Industry pushes for heat pumps to be included in 'salary sacrifice' scheme

More than 35 energy and green industry organisations are calling on the UK government to make heat pumps part of the "salary sacrifice" scheme.

The open letter – signed by companies like OVO Energy, Suez, and The Electric Car Scheme, and coordinated by the REA (Association for Renewable Energy and Clean Technology) – asks ministers to include heat pumps in the upcoming Warm Homes Plan.

The request comes as the government looks for ways to help homeowners switch to greener heating systems.

What is the "salary sacrifice" scheme?

The "salary sacrifice" scheme allows employees to pay for certain items directly from their pre-tax salary.

This means they save on income tax and National Insurance contributions, which reduces the overall cost of the item.

Currently, this scheme is used for electric vehicles (EVs), allowing people to lease cars more affordably by reducing their monthly payments through tax savings.

The idea is to apply the same approach to heat pumps, which could help reduce the upfront cost for homeowners and make them more accessible.

Lessons from EV uptake

The call to action is inspired by the impact of "salary sacrifice" on electric vehicle adoption in the UK.

By allowing employees to pay for EVs using their pre-tax income, the scheme has lowered the cost barrier and boosted uptake by as much as fourfold. According to industry data, a £35,000-a-year employee could save nearly £100 per month on a new EV when using "salary sacrifice".

Industry leaders say the same principle could apply to heat pumps. A typical installation with monthly costs of £410 over three years could fall to £295 per month for a basic-rate taxpayer under the scheme.

This represents potential savings of over £5,000 for the average household.

High demand, high costs

Research from The Electric Car Scheme highlights that while interest in sustainable home technologies is growing, upfront costs remain a major barrier.

Key findings include:

• 42% of UK adults would like to install an air source heat pump, but say the initial cost is prohibitive.
• 55% believe current financial incentives are not enough to make greener choices viable.
• 58% think the government should do more to support eco-friendly home upgrades - a sharp increase from 34% in 2023.

These insights reinforce the argument that financial incentives like "salary sacrifice" could play a pivotal role in helping homeowners overcome the affordability hurdle.

Industry perspective and potential impact

Supporters of the "salary sacrifice" proposal say it’s not just about saving homeowners money - it could also support jobs, economic growth and the UK’s climate targets.

Thom Groot, CEO of The Electric Car Scheme, described the extension of "salary sacrifice" to include heat pumps as a “win-win” for consumers and the economy.

“We know that the government is seriously considering adding heat pumps to the hugely successful legislation covering EVs,” he said. “We estimate the cumulative economic impact of expanding 'salary sacrifice' schemes could reach £8 billion over the next five years.”

Trevor Hutchings, Chief Executive of the REA, added that the proposal could help achieve roughly 600,000 renewable heating installations by 2030. “Extending this approach to renewable technologies like heat pumps and solar would give the industry a much-needed boost, while helping homeowners make affordable green choices,” he said.

The government’s consultation process continues, with further announcements expected later this year as part of the Warm Homes Plan.

Industry observers will be watching closely to see whether "salary sacrifice" will be extended to play a broader role in the UK’s clean energy transition.