Taxpayer cost to decarbonise all oil homes in the UK could cost billions or it could cost nothing – the Government has a choice
If the 1.7m oil heated homes in the UK each claimed the existing £7,500 government subsidy to switch to a heat pump, the total cost to the taxpayer could be billions of pounds.
To achieve net zero, Labour’s current policy proposals are for the vast majority of oil heated homes to transition to a heat pump. To support with the upfront cost, a £7,500 grant is available from the government for eligible households through the Boiler Upgrade Scheme.
The total funding for the grant is capped and wouldn’t cover all oil heated households, let alone those using gas. However, should the government pursue its plan for most oil homes to switch to heat pumps, the grant funding would need to be substantially increased or the costs would have to be passed onto households.
Alternatively, the government would need to invest in improving the energy efficiency of oil heated homes to reduce the cost of heat pump installations, but this would similarly still require substantial taxpayer funding.
According to the latest Ofgem report for 2024-25, quotes for installing air source heat pumps were typically between £10,001 to £12,500. However, the average total amount when applying for grants through the Boiler Upgrade Scheme was higher at £13,433. This means some households who claim the £7,500 grant would still have to pay thousands more on top.
Many oil heated homes also have poor energy efficiency, which means they will face additional costs to upgrade their home for a heat pump to work effectively. This could include added insulation, new radiators and a new hot water tank.
In response, OFTEC, which runs an off-grid registration scheme for heating technicians, is urging the government to explore more affordable renewable options for oil heated homes. This would reduce the financial burden on the Treasury and ordinary households at a time when both public and personal finances are already strained.
The trade association has outlined how oil homes could instead switch to the renewable liquid fuel Hydrotreated Vegetable Oil (HVO) and drastically cut their carbon emissions. The fuel could initially be introduced as a blend with kerosene with no additional upfront cost.
An eventual switch to 100% HVO would still only require a minor modification to the boiler, which could be completed during a routine service.
Whilst HVO is currently more expensive than kerosene, the government already has the legislative powers, which were agreed in 2023 and supported by them, which would introduce a market mechanism similar to that in transport, at no cost to the taxpayer, and equalise the duty applied to HVO with that of kerosene to lower the running costs
Just under 150 oil heated properties switched to HVO as part of a successful three year demonstration project. This included homes, villages halls, schools and churches to reflect the diverse types of buildings which rely on heating oil in rural areas.
Malcolm Farrow, from OFTEC, commented: “We all need to make changes to how we heat our homes to reduce emissions and tackle climate change. Whilst heat pumps have an important role to play, for oil heated homes the cost of switching is significantly higher as properties tend to be older and poorly insulated.
“This led to the last government u-turning on its proposals to transition oil homes onto heat pumps, but Labour seems to be ignoring the same warning signs from rural communities. The cost of switching all oil homes to heat pumps through a £7,500 grant, funded by the taxpayer, would be astronomical and most households would still have to top this up to cover the full cost of installation.
“That’s why if the government is serious about switching oil homes onto low carbon heating technologies, they need to support renewable liquid fuels which offer an affordable and practical alternative solution.”
For more information visit www.futurereadyfuel.info.