Chancellor Rachel Reeves announced in her Autumn Budget that she plans to cut the cost of living, including by taking an average of £150 off household energy bills from April next year.
This energy bill support is on top of extending the £150 Warm Home Discount to around a further 2.7 million of the poorest households, with up to six million households now receiving the discount, Reeves said.
The Energy Company Obligation (ECO) and Renewables Obligation (RO) schemes are currently funded through costs to your bill. ECO funding will end from 31 March 2026. 75% of RO costs will now be funded from general taxation. The savings from this will take effect from 1 April 2026.
What will this mean for your energy bill?
Regulator Ofgem updates the price cap every three months so that people on default tariffs pay a fair price for their energy, and suppliers can cover their costs. Ofgem will confirm the price cap for the period April to June 2026 in February 2026.
The government hopes that the intervention in this Budget will bring down policy costs on the bill. There are other factors that make up your energy bill, the single largest of which is the wholesale cost of energy, set by global markets, which makes up around 40% of the cost you pay.
Other costs within your bill include those needed for upgrading our national energy infrastructure to ensure it can provide secure and reliable supplies to homes and businesses.
How does the government calculate the £150 cost saving?
The £150 is a rounded £154 average per household figure.
We forecast that funding 75% of RO through general taxation should save £88. Not renewing ECO should save £59. These measures together should save £7 in VAT.
For more detailed calculations, see Budget 2025: Data Sources.
For a ‘typical’ dual-fuel medium household as defined by Ofgem, the impact is equivalent to £134 off the price cap. This is based on policy costs in the latest price cap, which equate to:
- £24.80/MWh off the unit rate for 75% of RO (excluding VAT
- £8.91/MWh off the electricity unit rate for ECO
- £3.15/MWh off the gas unit rate for ECO
This is because the typical household uses less electricity than the average across all households.
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