In a move to tackle fuel poverty, green levies will be axed from bills until 2029, contributing to an average reduction of £150 in the average household energy bill from April 2026. This will be delivered through government funding 75% of the domestic cost of the Legacy Renewables Obligation from 2026 to 2029, while ending the Energy Company Obligation (ECO) from 31 March 2026. The government is also providing an additional £1.5bn to tackle fuel poverty through the Warm Homes Plan, taking the package to £15bn since the Spring Budget review.

Some analysts suggest the energy bill savings may be less once new charges to pay for the Clean Power Plan are factored in.

Drivers of EVs and plug-in hybrid vehicles will be charged a new mileage-based tax from 2028. At 3 p/mile, the average EV driver of an electric car who clocks up 8,500 miles/y is expected to be charged $255 in 2028–2029 – about half the cost per mile that petrol and diesel drivers pay in fuel tax, according to the Office of Budget Responsibility (OBR).  

Introduction of the electric Vehicle Excise Duty (eVED) comes in response to the long-term decline in fuel duty receipts as more people switch to EVs. Sales of new petrol and diesel cars will be banned from 2030. In addition to the eVED, motorists will have to predict their annual mileage when paying road tax, and will input their actual mileage – recorded when the car receives its annual MOT – at which point they will receive a rebate or pay a top-up.

Fuel duty has been frozen until September 2026, and will return to 2022 levels by 2027. The fuel duty freeze, put in place after the Russian invasion of Ukraine, together with a new Department for Energy Security and Net Zero (DESNZ) developed ‘fuel finder’ to help drivers compare fuel costs at the pump, are expected to save households £89 next year.

North Sea frustration

The government has not replaced the Energy Profits Levy (EPL) in 2026. In response, North Sea operators represented by Offshore Energies UK (OEUK) expressed disappointment. They claim that it will ‘cost tens of thousands of jobs, cripple investment, undermine Scotland and the UK’s energy security.’

Under its North Sea Future plan, the government confirmed its commitment to cease issuing new oil and gas licences to explore new fields, but says it will ensure that existing fields can be developed to a limited extent with Transitional Energy Certificates, so long as this additional production does not require new exploration.  

According to Budget notes, a new Oil and Gas Price Mechanism (OGPM) will act as a windfall tax when oil and gas prices are unusually high – and apply an additional tax rate of 35% above price thresholds of $90/b of oil and 90p/therm of gas. It adds: ‘However, current price forecasts suggest that oil and gas prices are expected to be close to triggering the Energy Security Investment Mechanism (ESIM) price floor within the next few years.’  

Indeed, if oil and gas prices fall under ESIM thresholds, the EPL ‘will end immediately’ and the new OGPM will come into effect, returning the tax rate to the 40% headline rate in the permanent regime. If the ESIM is not triggered, the EPL is set to end by March 2030.

David Whitehouse, OEUK Chief Executive, expressed frustration: ‘The government has chosen a path that will see 1,000 jobs continue to be lost every month, more energy imports and a contagion across supply chains and out industrial heartlands… The future of North Sea energy depends on investment, which won’t come without urgent reform of the windfall tax.’  

The OEUK is seeking an urgent meeting with the Chancellor to explore every option to reverse this policy.

Maurice Cousins, Campaign Director of Net Zero Watch, said: ‘The decision to retain the windfall tax on North Sea oil and gas is catastrophic and deeply cynical. It accelerates decline, deters investment and erodes one of Britain’s few remaining productive tax bases. This will deepen import dependence, expose consumers to global volatility and weaken national resilience.’

On the jobs front, following extensive consultation, the government plans to establish the North Sea Jobs Service as a national employment programme offering support to the current workforce with new opportunities in the clean energy sector, defence and advanced manufacturing.

In response, Areeba Hamid, Greenpeace UK’s Co-Executive Director, said: ‘Britain has just made history. Closing the door to new exploration marks the beginning of the end of oil and gas in this country. By standing firm on its manifesto promise, the government has shown genuine global climate leadership.’

Nuclear

The government welcomed the Nuclear Regulatory Taskforce report, published in late November, which calls for a radical reset of an overly complex nuclear regulatory system. Recommendations (of which there are 47) include establishing a ‘one-stop shop’ for nuclear decisions, streamlining regulation to remove duplication and improve proportionality to avoid overly bureaucratic, costly processes, while improving safety standards. The government accepted the recommendations in principle and aims to publish a full implementation plan within three months.  

The government has also updated the Green Financing Framework, adding nuclear energy to the list of policies eligible to be funded by green gilts and retail Green Savings Bonds.

Industrial competitiveness

The government is taking action to reduce electricity prices for business. From 2027, the British Industrial Competitiveness Scheme will reduce electricity costs for thousands of businesses, to benefit electricity-intensive businesses like automotive, aerospace, and foundational manufacturing industries in the supply chains, such as chemicals.

Refineries

The government says it recognises the role refineries play in the energy sector and the UK’s industrial base and will publish a ‘Call for Evidence’ in the fuel sector. It will also consider the impact of refined products in the Carbon Border Adjustment Mechanism (CBAM) in the future.

Further comment

The budget drew a wide spectrum of opinion.

Andrew Ogram, Energy Tax Partner at EY, focuses on the relative burden borne by ratepayers and taxpayers. He commented: ‘The Budget’s energy measures shift more of the cost to decarbonise the economy from energy bills onto general taxation, while layering in new targeted charges. Moving some levies off electricity bills and expanding the Warm Home Discount to all households on means-tested benefits will be felt most directly by low-income consumers and by electricity-intensive businesses that benefit from slightly lower unit power costs. General taxpayers will increasingly underwrite policy costs that were previously recovered through tariffs. While the Sizewell C Regulated Asset Base Levy and other charges mean that part of the cost to decarbonised will still be visible on electricity bills, particularly for large commercial users.’

Greg Jackson, CEO and Founder of Octopus Energy, welcomed the cut in electricity bills as a ‘positive direction’ and said: ‘The ECO scheme had become simply too wasteful, adding high costs to everyone’s bills and only delivering meagre savings for recipients. A reset through the Warm Homes Plan is the right approach.’

Dhara Vyas, Chief Executive of trade association Energy UK, concurred: ‘Support for energy bill payers is long overdue… We warmly welcome the announcement from the Chancellor, which will give customers some respite from the high energy costs that far too many households have struggled with over recent years.’ Moreover, she remarked: ‘Investing in clean power will protect customers from volatile prices and lead to more stable bills in the future... It’s crucial that the government delivers on the promise of the Warm Homes Plan.’