Homeowners hit with £120 ‘boiler tax’ to pay for heat pump drive

Homeowners face being hit with a “boiler tax” as manufacturers attempt to offset the cost of the heat pump rollout. 

Worcester Bosch has announced the price of all its gas boilers will increase by £120 in the new year, while Vaillant is also preparing to increase its prices by £95.

The Government aims to install 600,000 heat pumps a year from 2028, but Worcester Bosch said it had “no option” but to raise the price of boilers as the UK market “does not have the scale” to meet government targets. 

It said it took the decision following the implementation of new rules designed to incentivise heat pump installations which will result in companies who undershoot government-mandated quotes being fined. 

Worcester Bosch said “to cover the costs of these fines and remain in business” it had “no option but to raise the prices of the boilers we sell to meet what is in effect a boiler tax”.

As part of its net zero drive to reduce carbon emissions, the Government will introduce its “Clean Heat Market Mechanism” (CHMM) in January 2024.

The price increases are being implemented to offset government plans to fine manufacturers for failing to meet sales quotas for heat pumps from next year.

The scheme aims to incentivise manufacturers to sell more heat pumps by requiring that 4pc of all gas boiler sales are matched in volume with heat pump sales. 

New builds, which are required by law to have a heat pump from 2025, are exempt from the scheme. 

However, industry forecasts suggest around half of heat pumps set to be installed next year will be in newly built houses, and will therefore not count towards the sales quota.

It is estimated that 80,000 heat pumps will be installed in 2024, but only 40,000 of these will be retrofit installations. 

Based on a boiler market of 1.5 million homes, government plans would require manufacturers to install 60,000 heat pumps in its first year – 50pc higher than the forecast market size, Worcester Bosch said, adding “penalties are therefore inevitable”. 

This target would increase to 90,000 installations in the scheme’s second year, and to 450,000 in its fourth. For each heat pump a manufacturer fails to sell under that target, it will be fined £3,000.

Worcester Bosch said the targets were “clearly unachievable within the timescales allowed”, and that manufacturers would have no choice but to “pass these fines onto the market in the form of a CHMM levy”.

A spokesman said: “Worcester Bosch will not benefit in any way and interestingly, neither will market growth for heat pumps as the revenue raised from the fines will go to the Treasury and not be used to grow demand for heat pumps. 

“This does, however, support the Government’s overall goal of closing the price gap between a gas boiler and heat pump installation.”

Baxi, another manufacturer, also announced a “market mechanism levy of £120 on all our residential gas boilers” starting in the new year earlier this month.

The manufacturer said: “This levy is not a price increase, but a direct impact of the CHMM on our business, which we will use as payment to the Government for the penalty they award us for not meeting its 4pc target.”

Vaillant also confirmed it would be increasing the prices of its boilers by £95. The manufacturer told merchant partners on Thursday that from January 1, it will introduce “a CHMM levy of £95 on all boiler sales under 70kW”.

A spokesman added: “There are multiple factors announced by the Government that will impact Vaillant. The current process does not allow manufacturers the full visibility of how many heat pumps sold are MCS registered. 

“Given the changing market dynamics and push for heat pump installations generated by CHMM, we in the current circumstances are left with no option but to act.”

A Department for Energy Security and Net Zero spokesman said: “We have not required any increase to the price of gas boilers.

“Targets are realistic and fully achievable, providing industry with flexible options to support our ambition to make heat pumps easy and affordable to install. 

“This is alongside making it easier to get a heat pump by increasing the Boiler Upgrade Scheme by 50pc to £7,500 – tripling applications in the week after it was rolled out.”