The government has not extended zero-rated VAT for energy saving materials, including solar panels, when installed on homes beyond the end of March 2027, Carbon Brief reports from the Budget published on 28 October 20261. The Budget was delivered by Chancellor John Healey1.
The Budget also cuts £1bn from the warm homes plan and £700m from hydrogen and carbon capture and storage projects1. Carbon Brief reports that the Budget "appears to cut up to another £4.7bn from the warm homes plan" as well as ending the VAT relief and extending a temporary 5p cut in fuel duty1. The Budget came the day after the government launched its warm homes loan scheme1.
"The government has not extended zero-rated VAT for “energy saving materials”, including solar panels, when installed on homes beyond the end of March 2027"
On bills, the government said it would remove the "unfair and outdated" gas standing charge for around 23 million homes in the UK1. A standing charge is a fixed daily fee paid regardless of how much gas is used, costing around £108 a year for a typical household; the government says it will ask Ofgem to move the cost onto gas unit rates in 2027, or as soon as possible, saving 60% of households an average of around £45 a year on their gas bill1. The temporary removal of VAT from household electricity bills, worth around £45 a year, will be extended by three months, from April to July 20271. A £100 council-tax rebate for English households in bands A to D was announced at a cost of £2.6bn, with devolved governments receiving a share of the funding1.
The Budget also set out a definition taking effect from 1 November 2026 as part of legislation in the finance bill 2026-271. Fuel duty was frozen once again, for the 16th year in a row1. The British industrial competitiveness scheme will be expanded to give a 20-25% electricity discount to 10,000 energy-intensive manufacturing firms from April 20271. The £200m in removed funding for carbon capture and storage will come from the Acorn cluster, planned for north-east Scotland1. The Office for Budget Responsibility noted that fossil-fuel prices rose by 83% in the year to September 20261.
Why it matters for households
For a household planning a solar installation, the date that matters is the end of March 2027: work completed before then falls under the current VAT relief on energy-saving materials, and work after it does not, on the basis reported1. The relief covers a defined list of materials, and the materials that qualify for VAT zero-rating are set out separately; the end date of the relief is the relevant reference point for timing. The change affects the upfront cost of a system, and so feeds into solar panel savings and payback periods, though the sources do not quantify the effect on a typical installation. The Budget documents do not state whether a replacement relief or alternative support will apply after March 2027; that has not been reported1.
The bill measures work in the other direction. Moving the gas standing charge onto unit rates lowers the fixed cost of a gas connection and, according to Nesta analysis cited by Carbon Brief, narrows the gap between electricity and gas prices from 3.3 to 3.0 under the current price cap, which could encourage a shift to electrified technologies such as heat pumps and electric vehicles1. For a home weighing solar panels and household energy independence, the arithmetic of electrification therefore shifts slightly, while the upfront cost of the panels themselves rises after March 2027. The Budget also commits to reforming electricity standing charges, with further details to be published in 20271.
What happens next
The VAT relief ends at the end of March 20271. The definition set out in the Budget takes effect from 1 November 2026 under the finance bill 2026-271. The government will ask Ofgem to move the gas standing charge onto unit rates in 2027, or as soon as possible1. The electricity VAT removal runs to July 20271. A cost-control framework is expected at the spending review in 2027, and further details on electricity standing charge reform are to be published in 20271.
Sources1 sources
- UK budget 2026: Key climate and energy announcements - Carbon Brief, carbonbrief.org