With pressure to ease the cost of living, deliver on the manifesto pledge to cut household energy bills, and provide clarity on the UK’s long-term energy transition, this Budget contained some of the most significant energy-related interventions we have seen this Government make to date.
Alongside the headline announcement of a £150 reduction in domestic bills, the Chancellor introduced new tax measures for electric vehicles and confirmed plans for a permanent Oil and Gas Price Mechanism to replace the Energy Profits Levy. In this article, Brevia reviews the key announcements from the Budget and their implications for the wider energy landscape.
Easing pressure on electricity bills
The Budget’s headline announcement for energy was the £150 reduction in domestic energy bills, delivered by reducing and removing legacy green and social levies from bills, effective from April 2026. The Government confirmed it will end the Energy Company Obligation, a scheme initially announced under the Conservative Party to fund energy efficiency measures, and will pay for 75% of the domestic Renewables Obligation levy for three years via general taxation. This is a significant move as putting the cost of the net zero transition on household bills is inherently regressive.
Although it had been speculated that the Government might scrap VAT on domestic energy bills, delivering average savings of over £80, this did not materialise.
These changes are expected to reduce unit rates by around 3.54p/kWh for and 0.35p/kWh for gas. While this delivers welcome short-term relief, the reforms do not fully address the wider structural imbalance between electricity and gas pricing, a longstanding concern that many in the sector argue continues to hold back electrification and the uptake of low-carbon technologies like heat pumps.
What about business energy costs?
Non-domestic consumers will not have these levies removed from bills. Instead, in the run up to the Budget, the Government published its consultation on the British Industrial Competitiveness Scheme, proposing exemptions for around 7,000 businesses from the costs of the Renewables Obligation, Feed-in Tariff and Capacity Market.[1] This reflects a more targeted approach to supporting manufacturing and energy-intensive sectors, though it offers limited relief for the wider business community, particularly SMEs still grappling with elevated operating costs. Notably, the scheme will only come into play in 2027.
Electric Vehicles and Transport
Transport featured prominently in the Budget, with the Chancellor confirming the trailed Electric Vehicle Duty (eVED), a pay-per-mile charge coming into force from April 2028:
- 3p per mile for battery electric vehicles
- 1.5p per mile for plug-in hybrids
The new duty is expected to raise £1.1 billion in its first year (2028–29), rising to £1.9 billion by 2030–31.[2]
To support EV uptake and infrastructure expansion, the Government announced a further £200 million for charge point deployment and launched a consultation on reforms to permitted development rights to speed up installations, including upstands and cross-pavement solutions. The Government also committed to reviewing the cost of public EV charging to tackle the cost disparity between at home and public charging.
The Chancellor further confirmed that fuel duty, which has been frozen for 15 consecutive years, will remain frozen until September 2026. After this, the 5p cut introduced in 2022 will be reversed through a “staggered approach”, with fuel duty rising in line with RPI from April 2027. According to the Office for Budget Responsibility, extending the freeze and staggering the reversal will cost the Treasury an additional £2.4 billion next year and £900 million annually thereafter. [3]
Oil, Gas and the North Sea Transition
As expected, the Chancellor outlined plans for a new Oil and Gas Price Mechanism (OGPM) to replace the Energy Profits Levy when it ends in March 2030. The OGPM will serve as a permanent windfall tax trigger, applying a 35% rate when oil and gas prices exceed thresholds of $90 per barrel for oil and 90p per therm for gas (based on 2026–27 levels and adjusted annually for inflation). Draft legislation will be published ahead of the next Finance Bill.
The Treasury also released its North Sea Future Plan, which outlines how the Government intends to support the basin’s remaining oil and gas production while expanding clean-energy industries.[4] A central element is the introduction of Energy Transition Certificates, allowing limited tie-back projects linked to existing fields to proceed where operators can demonstrate that additional production is necessary and does not require new fossil-fuel infrastructure.
The Government has defended the plan as consistent with its manifesto commitment not to issue new licences while managing existing fields responsibly over their lifetime. Offshore Energies UK has strongly criticised the proposal, warning of job losses and reduced investment, while Greenpeace and Uplift welcomed the move but urged further action to provide certainty for workers in the sector. [5]
Conclusion
The Budget continues a difficult balancing act between Labour’s commitments prior to, and priorities since, being elected. Shifting 75% of Renewables Obligation costs from household bills to general taxation is a step towards, but insufficient, to realise its £300 energy bill reduction target. For non-domestic users, energy continues to be a drag on what the Government calls its number one priority, economic growth. The British Industrial Competitiveness consultation will therefore be a key policy in setting out what support will be available to energy intensive industries, which will need to be comprehensive yet balanced.
Brevia Energy is a dedicated division of Brevia Consulting, and has a longstanding reputation for its expertise and experience in the Energy Sector.
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Notes
[1] Department for Business & Trade, ‘British Industrial Competitiveness Scheme’, 24 November 2025, Link
[2] The Telegraph, ‘How Labour’s chaotic pay-per-mile tax grab will work’ 29 November, Link
[3] Office for Budget Responsibility, ‘Economic and fiscal outlook’, 26 November 2025, Link
[4] UK Government, ‘North Sea Future Plan’, 26 November 2025, Link
[5] The Guardian, ‘Ed Miliband confirms crackdown on North Sea exploration – but new drilling will continue’ 26 November, Link
