Yesterday the Chancellor John Healey delivered a much-anticipated budget, the first of his tenure and the first under new Prime Minister Andy Burnham. Having promised to ‘end 40 years of Neoliberalism’ upon entering office, many predicted a first budget under a Burnham government could have been radical in its measures: the reality however was that it was far more muted, instead opting for what has been described as a ‘scattergun’ approach.
Energy bills were at the centre of Healey’s budget, acknowledging the pain they are causing both UK households and businesses. Set against a turbulent global geopolitical backdrop in which gas prices have tripled since February and oil is at over $100 a barrel, the chancellor underlined that his and the government’s priority would be reducing energy bills to ease the hardship faced by many, whilst maintaining the UK’s commitment to clean power and net zero by 2050. Economists at the Office for Budget Responsibility (OBR) agreed with the assessment too, highlighting UK energy costs as a central reason behind why living standards are expected to only rise by 1% over the whole post-covid decade. The OBR bluntly described it as a ‘dismal period in British economic history’.
So what measures were included in the budget that Healey and the government felt would ease the burden of energy bills?
Business Energy Bills:
- Confirmation that the British Industrial Competitiveness Scheme (BICS) will go ahead from April 2027 providing a 20-25% electricity discount to 10,000 UK businesses by exempting eligible businesses from some policy costs on their electricity bills saving around £40/MWh.
- Also confirmed that the scheme would include a backdated payment for financial year 2026/2027 and that the application window would run between 1st October 2026 and 30th November 2026.
- A freeze on electricity main rates of CCL from April 2028 to help reduce energy costs in real terms for businesses.
Household Energy Bills:
- 20 million households will receive a £100 payment directly into their bank account from January 2027 to help with energy bills. The payment will be available for those living in council tax bands A-D.
- Ofgem will be asked to move gas standing charges onto unit rates in 2027, with government estimates stating it will save 60% of households around £45 a year.
- The budget also promised to ‘reform’ standing charges on electricity bills with further details published in 2027.
- 0% rate of VAT on electricity bills has been extended until July 2027.
Cost Control Framework:
- Commitment to creating a ‘cost control framework’ for the 2027 spending review which will set budgets for energy costs to ensure the government drives down energy bills over the next 10 years, including a ‘ceiling’ on how much certain elements of a bill can reach, especially for policy costs that have become significantly expensive over the last decade and are set to increase further.
- The first measures announced under the framework include scrapping the upcoming Gas Shipper Obligation, which was a proposed levy on gas bills to fund hydrogen projects. Instead funding for those projects will come directly from government.
- Other measures to introduce cost controls to energy bills include a ‘procurement test’ which means that the government will only procure new clean power from projects that lower bills and easily connect to the grid, something which will be implemented for Contracts for Difference (CfD) auction round 8.
- There was also a commitment to control costs through ‘breaking the grip of gas on bills’, meaning attempts to decouple gas and electricity prices in UK energy prices.
- A government consultation on wholesale CfDs will look at the option for giving eligible renewable generators fixed-price contracts to protect consumers from volatile wholesale gas prices.
North Sea Oil and Gas:
- Budget confirmed the establishment of an ‘energy wealth fund’ which will invest North Sea oil and gas revenues into low-carbon infrastructure.
- Legislating for the ‘oil and gas revenue levy’ to replace the ‘energy profits levy’ (Windfall Tax) when it ends by April 2030.
- No decision was announced on Rosebank oilfield following the recent approval of the Jackdaw gas field, but OBR forecasts assumed that it will be approved.
Other measures:
- Fuel duty frozen again and the 5p cut has been extended.
- Public and workplace EV charging will be subject to 20% VAT from 1st November 2026, but a new two-year scheme will be launched in Spring 2027 to help local lower-powered chargers save around £150 a year on average.
- Around £1bn has been cut from the ‘warm homes plan’ to help cover a shortfall in defence spending.
- A £200m cut in capital-grant funding for Carbon Capture and Storage technology and £500m for low-carbon hydrogen projects.
- Introduction of a ‘data centre covenant’ that requires AI data centre developers to pay for any energy costs they create whilst supporting grid resilience, flexibility and clean power.
LG Energy Group’s View:
LG Energy Group welcomes the government’s acknowledgment that energy bills have played a significant role in the economic turmoil facing UK businesses and consumers over the last decade. Working with many of the largest, intensive and complex energy users in the country, LG Energy Group knows first hand how navigating global geopolitical unrest on wholesale prices and unpredictability in policy costs has been a significant challenge for many and identifying energy bills as a symptom of the UK’s economic malaise is a positive step forward. The new ‘Cost Control Framework’ appears to be an encouraging shift toward balancing cost alongside the need for renewables and energy security, helping to ensure that the transition to net zero is delivered at the lowest possible cost to consumers and hopefully provide some much-needed stability and confidence.
Likewise, having already been busy working on applications for businesses, LG Energy Group welcomes confirmation of the go-ahead for the BICS scheme which will provide much needed relief to many businesses, with prior schemes such as the Energy Intensive Industries Compensation scheme being much smaller in scope. It is also positive news that BICS and the cost of many other of the policies in the budget will not be passed back onto consumers through new line items in their energy bills and will instead be funded through taxation, including levies on banking and oil and gas sectors.
Yet if the government has taken a step forward in acknowledging energy bills as a symptom of the UK’s struggling economy, its attempts at providing a cure have been scattergun. As much as the BICS scheme is a much-needed support package, if you are a business that does not qualify then this budget did little to ease your energy bills. Sectors such as farming, ceramics, paper, textiles, furniture, brickmaking, construction, hospitality and retail are all largely excluded from the scheme, meaning that some of the UK’s most important businesses will still be left feeling uneasy about future energy costs. Promises to introduce ‘cost control’ mechanisms and consultations into decoupling gas and electricity prices are encouraging starts but businesses are facing the burden now, these measures only promise future savings, lines which many businesses will feel they have heard before from UK governments and are yet to see the benefit of.
Bolder, more immediate action will be needed if the government is to deliver on its ambitions for lower bills, greater energy security and protecting the transition to net zero.