Budget 2026 will remove £1bn of capital grant from the Warm Homes Plan as the Department for Energy Security and Net Zero reprioritises spending towards the Defence Investment Plan.
The Budget published by HM Treasury also cuts £200m of capital grant from carbon capture, usage and storage and £500m from hydrogen programmes. Boiler Upgrade Scheme funding is set at £400m in 2027-28, with funding then due to rise broadly in line with inflation.
The changes form part of the wider construction package examined in LCM's construction analysis of Budget 2026. The retrofit measures are particularly relevant to contractors working across heat pumps, social housing upgrades, domestic energy efficiency and low-carbon building services.
Refurbishment works to an existing building in London. Budget 2026 cuts £1bn from the Warm Homes Plan capital grant while retaining funding for heat-pump deployment. Photo: London Construction Magazine.
£1bn comes out of the Warm Homes Plan
The Government describes the £1bn reduction as a capital-grant saving from the Warm Homes Plan. It says the majority of funding for low-income households and social housing, delivered through mayors and councils, will be protected.
The Warm Homes Plan published earlier in 2026 set out £15bn of public funding across domestic retrofit, heat pumps, heat networks and consumer finance. Its allocations included grants for low-income homes, the Boiler Upgrade Scheme and a £5.3bn Warm Homes Fund.
Budget 2026 does not simply remove one named retrofit programme. The Treasury says DESNZ is reprioritising its budget, with the majority of Warm Homes funding for low-income households and social housing protected while capital grant is reduced elsewhere in the programme.
Heat pump funding falls to £400m for 2027-28
The Boiler Upgrade Scheme remains funded, but the new Budget figure changes the earlier programme. January's Warm Homes Plan allocated £600m to the scheme in 2027-28. Budget 2026 now states that funding will be £400m in 2027-28 before rising broadly with inflation thereafter.
That leaves the 2027-28 allocation £200m below the amount set out in January. The scheme provides grants towards qualifying heat-pump and biomass installations and remains one of the main routes through which domestic heat-pump work is supported in England and Wales.
The Government is also keeping its wider heat-pump deployment policy. Its separate Warm Homes Loan Scheme, launched on 27 October, provides supported finance for solar panels, batteries, heat pumps and other low-carbon systems. LCM's analysis of the Warm Homes Loan Scheme found that funded installations, apart from heat-network connections, must be completed by MCS-certified installers.
The Government's loan scheme initially includes ten lenders. Supported borrowing can reach £20,000 for an air-to-water heat pump and £35,000 for a ground-source system, and households can combine eligible loans with Boiler Upgrade Scheme grants.
Retrofit funding is also moving between programmes
A separate Budget decision moves departmental Financial Transactions towards the new £4.7bn Your First Home equity-loan scheme. DESNZ will reallocate Financial Transactions including money from the Warm Homes Fund and will explore greater use of guarantees in place of loans.
That financial reallocation is separate from the £1bn capital-grant saving. For the retrofit supply chain, the Budget therefore changes both the grant side of the Warm Homes Plan and part of the financing structure behind its consumer offer.
The combination leaves grant-supported work concentrated more heavily around protected low-income and social-housing programmes, the Boiler Upgrade Scheme and projects that can also draw on consumer finance. The exact workload effect will depend on how DESNZ distributes the remaining Warm Homes capital between individual delivery programmes.
CCUS and hydrogen capital grants also fall
The same DESNZ reprioritisation removes £200m of capital grant from CCUS and £500m from hydrogen. The Government says mature projects at the Teesside, Merseyside and North Wales clusters remain the priority, while grant funding for the Viking Cluster is being maintained.
Projects still in development may increasingly rely on private investment or government loan and equity finance, subject to approval. Up to £300m may be available for strategically important hydrogen projects where value-for-money and affordability tests are met.
Great British Energy is also taking a £200m saving, leaving GBE and GBE-N with £8.3bn across the spending-review period.
The next formal stage for hydrogen procurement is the Second Hydrogen Allocation Round, where projects are due to move shortly to Invite to Offer. Funding decisions for those schemes will be considered as part of the next spending review.
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