As we begin 2026, it’s clear that cutting the cost of living and restoring economic growth are top priorities for the country. The Government’s Warm Homes Plan, expected in the coming weeks, is an opportunity to deliver on these priorities by cutting the cost of electricity, supporting low-income households to access renewable energy, and setting a phase out date for gas boilers.
As the Government finalises its plan, there is momentum to be built on and achievements to be proud of. Last year was yet another record year for the number of certified heat pump installations, according to MCS data, with over 60,000 heat pumps installed in 2025. This has been – and will be further over the course of 2026 – helped by policies such as lifting planning restrictions on heat pump installations in terraced homes, and the implementation of the Clean Heat Market Mechanism, which incentivises boiler manufacturers to increase the proportion of heat pumps they sell relative to boilers. The long-awaited Future Homes Standard, which is set to make heat pumps the default heating system for new homes, will also help build momentum.
Yet to continue this growth, and crucially to get from 60,000 heat pump installations a year to the 1.5 million necessary to meet the UK’s legally-binding climate targets, we need a Warm Homes Plan that ensures no household is left behind in the transition to low-carbon heating. The announcement that the Energy Company Obligation (ECO4) will end in April leaves a significant gap when it comes to ensuring low-income households have access to clean, affordable energy. The Warm Homes Plan must fill this gap, by committing to investing in renewable energy installations in these homes. This will also provide much needed certainty to the renewable sector and restore confidence shaken by the end of ECO4.
This must be paired with a real, robust commitment to clean heat and that means setting an unambiguous phase out date for fossil fuel boilers. Without a clear deadline, installers, manufacturers, and investors alike face uncertainty that is slowing the rollout of low-carbon heating technologies – not only putting the decarbonisation of our homes at risk, but also hampering the delivery of the Government’s industrial strategy in which the heat pump sector is recognised as a frontier industry. A 2035 phase out date aligns with the UK’s legally binding climate commitments and would signal the end of polluting heating in new homes. It would also provide households with confidence that moving to low-carbon heating today is a future-proof investment.
But crucially, if the transition is to work for all households, then the Government must urgently cut the cost of electricity. At present, households pay more than four times as much for each unit of electricity as they do for gas , in part because of social and environmental levies that are placed directly on household bills. Placing levies on electricity bills made sense when electricity was largely generated from dirty coal, but this has changed. Renewables are now the backbone of new power generation, the decarbonisation of heat is a strategic necessity, and fuel poverty remains unacceptably high. Retaining this pricing structure now actively works against the Government’s own objectives and the best interests of the British public.
Levies on electricity inflate its price relative to gas, widening the so-called “spark gap.” This distorts household choices, discouraging the uptake of electric heat pumps and other low-carbon technologies at precisely the moment government policy is supposed to be encouraging their adoption.
Rebalancing price structures is one of the most effective steps the Government can take to drive up the adoption of electrified heat. Research commissioned by The MCS Foundation found that moving levies into general taxation could reduce household energy costs by up to £300 per year. That is not marginal support. It is a meaningful intervention in a cost-of-living crisis.
Levies applied through bills are regressive, leaving lower-income households to spend a greater proportion of income on energy and shoulder a disproportionate burden. This is incompatible with a commitment to eradicate fuel poverty and ensure a just transition.
Funding levies through general taxation is fairer and more progressive. It better aligns contribution with ability to pay, while ensuring households in or near fuel poverty are not penalised for essential energy use. For the millions of Britons living with persistent financial stress linked to energy bills, this reform would provide direct relief.
The Government has already acknowledged this principle by announcing in the Autumn Budget that most of the Renewables Obligation will be funded by the Treasury instead of through levies on bills. This shows both feasibility and political acceptability. But partial reform will not unlock the full benefits. Moving remaining levies into general taxation is essential to cutting the cost of electricity, tackling fuel poverty, and delivering on the Government’s own legally binding carbon targets.
The Warm Homes Plan must be ambitious, clear, and fair, by ensuring support for the most vulnerable, committing to a phase out of fossil fuel heating, and cutting the cost of electricity. If the Government can deliver on these three key policies, then that will be a big step towards ensuring access to clean, affordable energy for all and continued growth for one of the country’s most promising industries.
