scheme (BUS) will be clawed back by the Treasury after going unspent.

That equates to nearly two-thirds of the budget allocated for the first year of the government scheme.

Ofgem’s latest monthly update on the flagship home heating decarbonisation scheme shows that £60.3 million worth of BUS vouchers had been issued by March 31, marking the end of its first year of operation.

This left £89.6 million remaining of the £150 million budget for the first year of the scheme, around 60% of the total.

The Ofgem release shows that 11,696 BUS vouchers have been issued since the scheme went live on May 23 last year. Of these, 9,981 with a total value of £50.2 million have been redeemed. The regulator, which is responsible for administering the BUS, has received applications for a total of 15,768 vouchers.

The government has earmarked £150 million per annum for the scheme, which offers £5,000 grants to households that replace fossil fuel boilers with low carbon alternatives, from 2022 to 2025.

The end of year Ofgem figures follow mounting concern over recent months about low take up of the scheme.

In a recent report, the House of Lords environment and climate change committee blamed disappointingly low take up of BUS grants on mixed government message about the future of home heating,

In addition, the May 23 start date for the scheme effectively chopped two months off the scheme’s first year and the full online portal for submitting voucher applications only went live at the end of November.

Utility Week reported in February an admission by energy minister of state Graham Stuart that Treasury rules mean that it will claw back any annual underspend on the scheme.

However the government announced in its recently published energy security plan that the BUS will be extended for another three years beyond its originally announced 2025 cut off date.

Mike Foster, chief executive of the Energy and Utilities Alliance, said the figures show limited appetite for the BUS.

“It takes a certain quality of genius to fail to give away £150 million of taxpayers’ money and this wretched scheme looks like it has done just that. When will the government actually listen to the people, the majority of whom simply cannot afford a heat pump, subsidised or not,” Foster said.

“The scheme is simply a taxpayer handout to those who don’t need it. It does little for carbon saving compared to investment on insulation. It does not help people keep bills low. It takes from the poor to give to the wealthy and it is an embarrassment of a policy.

“The only saving grace is that Treasury officials correctly suspected the scheme would flop, that’s why they gave themselves the power to claw back any underspend. The downside is that they have used the underspend to extend the life of the scheme, keeping the lobbyists happy but not the taxpayer.”

However Bean Beanland, director for growth & external affairs at the Heat Pump Federation, said the industry has done “incredibly well” given the lukewarm level of political support for the scheme since its launch last year.

He also said the high cost of electricity means that the many installers able to fit both heat pumps and solar PVs have been concentrating on demand for the latter.

Richard Lowes, senior associate at The Regulatory Assistance Project, said the BUS’ budgets should not have been set at the same level for the first three years of the scheme.

“For a scheme that was expected to grow annually, this never really made sense and so the budgets should have been lower initially and increased annually. The good news is that 2022 was the best ever year for UK heat pump installations, and at the install rates of 2023 so far, growth will continue. However, much more rapid growth is needed.

“As well as reforming the scheme to move budgets between years alongside the extension of the scheme to 2028, wider reform is needed to drive the market. This includes rebalancing gas and electricity prices, sorting out obvious issues with planning and legislating for the expected 2026 ban on oil and liquefied petroleum gas boilers.”