How the Budget tackles rising energy bills and why there is still more to be done
Energy bills are one of the first things people raise with me on the doorstep in Northampton, so I was pleased the Chancellor put them at the centre of last week's Budget.
The headline that grabbed everyone’s attention is a £100 Household Energy Payment for around 20 million homes in council tax bands A to D, paid straight into bank accounts from January. This is a hugely welcome relief at a time when bills continue to rise due to global instability in the oil and gas market. Alongside that, the 0% VAT rate on household electricity, which came in on the 1st of October, has been extended to July 2027. That is worth around £50 a year to a typical household.
But I think the change that matters most, which should be getting a lot more coverage, is scrapping gas standing charges from 2027. At the moment, every household pays a fixed daily fee before it has used a single unit. Moving that cost onto the unit rate means people pay for what they use. It helps families manage their bills better, and importantly, it is a long-term change which will benefit people for years to come, with households around £45 better off per year on average.
The Chancellor made clear he wants to target help towards those who need it most, too. He announced a new scheme which will write-off energy debt built up since the 2022 to 2024 crisis for pensioners and people on means-tested or disability benefits. With UK household energy debt now sitting at an eye-watering £5 billion, this will make a big difference to many.
The Budget also stops new policy costs landing on bills. The planned hydrogen levy on gas bills has been scrapped, with general taxation and private finance funding hydrogen projects instead.
The Budget is great news for industry energy bills too. Around 10,000 energy-intensive manufacturers will get a 20 to 25% discount on electricity from April 2027, which protects jobs in critical industries in the defence, digital and medical sectors. And the announcement of a £2 billion Energy Wealth Fund will back homegrown renewable and low-carbon power; the only lasting way to bring bills down and keep them down. The goal of bringing UK energy costs into line with Europe within ten years is admirable.
As a member of the Energy Security and Net Zero Select Committee, I have spent much of the last year hearing evidence on exactly these challenges. The cost of energy is a significant blocker to growth and investment in manufacturing and industrial businesses, from food production to the automotive sector. Combined with a (hopefully) positive EU agreement on energy and carbon trading, and adjustment in the forthcoming UK-EU summit in November, we will see a big boost for British jobs and businesses across the UK.
The Budget is a welcome start, but the Government can always go further
First, we need detail on the departmental cuts. The Government has been clear that to pay for rising defence spending, departmental budgets must be reviewed. Funding the Defence Investment Plan has meant £1 billion coming out of the Warm Homes Plan and around £700 million from hydrogen and carbon capture projects. Insulation, solar and heat pumps are how we cut bills for good. DESNZ should set out exactly which programmes are affected, which delivery dates have moved, and how it will protect the schemes that lower bills. With more decisions due at next year's Spending Review, those answers need to be on the table before then, not after.
Second is rebalancing. In 2024, over 80% of policy costs sat on electricity bills. That makes running a heat pump or an electric car dearer than it should be, at the very moment we want people to switch. Our select committee recommended moving the remaining policy costs from electricity to gas, alongside an assessment of how general taxation could protect the gas users least able to pay. Scrapping gas standing charges and the hydrogen levy shows the Government is willing to rethink how bills are built. The next step should be a clear timetable for rebalancing.
Third, the networks. They made higher profits than expected in the last price control period. We have said Ofgem and the Government should secure a contribution from them towards clearing consumer energy debt. That would sit well alongside the new debt relief scheme.
This Budget chose to help households now while building the clean, homegrown energy system to cut bills for good. That is the right call. I will keep pushing, on the committee and in Parliament, to make sure we get there.
Mike is the Member of Parliament for Northampton South and the chair of the All-Party Parliamentary Groups for Infrastructure and for Food and Drink. He is also a member of the House of Commons Energy Security and Net Zero Select Committee. Outside Parliament, Mike is co-chair of the Northamptonshire Growth, Innovation and Prosperity Board. With nearly 20 years’ experience in the construction and infrastructure sector, his career history prior to election includes prominent leadership roles at Pick Everard, Perfect Circle and Mace.
