Why Spending Alone Won’t Deliver the Heat and Building Strategy’s Ambitious Goals

March 8, 2022 5 Minute Read


The UK Government’s Heat and Buildings Strategy (HBS) aims to reach net zero emissions from buildings by 2050. However, along with commentators like UKGBC, Carbon Brief and BRE we think it doesn’t yet lay out a clear pathway to achieving net zero. Further regulation is the most likely route by which the Government will address that gap. In this blog I explain why.

The transition away from fossil fuel heating systems to low carbon alternatives such as heat pumps is a key pillar of the HBS. Practically all buildings will have to transition by 2050. However, the strategy risks falling at the first hurdle because improving thermal efficiency in existing stock, often a prerequisite for heat pumps to work, is not comprehensively addressed by the HBS.

Another barrier is the make-up of spending announced. Of the £3.9bn of spending announced in the HBS, only 11% (£450m) will be made available to most domestic and commercial properties, via a boiler upgrade scheme. From 2022 to 2025 £5,000 and £6,000 grants will be offered for installation of air source and ground source heat pumps respectively. The remaining 89% of spending supports other schemes for public sector buildings, infrastructure and social housing, and off-gas grid housing.

The HBS estimates there are around 30 million buildings (both commercial and domestic) in England and Wales. To remove fossil fuel heating from these buildings by 2050, the HBS sets a minimum target of 600,000 heat pump installations annually from 2028, rising to 1.7 million annually from 2035. Currently only around 35,000 are installed annually.

Figure 1 shows that the rate at which heat pumps are installed must increase by around 50% each and every year to hit the 2028 target. Even if we assume that subsidy continues after 2025 at the present level, the already limited proportion of heat pumps subsidised by the scheme will fall each year, reaching an estimated low of only 5% of the annual target by 2028. This begs the question: given the limited subsidy, what is going to cause the rapid growth necessary in the heat pump installation market?

Figure 1: Heat pump installations needed to meet government targets

Source: CBRE Research (assumes (a) heat pumps installed increase by 51% pa, the minimum rate necessary to reach 600,000 installations by 2028; (b) £450m funds 90,000 heat pumps over three years at an even rate; (c) the existing spending commitment covering 2022-2025 is matched between 2025-2028.)

The government hopes that the spending announced will bring down heat pump prices and ultimately create a self-sustaining market where heat pumps are a competitive alternative to gas boilers.

However, hope is not a strategy. The HBS does not say why £450 million is enough to stimulate a currently nascent market into the market necessary in only six years’ time. Although the clean heat market consultation and new policies around labour force capacity and (re)training make this more plausible, the HBS does not work back from its target to establish how the initiatives proposed will deliver the installations required.

That leaves the Government with three options: spend far more, make the market-led approach more sophisticated, or regulate the market into existence. Given post-pandemic fiscal constraints it’s not plausible to suggest that the Government will increase the current £450m to the £3bn we estimate would be needed to subsidise the installation of all 600,000 heat pumps by 2028. It’s more credible to suggest that the Government might elaborate on its market-led strategy in due course.

However, we suspect that the Government is already resigned to the idea that some sort of regulation will be required: the clean market consultation anticipates the need for “regulatory demand-side policies.” So, while regulation is conspicuous by its absence in the HBS, this does not mean it will be absent from the government’s evolving strategy. Both landlords and homeowners should watch this space.

A shorter version of this blog was published in Property Week magazine.