UK Chancellor John Healey has set out what he called a “new course on energy”, making lower bills the government’s priority while reaffirming its commitment to net-zero by 2050 and the expansion of clean power. The budget follows a sharp rise in global fossil-fuel prices linked to conflict in the Middle East; the Office for Budget Responsibility said those prices increased by 83% in the year to September 2026.
The package combines immediate help with longer-term changes to energy costs. English households in council-tax bands A to D are to receive a £100 rebate, while local authorities will get an additional £100m to support households acutely affected by rising bills. The temporary removal of VAT from household electricity bills will also be extended by three months, through July 2027.
The government plans to ask energy regulator Ofgem to remove the gas standing charge for around 23 million homes, shifting the cost to gas usage rates in 2027 or as soon as possible. It estimates that 60% of households will save an average of about £45 a year. A separate commitment will limit the addition of new policy costs to energy bills until a cost-control framework is introduced at the 2027 spending review.
For businesses, the British Industrial Competitiveness Scheme will expand from April 2027 to offer a 20–25% electricity discount to 10,000 energy-intensive manufacturers. The budget also sets out work on a proposed wholesale contracts-for-difference scheme, which would offer eligible renewable generators fixed-price contracts, as part of a longer-term effort to reduce the influence of gas on bills.
However, the budget cuts £1bn from the Warm Homes Plan, which was intended to provide up to £15bn in grants and loans for home improvements including heat pumps, solar panels and insulation. Funding for the Boiler Upgrade Scheme will remain at £400m in 2027–28 before rising broadly with inflation. The budget also suggests that reallocating funds to a new “Your First Home” scheme could mean further reductions to the Warm Homes Plan, although the details remain unclear.
The government is also cutting £200m in capital grants for carbon capture and storage and £500m for low-carbon hydrogen projects. It says it will prioritise two more mature carbon-capture clusters in Teesside and Merseyside and North Wales, maintain grant funding for the Viking cluster in the Humber, and remove the planned grant funding from the Acorn cluster in north-east Scotland. The government says it is considering loans or equity investment to support future projects.
On transport, the budget freezes fuel duty and extends the existing 5p-per-litre cut. It also allocates £100m over two years, from spring 2027, to reduce costs at some local public EV chargers. At the same time, it states that electricity supplied at publicly accessible and workplace charging points will be subject to 20% VAT, with the definition taking effect on 1 November 2026.
The budget also says new data centres will have to meet strict environmental regulations, while leaving open the possibility of on-site fossil-fuel power generation. Healey said the government’s energy strategy would continue to prioritise clean power as a route to lower costs and stronger energy security.
Sources: Carbon Brief.