Treasury urged to give heat pump users a tax break

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.

‘Per unit of energy used, electricity is loaded with almost 9 times as many levy costs compared to gas’

This would include about 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 69,000 fitted in 2021.

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 most households.

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

It says the policy would cost about £390million a year for all electric heating.

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.”