Warm Homes Plan Cut by £1bn as Treasury Redirects Capital to Defence

What happened

The UK government has made a £1bn reduction in capital grants for the Warm Homes Plan, according to the Construction News. The cut is part of a broader effort to shift funds toward a £15bn Defence Investment Plan unveiled in June. Alongside the Warm Homes reduction, £700m has been removed from hydrogen and carbon capture funding. The Budget also disclosed a further £3bn reduction in departmental capital budgets across government.

The Department for Energy Security and Net Zero (DESNZ) will deliver £500m of these savings from hydrogen grants and £200m from carbon capture, usage and storage (CCUS) grants. The Treasury stated that the focus for public grant funding will now be on more advanced hydrogen and CCUS projects in Teesside, Merseyside and North Wales. The Viking carbon capture cluster will retain its grant funding, while the Acorn carbon capture cluster may be considered for alternative financing arrangements.

Great British Energy and its nuclear-focused subsidiary will see a £200m reduction, leaving them with £8.3bn over the spending review period. The government said that most grant funding for low-income households and social housing, routed through mayors and councils, would be maintained. The Boiler Upgrade Scheme will keep its £400m allocation for 2027-28, rising with inflation in future years.

The background

The reductions are DESNZ's contribution to the Defence Investment Plan announced in June. The department had already been tasked with finding £2bn in savings, including £400m in financial transactions. At the same time, a 1% general reduction in departmental capital budgets for 2026-27 to 2029-30 had been announced, totalling £4bn in savings. The latest Budget set out an additional 1% capital reduction over 2027-28 to 2029-30, raising another £3bn and taking total capital cuts for government departments to £7bn.

Construction News reported that the extra £3bn reduction will help to meet the outstanding £4.7bn required for the Defence Investment Plan, with the balance coming from contingency in the Treasury’s capital reserve. The Budget does not specify which infrastructure or construction schemes will be affected by these latest £3bn reductions.

The changes follow an earlier requirement for the Department for Transport to find £800m in savings, mainly from roads funding. The Treasury said it aims to avoid impacting frontline public service spending. A Strategic Asset Review is also underway to identify government-owned assets for disposal as part of the defence funding strategy.

What people are saying

The government claims most Warm Homes Plan funding to low-income and social housing, delivered through local authorities, will still be protected despite the overall £1bn reduction. Other projects in development could move forward only if they secure private investment, government loans or are deemed strategically important.

For hydrogen projects, the Treasury signalled up to £300m might still be available, depending on value-for-money and affordability assessments. The National Wealth Fund and British Business Bank have been directed to provide up to £5bn in new investment and lending to defence and related sectors over the next four years.

The Innovative Defence Financing Taskforce will investigate more options for private finance and public-private partnerships (PPPs) in defence, with details promised in a forthcoming Defence Financing and Investment Strategy. Defence procurement, manufacturing capacity and supply chains are identified as national priorities.

What happens next

The government has committed to raising defence spending to 3% of GDP by 2030 and 3.5% by 2035, with future spending review announcements due to clarify how these targets will be met. For energy and decarbonisation projects, the shift towards alternative finance means some schemes could see delays or require different approaches to funding.

The Boiler Upgrade Scheme is set to continue at planned levels, though other grant-dependent energy projects may be reprioritised or face tighter criteria, especially if they are not part of the most advanced clusters. Capital budgets for departments will be lower for at least the next six years, and further details about affected projects may emerge with future spending or asset disposal decisions.

Work on a new domestic production programme for energetic materials—used in weapons and ammunition—has received seed funding, with several new factory feasibility studies and some construction nearing completion in the South West and Midlands.