Revealed: Labour’s multi-billion pound plan to slash energy bills

LONDON — The U.K. government is considering a string of reforms to energy policy, in a bid both to bring down bills and hit flagship green targets. 

Details of the multi-billion-pound Warm Homes Plan, designed to help improve energy efficiency at millions of households, will not be made public by Energy Secretary Ed Miliband until this fall.  

But the content of government emails seen by POLITICO, as well as conversations with people familiar with planning in Whitehall, show Miliband is pinning his hopes on an overhaul aimed at incentivizing people to take up clean tech. 

This includes a new policy, being mulled by Miliband’s Department for Energy Security and Net Zero, which would reduce energy bills for heat pump owners, as part of the overarching plan to cut costs and upgrade five million homes this parliament with clean tech and better insulation.

The move would involve shifting green levies — the policy costs used to pay for other green schemes — off the electricity bills of heat pump owners, according to three industry figures familiar with government thinking. 

Other ideas for a beefed-up Warm Homes Plan being discussed in Whitehall include increasing the money available for subsidies to help households install a heat pump, restructuring existing schemes, and more funding for so-called heat zones, through which homes and businesses get their heat via an underground pipe network from one central source.

The politics of bills

The government confirmed at June’s Spending Review that it would spend £13.2 billion over the course of this parliament on bulking up homes with energy efficient upgrades and clean technology, including £5 billion in “financial transaction” loans. 

Details on spending the cash will be released by October, according to Treasury documents.

A greater portion of green levies are currently added to electricity bills compared to gas bills, meaning electric, climate-friendly technologies like heat pumps are more expensive to run.  

The impact of removing the levies could be felt “almost instantaneously” on bills, according to one of the industry figures cited above, at a time when Labour is scrambling to find ways to honor its election-time promise to cut energy bills by up to £300 a year. 

The thinking is that, by cutting the operational costs, more people will opt for heat pumps, incentivized by lower bills and contributing to efforts to cut damaging emissions at the same time. 

Ministers “want lots of different groups of people who have seen lower bills because of government intervention,” said the same industry figure. 

The government has been under pressure, including from the influential Climate Change Committee (CCC), to make electricity cheaper in order to encourage uptake of technologies like heat pumps. 

Heat pump sales in the U.K. are “not yet sufficient” to cut emissions at levels required to hit end-of-decade climate goals, the CCC warned earlier this year. The cost of electricity relative to gas is “still too high for households who switch to heat pumps to see the full benefits of their greater efficiency,” the committee said. 

In the zone

But there is a political risk in making the shift, insiders say, which will specifically cut bills for a portion of the population who can afford expensive heat pumps. 

DESNZ research released earlier this year found homes dependent on electricity for heating had the highest rate of fuel poverty, at just over 20 percent, but the vast majority of homes still depend on gas. 

“It is a significant political risk of the policy, as designed, that it will help a small demographic, and that by choosing that over, say, broader rebalancing [of green levies on all bills] they have chosen risk of that accusation over fiscal risk,” the industry figure said. 

Ministers are considering other policies ahead of October to incentivize a shift towards cleaner tech.

That includes year-on-year increases to the Boiler Upgrade Scheme, a grant program to help with the cost of installing a heat pump, every year up to 2029/30, according to the text of emails sent by DESNZ and seen by POLITICO. 

Grants of £7,500 are currently available under the scheme, which has a budget of £295 million between 2025 and 2026.

Ministers are also considering “significant funding to deliver heat network schemes” during this parliament, the same email said. DESNZ said last year that heat zones are one option to help “more homes and businesses … access greener, cheaper heat.”

The government could also expand existing home insulation schemes, such as its long-running Energy Company Obligation, to fund greater uptake of heat pumps, the industry figure said, although no plans on this have been finalized. 

In efforts to address growing energy bills, the government has already expanded the number of people eligible for the Warm Homes Discount scheme, a one-off £150 payment to help people struggling with costs.

The U.K. government said it did not “recognize” the account. A DESNZ spokesperson added: “As long as Britain remains exposed to the rollercoaster of global fossil fuel markets, we will be vulnerable to energy price spikes beyond our control. That’s why our clean energy mission is the best route to protect consumers and bring down bills for good.”