Ahead of the Budget we wrote about the need to get energy costs under control ahead of a winter energy crisis. Bills are projected to increase by over £275 (and counting) and this will have damaging impacts on household finances, debt and wider inflation. The Chancellor’s opening message was encouraging on this front, that the UK government’s priority is “first and foremost cheaper energy”.

While cheaper energy this winter matters, delivering it in a way that can also help the UK escape price shocks driven by gas is also important. The two go hand in hand, as using less gas is the best way to cut bills now and to end the cycle of crises for good. Electrification is the real route out, which makes now the right time to back the technologies that help people swap gas boilers for electric heating.

So, how did the Budget actually do on these two fronts: helping households with bills this winter, while setting a path towards electrified homes and an end togas-driven energy crises?

In truth, last week’s Budget was a mixed bag for clean heating and energy. There were lots of small changes, so here’s what they add up to.

1. £100 for households in council tax bands A-D

The Chancellor announced a Household Energy Payment of £100 for households in Council Tax bands A to D.

Going into the Budget, the challenge was to support the most vulnerable through this winter’s energy crisis - where bills are projected to rise by at least 16% - while supporting the UK’s challenging fiscal position. Economists generally favour targeted transfers: these protect vulnerable households, avoid subsidising the richest and don’t distort wider price signals.

Our verdict on this change? This council tax-based payment is an imperfect solution as it's both too small to help those that really need support this winter and also too broad, with many better-off households getting it even though they don’t need it. Ultimately, this reinforces the need for better data to design more efficient policies for future crises.

This is also the biggest UK government spend on reducing energy bills - costing the Treasury £2.6 billion – yet it does nothing to address the root issue of the energy crisis: our reliance on volatile fossil fuels. Alternatively, the Treasury could have spent £2.7 billion to forgive all electricity debt. Not only would this have helped the most vulnerable households that are still recovering from the 2022 energy crisis, but it would also have cut a typical dual fuel household’s bill by £29, supported electrification by reducing the electricity-to-gas price price ratio and reduced headline inflation by taking the electricity debt levy off all households’ electricity bills.

Another option could have been to remove the remaining levies from electricity bills. This would cost the Treasury £1.7 billion per year, lowering everyone’s bills by £43 annually whilst helping to bring down headline inflation and support electrification by reducing the electricity-to-gas price ratio.

2. Extension of VAT removal on electricity bills

On October 1, the government removed VAT from household electricity bills. This will save the average household £45 per year. In the Budget they confirmed this saving will be extended to July 2027.

Our verdict on this change? This is a relatively small saving in comparison to the scale of bill increases that are projected this winter, so is unlikely to substantively help households pay their bills. However, it is positive that this move does support electrification. Focusing bill support on electricity is the right approach, improving the electricity-to-gas price ratio in the process, which is what drives the economics of heat pumps.

Taken together, the £100 for homes and VAT will provide some buffer to households. But we do not expect this will go far enough to support households in need this winter in comparison to the scale of the energy bill increases expected.

3. Gas standing charges abolished

The Budget announced that gas standing charges will be abolished. Instead, the unit rate of gas will absorb these costs.

Our verdict on this change? This will save most households money, including the vast majority of the poorest, and help make switching from gas to electric heating more attractive as it reduces the all important electricity-to-gas price ratio. We expect the earliest the change to the gas standing charge could be implemented would be April 2027, but it could take longer. When it comes in, the Treasury and the Department for Energy Security and Net Zero (DESNZ) should also work together to identify lower-income, high-gas-using households that may be negatively impacted by this shift.

The Chancellor also announced that he will look at reforming the electricity standing charge. Done well, that could be positive, but moving it onto the unit rate as the government is doing for gas would be a mistake. It would disproportionately benefit households with solar panels, who tend to be wealthier, and weaken the incentive to move away from gas by raising the electricity-to-gas price ratio. A better version would set standing charges according to how much electricity capacity a home needs, so homes with lots of electrical appliances pay a little more to reflect the demand they put on the grid.

4. Commitment to a new cost control framework

The Budget committed 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.”

Our verdict on this change? Applying scrutiny to policy costs is a good thing. The UK government has been too comfortable adding costs onto consumer bills for a long time, so this would be a positive step to get a handle on what additional costs are brought onto consumer bills. Even better would have been to commit to remove existing policy costs - like the Renewables Obligation and Feed-in-Tariff levies - from electricity bills, but stopping new ones will be a positive thing.

This could look like the proposal from Octopus, where all policy costs are amalgamated into a single levy which is apportioned across both gas and electricity bills. This would make it easier for the government to adjust levies on a quarterly basis, although as the total amount of policy costs on bills falls, the scope to use this to control/reduce the price ratio will diminish.

5. Cuts to the Warm Homes Plan

After weeks of speculation, the Budget confirmed a £1 billion cut to the Warm Homes Plan (WHP) to support the Defence Investment Plan.

A lot of this is coming from the Boiler Upgrade Scheme (BUS) - the UK government’s grant scheme to fund heat pump installations. Though John Healey committed to maintain the BUS at current funding levels of £400 million in 2027‑28, rising broadly in line with inflation thereafter, in reality this represents a significant £786 million cut to the future of the scheme, as the expectation was that the Warm Homes Plan would grow significantly in the coming years.

Our verdict on this change? Reduced funding for the grant scheme for heat pumps could mean tens of thousands fewer people are able to access support to install low-carbon heating over the coming years. This will make it challenging to meet the Climate Change Committee’s (CCC) targets for home decarbonisation.

Under the new retrofit funding available, other schemes will need to do much more heavy lifting in order to reach climate targets set in the CCC’s Seventh Carbon Budget. This will be challenging. For example, the new low income scheme - to replace the Energy Company Obligation - is not yet up and running, and there remain too many barriers for many households to install a heat pump in their home.

Rather than short term cuts, the government should implement a plan to gradually and sustainably reduce the subsidy, with the aim of making the scheme obsolete by the mid-2030s.

It’s worth noting that if the BUS covers £786 million of cuts to the Warm Homes Plan, there is another £215 million of unspecified cuts, though the Budget confirmed that the “majority of WHP funding for low-income households and social housing, delivered by mayors and councils, is protected.”

The Budget also confirmed that DESNZ will reallocate financial transactions to support the set up of the Your First Home scheme, “including from the Warm Homes Fund, alongside exploring the use of guarantees rather than loans.” The exact sum that will be reallocated isn’t clear.

6. No- and low- interest consumer loans scheme launched

New no- and low- interest consumer loans — known as the Warm Homes Loan Scheme — also launched last week as part of the Budget package. This scheme was first announced in the Warm Homes Plan, committing £2 billion to low- and zero-interest consumer loans for low carbon technologies such as heat pumps, batteries and solar panels.

Our verdict on this change? This new form of government-backed funding is much needed, and will mean that more households can afford a heat pump in their home and make use of the grant available under the BUS. However, it’s unlikely that those accessing these no- and low- interest loans would do so without making use of the BUS. As a result, this scheme probably won’t fill the gap left from cuts to the BUS.

7. VAT relief on clean energy measures ends, replaced by a 5% reduced rate

Energy saving equipment has had zero VAT since then-Chancellor Rishi Sunak cut it in 2022. The Budget confirmed that this exemption is coming to an end in March 2027, moving to a 5% rate.

Our verdict on this change? This will likely put up the cost of solar panels, heat pumps, batteries and insulation measures. As this could reduce demand for these measures, the benefit to the Treasury is likely small.

There were some positive moves in this Budget for the clean heat sector, from the Chancellor’s commitment to cheaper energy, reduction of the electricity-to-gas price ratio to 2.9 through the gas standing charge removal and electricity VAT exemption extension, and launch of the consumer loans scheme.

However, by capping the heat pump grant budget at £400 million per year and tying future uplifts strictly to inflation, the government risks creating a ceiling on financial support for switching to clean heating. Doing this at the same time as ending the VAT exemption for heat pumps sends challenging signals to the sector. In order to meet climate targets, other schemes will now be expected to deliver a hugely increased number of heat pumps. The UK government will need to move fast to ensure the new Low Income Scheme is set up effectively while also working to remove as many other barriers to heat pump delivery as possible, such as those in planning.