The government hopes that by encouraging individuals to install more energy efficient boilers not only will they save on their energy bills, but it should also help cut the country's carbon emissions and give the heating sector a welcome boost.
It follows on the success of the car scrappage scheme, although with this one, there are more restrictions on who can claim a subsidy. So far, two big energy providers, npower and British Gas, have promised to match the government subsidy, meaning some people will be able to get £800 in total off their new boiler.
So how does it work and who will benefit?
Who qualifies for the boiler scrappage scheme?
If you have a working G-rated boiler, you can apply for a voucher that cuts £400 off the price of an A-rated alternative - a much more efficient model.
The government has claimed that up to 125,000 UK homes can benefit from the scheme but the money will be allocated on a first-come, first-served basis, so you should apply as soon as the scheme opens on January 18.
At the moment, only English homes will qualify for the scheme. Householders in Wales, Scotland and Northern Ireland will have to wait until their devolved governments launch similar schemes.
How do I get this voucher?
Energy Saving Trust is issuing the vouchers from January 18 and successful applicants should get theirs' within 10 days of requesting it.
Be aware that you have to have already received a quote from a boiler installer in order to qualify for the scheme.
You should be ready to give your name and address, the make and name of the boiler you want to scrap, the details of the installer that would carry out the work, the type of boiler you plan to install and confirmation that you've received a quote.
Householders have to pay for their new boiler upfront and then claim the £400 by submitting the voucher and invoice to the Energy Saving Trust.
Whatever you do, don't have a new boiler installed before you receive your voucher as this could invalidate your claim.
Is my boiler G-rated?
You can get some help working out if your boiler is G-rated by checking Ofgem's
official list or by calling the ACT ON CO2 advice line: 0800 512 012.
An easy way to check if your boiler is G-rated is to see if it has a permanent pilot light - that makes it very likely to be more than 15 years old and so eligible for the scheme.
Can I get extra help from energy firms?
Both npower and British Gas have offered to match the official subsidy, meaning it's possible to get £800 back from your new boiler.
Although British Gas is only providing this help to its existing customers, npower said anyone can apply for its scheme - as long as they use its services to buy and install the boiler.
How much will an A-rated boiler cost?
The average cost of a new boiler, including installation is around £2,500 according to the Heating and Hotwater Industry Council.
For many people, that will make it a costly decision, even with £800 knocked off the price. Replacing a working boiler may seem like an unnecessary expense.
However, an inefficient G-rated boiler will be costing you around £200 a year more than you need to pay and be reaching the end of its life anyway, so if you can afford to - now is a great time to upgrade.
What about biomass boilers and heat pumps?
It doesn't have to be typical a modern boiler. You can replace your G-rated model with a renewable heating system such as a biomass boiler or heat pump and still receive the £400 subsidy.
There's more information on these options over at the
Energy Saving Trust website I'm a landlord, can I apply?
Private landlords can qualify for this scheme, although social landlords and housing associations cannot.
If you own more than one private rental property, you can claim one voucher per household - although the Energy Saving Trust stresses that the money could quickly run out so anyone interested should apply early on in the scheme.
How will it help the planet?
Energy and climate change secretary Ed Miliband predicts that those homes which use the scheme to upgrade their dated boilers will save £200 a year on their heating bills.
In total, the scheme should save the same amount of carbon as taking around 45,000 cars off the road.
How else can I cut bills?
Scott Byrom, moneysupermarket.com's energy expert said: "Combining a new boiler with a move to the cheapest energy tariff could see customers saving up to £525 a year on their energy bills. There is a desperate need for the UK to become more energy efficient, and cutting household bills is a key part of this. Households should act immediately to ensure they are on the correct tariff for their usage and region - and moving online to a dual fuel direct debit deal is the easiest way to make savings on their energy bills".
And even if you aren't one of the 125,000 households that could benefit from the government's new scheme, there are still things you could do to cut your bills.
Well, one obvious way is to switch energy providers. The current cheapest average energy provider for the typical household is npower, with an average annual bill of £907.36 on its SOL 17 tariff. Yet if you're on its standard deal, you're paying an average of £1,255.78 more - that's almost £350 cheaper.
In fact, if you're paying Scottish Power's standard tariff you'll be paying on average £455 more a year than households using npower's SOL 17 deal.
However, npower won't definitely be the best option as it will depend on where you live and your consumption. You can easily identify the best deal for you with moneysupermarket.com's energy comparison tool. Just input details of your current tariff and the amount you're paying and find out if you could save by switching.
Of course, for many people it's not just about cutting their bills, they want to make their homes easier on the planet.
There are many easy ways to cut back on the power you use, from turning the thermostat down by just one notch to insulating your loft more effectively. Read our article '
Ten simple steps for saving energy' for some pointers.
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