Labour set to bring back ‘boiler tax’, say industry sources

Ministers are set to impose heat pump targets next year in a move that will lead to a “boiler tax” on households, industry sources have said.

Ed Miliband, the Energy Secretary, is expected to introduce the policy from April, despite warnings that it will drive up the cost of a new boiler.

Under the plans, boiler makers would be hit with hefty fines if they fail to achieve targets on the number of heat pumps they have to sell every year. Manufacturers have warned that it would force them to add up to £180 to the price of a boiler, although campaigners have accused them of profiteering.

Officials have privately told the industry that the scheme will definitely be introduced next year, sources have told The Telegraph. A Government source insisted that no final decision has been taken.

The Clean Heat Market Mechanism (CHMM) would set a number of heat pumps they must sell as a percentage of their overall boiler sales. It was initially drawn up by the Tories and had been set to come into force earlier this year before being shelved following a backlash.

Claire Coutinho, the shadow energy secretary, delayed the introduction until at least next April and privately indicated that she wanted to kill off the policy.

She said: “I scrapped this policy last year because I strongly felt we should think again. It’s a classic example of policy designed for the green lobby and vested interest groups rather than for the consumer.

“It will raise the costs of getting a boiler for ordinary families, perhaps by hundreds of pounds, when many of them can’t afford to get a heat pump.

“If Labour press ahead with this on top of cutting the Winter Fuel Payment, it will make an even greater mockery of their promises of bill savings for consumers.”

Mr Miliband is now set to revive it, with industry sources saying officials in his department have told them that the targets will be brought in next year. Manufacturers and suppliers have been alerted that legislation to introduce the scheme will be tabled in November, suggesting an April start date.

An industry source said: “Ministers and officials have been engaged with the boiler manufacturers with a view to bringing the CHMM in in 2025. What hasn’t yet been finalised are the details around the size of the fine. There’s a conversation to be had about whether it’s set at the appropriate level.”

Under the Tory plans inherited by Mr Miliband, manufacturers would have to make sure that at least six per cent of their overall sales were made up of heat pumps. They would be fined £3,000 for every missed sale, with companies warning they would have to pass the cost of multi-million pound penalties on to customers.

Industry insiders have said the demand for heat pumps, which are much more expensive than boilers, is not sufficient to meet the targets.

A second source said that “as far as we know the CHMM is still scheduled to start in 2025”, but added that there had been little engagement from officials. The source said manufacturers were still hopeful that ministers were “having second thoughts or making amends to the punitive measures that the policy will impose”.

Around 1.5 million new boilers are installed every year, with most being put in over the winter when the appliances are being used the most.

It is estimated that a quarter of those – some 375,000 a year – are in pensioner households, most of which have just lost the £200 winter fuel allowance.

Boiler makers temporarily put up their prices by £120 last January when they believed that a four per cent target for heat pump sales was about to be imposed. They reversed the price rise and issued refunds when the policy was delayed.

Industry sources said that, if Mr Miliband were to press ahead with the planned six per cent target this year, that would suggest a £180 rise will be needed this January.

Some green groups have accused boiler manufacturers of scaremongering about the policy and using it as an excuse for “price gouging”.

Jess Ralston, the head of energy at the Energy and Climate Intelligence Unit, said: “The boiler tax was a self-imposed price increase brought in by boiler manufacturers to lobby against heat pump policy so they can keep selling gas boilers for longer.

“Unless the UK starts to transition away from gas boilers, we will have to import more gas from abroad as the North Sea output continues its inevitable decline, so this is a matter of energy security.”

Andy Manning, the head of energy systems transformation at Citizens Advice, added: “Boiler manufacturers must not raise their prices again in response to a scheme that would help homes across the country move to clean energy. Instead, they should focus on meeting the requirements of the scheme.

“If reintroduced, the Government must not water down the Clean Heat Market Mechanism in response to similar action from manufacturers. Doing so would reward behaviour that left many people out of pocket, and expose us all to volatile gas prices for longer.”

Fewer than 37,000 certified heat pump installations were recorded last year, significantly short of the 90,000 that would be required to meet a six per cent target.

Mr Miliband pledged whilst in opposition that he would “support the Clean Heat Market Mechanism” if Labour won the election. Speaking in March, he said: “On the Clean Heat Market Mechanism, we’re going to have to deal with what we inherit from the government.”

A spokesman for the Department of Energy and Climate Change said: “The energy shocks of recent years have shown the urgent need to upgrade British homes and secure our energy independence.

“Our Warm Homes Plan will set out a range of measures to support low carbon heating, including heat pumps. Our ambitious plans will protect bill-payers, reduce fuel poverty and get the UK back on track to meet our climate goals.”