Post: Budget 2026: Key climate and energy announcements

Budget 2026: Key climate and energy announcements

On 28 October, UK Chancellor John Healey presented his first Budget as Chancellor. Ahead of the speech Healey said the 2026 Budget will “draw a line in the sand” on a UK energy policy that has seen wrong turns taken for over four decades.

In the Commons speech Healey said his economic plan will “steer us through the global economic storms” of today and “chart a new course for Britain in the years ahead”.

Key measures put forward in the Budget included:

• extending the VAT cut on domestic electricity introduced on 1 October 2026 until July 2027, expected to reduce the annual Ofgem price cap in April 2027 by around £50.91. The government will also provide a further £2.6B of support through the Household Energy Payment to help households with the rising cost of energy. Up to 20 million households in England will receive a direct £100 payment from January 2027. This includes funding provided to devolved governments to support households across the UK
• confirmation that no new policy costs will be put on bills until a comprehensive Cost Control Framework is in place at the spending review in 2027, which will set budgets for components of energy costs, including policy costs
• prioritising a cheaper energy mix and procuring new generation only where it lowers bills, benefits the system, and can be accommodated by the grid
• progressing next steps in breaking the grip of gas on bills with a consultation published alongside this Budget on wholesale Contracts for Difference, fixing the price paid to some renewable projects, to protect British homes and businesses from volatile gas prices
• freezing the main rate of the Climate Change Levy on electricity from 1 April 2028. This comes on top of the removal of Carbon Price Support from April 2028, as announced earlier this year. This will simplify the carbon pricing landscape and remove £18/tCO2e on fossil-fuel powered electricity generation, helping to reduce energy bills.
• Great British Grid will work alongside existing network operators to increase competition and support delivery of grid upgrades and reforms.
• under the Data Centre Covenant, data centres will be expected to make credible commitments for the grid capacity they request, support security of supply, investment in clean power and net zero, use resources responsibly and support an efficient, flexible, and resilient energy system.

From 2027 onward, the government will:

• deliver the British Industrial Competitiveness Scheme, meaning 10,000 energy-intensive manufacturing firms will get a 20%-25% electricity discount, starting in April 2027, including a back payment for 2026-27
• abolish gas standing charges, coupled with targeted mitigations to ensure this is delivered fairly
• introduce a new Energy Debt Circuit Breaker to tackle energy debt, saving all billpayers around £30 by 2030
• reform electricity standing charges, with further details to be announced next year
• scrap the planned new tax on gas bills (the Gas Shipper Obligation), so that government rather than consumers fund the costs of hydrogen projects.

The government will set out further detail on reforming and improving the efficiency of the electricity market in the 10-Year Plan. This will include how siting and investment decisions are made by generators, constraint management, system pricing, and balancing and settlement arrangements, building on the reformed national pricing programme set out earlier this year. These reforms will reduce system costs, make markets work better for consumers, and encourage electrification. It will also publish an updated Infrastructure Pipeline before the end of the year, giving investors, industry and the supply chain greater certainty on the UK’s infrastructure programmes, projects, and funds.

The government will also review accountability across the energy system and set clearer expectations for the roles, responsibilities, priorities and outcomes of the National Energy System Operator (NESO), Ofgem and the Department for Energy Security and Net Zero (DESNZ).

The government will shortly bring forward the Energy Independence Bill to legislate for some of the measures in this Budget

Alongside the Budget documents the government published a consultation on wholesale Contracts for Difference to progress the government’s plans to delink electricity from volatile international gas prices. The government intends to consult on Market Arrangements for Gas, with further details to be announced in due course. Further reforms to the Contracts for Difference scheme will be delivered before the opening of Allocation Round 9.

The government also published a consultation response on strategic demand connections which will confirm the use of powers in the Planning and Infrastructure Act to prioritise grid connections for strategically important projects.