Fuel duty frozen for 16th year and 5p cut extended

Fuel duty was frozen again in the budget on 28 October 2026, the 16th year in a row, and the 5p per litre "temporary" cut introduced by Rishi Sunak in 2022 will be extended to July 2027¹. The cut had been scheduled to be phased out from January². Drivers will continue to pay the levy at 52.95p per litre². The chancellor also announced the removal of the 4% tariff on kerosene, which the Treasury said would support the 105,000 Welsh households that rely on heating oil³.

The BBC reported that diesel recently hit new records when it moved above £2 per litre, and that filling a typical family car with diesel has gone up by around £30 since late February, with a tankful of petrol costing about £23 more². Carbon Brief reported that the Office for Budget Responsibility noted fossil-fuel prices rose by 83% in the year to September 2026¹.

On household energy, the budget confirmed a one-off £100 "Household Energy Payment" from January for homes in council tax bands A to D in England, paid directly into bank accounts and funded by extra tax on banks². The BBC reported that administrations in Scotland, Wales and Northern Ireland will receive equivalent funding and will decide whether to introduce the same payment²; the Welsh Government subsequently confirmed it will make a £100 cost-of-living payment to all households in council tax bands A to D on the same terms³. The VAT cut on electricity bills, introduced in October, will be extended to July, having been due to end in April². Healey said the extension takes £50 off the annual price cap³.

The government also confirmed it will ask Ofgem to remove gas standing charges in England, Scotland and Wales in 2027 "or as soon as possible after", moving the fixed daily fee onto unit rates². The charges cost around £108 a year for a typical household¹. The Treasury calculates that 60% of households will save an average of £45 a year, with lower users gaining the most, while higher users will pay more than they do now². Carbon Brief reported that Nesta analysis puts the reduction in the ratio between electricity and gas prices at around 0.3 points, from 3.3 to 3.0¹. The budget also commits to reforming electricity standing charges, with further details to be published in 2027¹.

"The 5p "temporary" cut in fuel duty on petrol and diesel, introduced by Rishi Sunak in 2022, will be extended to July. It was scheduled to be phased out from January."

The budget also set out cuts to home energy programmes. Carbon Brief reported that the government is cutting £1bn from its warm homes plan and £700m from hydrogen and carbon capture and storage projects, with the £200m removed from CCS coming from the Acorn cluster planned for north-east Scotland¹. It reported that the budget "appears to cut up to another £4.7bn from the warm homes plan", and that zero-rated VAT for "energy saving materials" including solar panels has not been extended beyond the end of March 2027¹. The budget came the day after the government launched its "warm homes loan" scheme¹.

Why it matters for households

The fuel duty decisions hold the rate paid at the pump for another year, at a time when the BBC reports diesel above £2 per litre and petrol and diesel costs well up on late February². For homes off the gas grid, the removal of the kerosene tariff affects heating oil prices³.

The £100 payment is a one-off and, although designated for energy bills, can be spent on anything². The BBC reported forecasts suggesting a typical annual bill could rise by £400 or so to £2,100 in January, so the payment covers only a portion of that². Carbon Brief reported forecasts of a rise of a quarter, some £470, to around £2,200 a year¹.

Removing the gas standing charge shifts fixed costs onto unit rates. Lower gas users gain most and higher users pay more, which matters for homes weighing up electrified heating such as heat pumps, given the change in the electricity-to-gas price ratio¹. Households not connected to the gas grid see no benefit from the gas standing charge change, and Plaid Cymru's Treasury spokesperson said they continue to face some of the highest electricity standing charges in Britain³.

The failure to extend zero-rated VAT on energy saving materials beyond March 2027 affects the tax treatment of installing measures such as solar panels¹. The reduction in warm homes plan funding affects the scale of publicly funded efficiency and heating support, though the sources do not set out which individual schemes are affected.

What happens next

The £100 Household Energy Payment is due from January². The VAT cut on electricity runs to July 2027, as does the extended 5p fuel duty cut². Ofgem is to be asked to remove gas standing charges in 2027 or as soon as possible after, with details of electricity standing charge reform to be published in 2027¹. The zero-rated VAT treatment for energy saving materials ends after March 2027¹. A cost-control framework setting budgets for components of energy costs is expected at the spending review in 2027¹.

Sources3 sources

1. UK budget 2026: Key climate and energy announcements - Carbon Brief, carbonbrief.org
2. Your pay, energy bills and cash Isa: How the Budget affects you - BBC News, bbc.co.uk
3. Budget 2026: Winter fuel payment for thousands of households and funds promised for Welsh projects | Wales Online, walesonline.co.uk