The UK government has quietly cut an estimated £1bn in funding from a flagship green initiative to upgrade homes in England with better insulation and low carbon heating systems.

Chancellor Rishi Sunak announced the £2bn Green Homes Grant last year as part of an coronavirus stimulus package aimed at reshaping the economy post-pandemic with more “green jobs”. A quarter of the fund was intended for local authorities, with the remaining £1.5bn for homeowners.

The scheme, which launched in September and was designed to run for a year, allowed homeowners to apply for vouchers worth up to £10,000 to reduce the cost of fitting new insulation and low carbon heating, such as air source heat pumps or biomass boilers.

Late last year, the government said it would extend the scheme to March 2022 to “help more households and tradespeople benefit, as Britain builds back greener from coronavirus”.

But in a series of written replies to questions from the opposition Labour party, the government revealed it did not intend to roll over most of the funds into the next financial year.

Energy minister Anne-Marie Trevelyan said vouchers worth just £71.3m of the £1.5bn available to homeowners had been issued as of January 22 and the government did not intend to roll over the remainder to the new financial year.

Trevelyan added that the “original funding” for the Green Homes Grant “was announced as a short-term stimulus, for use in the 2020-21 financial year only” and that just £320m would be made available under the scheme in the 2021-22 financial year.

Shadow business secretary Ed Miliband called on ministers to reverse the decision, which was first reported by The Guardian, adding it made “a mockery of the government's commitments on climate change and a green recovery”.

Rebecca Newsom, Greenpeace UK's head of politics, said: “If this is a marker of the government’s dedication to a green recovery, it doesn’t bode well for our economy or our ability to tackle the climate crisis.”

But Derek Horrocks, chairman of the National Insulation Association, and the owner of an insulation company in Lancashire, said the overall picture for his industry remained positive given there were various pots of money, including the £500m for local authorities and a separate scheme known as the Energy Company Obligation, supporting jobs and demand.

“From our point of view, we are going to see growth of at least double this year,” Horrocks said, adding that he was taking on at least 50 new staff at his own company which previously had a workforce of 45.

The business department said the “prevalence of Covid-19 since the scheme’s launch in September last year has led to an understandable reluctance on the part of the public to welcome tradespeople into their homes”.