Budget announces £150 energy bill reduction

The November 2025 Budget set out measures that the government said would reduce energy bills by around £150 a year, with the reduction taking effect from 1 April 2026¹. The change came mainly from how government schemes are funded: the Renewables Obligation is now part-funded by the government for three years to March 2029, and the Energy Company Obligation ended on 31 March 2026¹. Both had previously been paid for through energy bills¹.

The confirmed figure is lower than the one announced. The latest price cap update confirms an average reduction of around £117 a year for a typical household, because other network and system costs rose; without the government's intervention the price cap would have gone up¹. The typical household is defined by Ofgem as a dual fuel customer paying by Direct Debit who uses 2,700 kWh of electricity and 11,500 kWh of gas a year¹. Most of the reduction applies to electricity prices, with a smaller reduction on some gas tariffs, and electricity standing charges have increased slightly¹. Suppliers' reductions can vary, because suppliers have different costs and took part in government schemes in different ways¹.

Nesta, an independent research body, states that the war in Iran has already caused wholesale gas prices to rise by around 50% since the invasion, and that this surge is likely to eliminate the £150 reduction announced in November 2025². It puts the wholesale gas price allowance in the Ofgem price cap at 2.71 p/kWh for April to June 2026, and says prices would need to reach around 10p/kWh to return to the £2,500 level at which the government capped them in 2022².

"This surge is likely to eliminate the £150 energy bill reduction announced in November 2025, and prices could get much worse."

Nesta's note proposes a response centred on accelerating energy efficiency measures and speeding up the adoption of electric heating technologies in the home². It says the government has uplifted the Boiler Upgrade Scheme grant to £9,000 for heating oil and LPG users, and that it abandoned its Energy Efficiency Taskforce soon after launching it². It also records that the electricity-to-gas price ratio fell to 3.2 in April 2023 under the Energy Price Guarantee, and would have bottomed out at 3.5 in October 2022 under the default tariff cap².

Why it matters for households

The £150 was delivered through lower unit rates rather than a payment, so it shows up in the cost per unit of electricity and gas used¹. That means the size of any saving depends on how much energy a home uses and which tariff it is on, and a household using relatively little electricity and more gas may not see as large a reduction as the typical household used in the price cap calculation¹. The reduction applies to almost all customers of at least one supplier even on a fixed tariff, though some gas tariffs are unchanged where the supplier was not part of the ECO scheme¹.

For a home's energy independence, the two developments pull in opposite directions. The Budget change reduced the policy costs carried on bills, but it did not change how much gas a home burns, and gas remains the fuel that sets the marginal price of electricity most of the time². Nesta's figures show how far wholesale gas would have to rise to undo the saving entirely². The price cap history sets out how levels have moved since 2019, and the policy costs and levies page explains which scheme costs sit inside a bill. Standing charges, which rose slightly on electricity, are covered in standing charges on energy bills.

What happens next

The reduction takes effect from 1 April 2026¹. The government has committed to part-funding the Renewables Obligation until March 2029¹. Nesta's note is dated 27 April 2026 and sets out recommendations rather than confirmed policy². No further dated decisions on the level of support have been reported.

Sources2 cited

1. Good news – our bills are going down from 1 April 2026 | Ecotricity, ecotricity.co.uk
2. How to respond to the energy crisis | Nesta, nesta.org.uk