Budget scraps ECO funding mechanism and adds Warm Homes Plan funding

The Budget scrapped the mechanism that funded the Energy Company Obligation and added £1.5 billion of Treasury funding to the Warm Homes Plan, taking the total spending commitment across the parliament to £14.7 billion¹. The Energy Company Obligation, the UK's largest fuel poverty support scheme, will end in March 2026².

Since its introduction in 2013, ECO spent over £13 billion and upgraded almost 2.6 million homes, funded directly by consumers through energy bills and adding roughly £60 a year to the average household bill¹. The current iteration, ECO4, was due to end in March 2026 in any case, and the government decided not to renew the scheme from April 2026². Energy Systems Catapult attributes the decision to a recent National Audit Office report that highlighted systemic failures in the scheme's design, which led to widespread failure of solid wall insulation measures, leaving many households exposed to damp and mould¹. A heat pump distributor describes the scheme as having been mired in controversy around quality of work, coming to a head in 2025 as the extent of workmanship issues around solid wall insulation came to light².

The two accounts differ on what replaces ECO. Energy Systems Catapult says no details have been shared on how the £1.5 billion will be spent, and that it is significantly less than ECO would have been expected to spend over the same period¹. The distributor says the £1.5 billion will fund a direct replacement for ECO, a fuel poverty focused scheme targeting bill-saving improvements to the homes of the UK's most vulnerable households, and that this is in addition to an existing DESNZ budget of £13.2 billion for the overall Warm Homes Plan².

The Boiler Upgrade Scheme is being retained in full, and the Department for Energy Security and Net Zero announced it would be expanded to run for longer and potentially to include additional technologies². The £7,500 grants remain available². Energy Systems Catapult sets out three principles for future schemes: a stable 10-year programme with funding for local government partnerships; a single point of contact for households, independent of the installer; and priority for low income and vulnerable households most at risk of acute health problems from a cold home¹.

"Following last month's budget, the headlines have been dominated by tax and spending measures. Those outside the industry may have missed the news that the mechanism funding the UK's largest fuel poverty support scheme has been scrapped."

Why it matters for households

The charge that funded ECO through bills is being removed, and the distributor reports that savings will come off the price of electricity, calculated per kWh, so higher electricity users such as heat pump households would save more². The Warm Homes Plan is the framework expected to carry grant-funded energy efficiency upgrades after ECO closes. Households on low incomes who would previously have been referred to ECO4 face a gap until the replacement scheme takes shape, and the Energy Company Obligation as a supplier-funded route ends in March 2026. For homes off the gas grid, including rural homes, the practical effect depends on which measures the replacement funds, and that has not been reported. Landlords and owners of park homes and static caravans have no published detail on eligibility. The Boiler Upgrade Scheme continues, so the grant route for heat pumps is unchanged for now.

What happens next

The Warm Homes Plan, a key part of the Labour Party's manifesto, is expected to be published later this month after several delays, with an updated Fuel Poverty Strategy expected at a similar time¹. ECO ends in March 2026². No details of the replacement scheme's design, eligibility or funding allocation have been reported¹.

Sources2 cited

1. A chance to overhaul fuel poverty schemes, es.catapult.org.uk
2. Heat Pumps and the Budget 2025, altoenergy.co.uk