Autumn Budget 2026: John Healey unveils Labour’s plan to reduce energy costs

John Healey has delivered his first Budget as Chancellor under new Labour Prime Minister Andy Burnham, unveiling a package of measures aimed at giving households and businesses across the UK much-needed "breathing space" from rising costs.

Energy was central to Healey’s Budget, with the Chancellor pledging “radical reform” to bring UK energy costs in line with Europe. Key announcements outlined the government’s first steps towards achieving that ambition, with implications for businesses and billpayers alike.

Help with household bills

Up to 20 million households in England in Council Tax bands A-D will receive a £100 payment from January 2027. The temporary 0% VAT rate on domestic electricity has also been extended to July 2027, which the government estimates will reduce the annual Ofgem price cap by around £50 from April 2027.

Standing charges

The government has asked Ofgem to abolish domestic gas standing charges by the end of 2027 or as soon as possible afterwards, transferring the costs into gas unit rates with targeted support for affected households. Further details on electricity standing charge reforms are expected in 2027.

Electricity costs for industry

More than 10,000 eligible manufacturing businesses will benefit from electricity discounts of 20-25% under the British Industrial Competitiveness Scheme from April 2027, including backdated support for 2026-27. The Budget confirmed funding for the previously announced scheme and businesses have already begun applying.

Climate Change Levy and Carbon Price Support

The Budget confirmed that the main rate of the Climate Change Levy on electricity will be frozen from 1 April 2028, helping to reduce business electricity costs in real terms compared with an inflation-linked increase. It also reaffirmed the previously announced removal of Carbon Price Support from April 2028, eliminating a carbon charge equivalent to £18 per tonne of CO₂ on fossil-fuel electricity generation in Great Britain. The government estimates that removing the charge will be worth £235 million over five years.

Electricity market and renewables

A consultation published alongside the Budget explores the introduction of Wholesale Contracts for Difference for existing eligible low-carbon electricity generators, offering fixed prices to help reduce the impact of volatile gas prices on electricity bills. The government also intends to procure new clean electricity generation only where it lowers bills, benefits the wider energy system and can be accommodated by the grid.

Controlling energy costs

A new Cost Control Framework will be introduced at the 2027 Spending Review, setting budgets for components of energy costs, including policy-related charges. Until then, the government intends to prevent new policy costs being added to bills unless they reduce costs or are essential for security of supply.

Energy Wealth Fund

A new £2 billion Energy Wealth Fund, first announced on 21 October and confirmed in the Budget, will invest in renewable and low-carbon energy infrastructure across the UK. Sitting within the National Wealth Fund, it will be linked to future North Sea oil and gas revenues to support investment in the energy transition.

Hydrogen and carbon capture

The planned Gas Shipper Obligation levy on gas bills has been scrapped, with hydrogen contracts instead funded through government spending. The Budget also confirmed reductions of £500 million in hydrogen capital grants and £200 million in carbon capture grants as part of wider spending reprioritisation, alongside plans to explore loans, equity investment and private-sector financing.

Grid and nuclear

The Budget confirmed plans to prioritise grid connections for strategically important projects and introduce greater competition in electricity transmission development. It also reaffirmed support for existing nuclear programmes, including Sizewell C and small modular reactors, alongside regulatory reforms intended to accelerate nuclear project delivery.

Home energy efficiency, solar and heat pumps

The Boiler Upgrade Scheme will maintain funding of £400 million in 2027–28, rising broadly in line with inflation thereafter. However, £1 billion will be removed from Warm Homes Plan capital grants as part of wider spending reprioritisation. The government has also launched the Warm Homes Loan Scheme to support household investment in clean technologies. Separately, the existing temporary 0% VAT relief on qualifying solar panel and other energy-saving installations is scheduled to revert to 5% from April 2027.

Energy debt relief

A new Energy Debt Circuit Breaker will combine targeted, one-off debt relief with reforms designed to prevent further household energy debt. The government estimates the measures could save billpayers around £30 by 2030.

Electricity Generator Levy

The Budget reaffirmed plans to extend the Electricity Generator Levy beyond its scheduled expiry in March 2028. The levy had already increased from 45% to 55% in July 2026, with existing exemptions for qualifying new investment and Contracts for Difference retained. A further consultation on the levy's long-term design is expected in 2027.

Electric vehicle charging

The Budget announced £100 million over two years to reduce costs at lower-powered public EV chargers from spring 2027, potentially saving drivers without home charging around £150 annually. Public EV charging remains subject to 20% VAT, while a new taskforce will explore allowing drivers to access their domestic electricity tariffs at suitable public charging points.

Oil, gas and fuel duty

A new Oil and Gas Revenue Levy will replace the Energy Profits Levy from April 2030, or earlier if the existing price-floor mechanism is triggered. The temporary 5p-per-litre fuel duty reduction has also been extended to July 2027, alongside the suspension of import tariffs on kerosene heating oil until December 2028.

Final Thoughts

All in all, Budget 2026 was relatively unremarkable for business energy consumers. Beyond targeted industrial support, there was little immediate relief for the wider business community, with much of the government's ambition resting on longer-term market reforms.

In our view, Budget 2026 reveals a fundamental asymmetry in energy policy i.e. households receive immediate protection, while most businesses remain exposed to market volatility. Structural reform may improve long-term affordability, but the burden of managing energy risk continues to shift towards businesses themselves.

Image attribution: Official portrait of Rt Hon John Healey MP" by RichardTownshend / UK Parliament, licensed under CC BY 3.0(https://creativecommons.org/licenses/by/3.0/). Source: https://commons.wikimedia.org/wiki/File:Official_portrait_of_Rt_Hon_John_Healey_MP_crop_1.jpg

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