Autumn Budget 2025 confirms a cut to policy costs on household energy bills, with the Government estimating an average reduction of about £150 from April 2026. In addition, the £150 Warm Home Discount is being extended to around a further 2.7 million low‑income households, taking total recipients to up to 6 million.
Two bill‑funded schemes drive the change. The Energy Company Obligation (ECO) will end on 31 March 2026, and 75% of Renewables Obligation (RO) costs will be met from general taxation rather than through bills. The saving from these adjustments begins on 1 April 2026.
Ofgem sets the default tariff price cap every three months to reflect efficient supplier costs and to protect consumers. The cap level for April to June 2026 will be confirmed in February 2026; this is when the lower policy costs will first be incorporated into default tariffs.
Government modelling indicates an average per‑household saving of roughly £154, rounded to £150 for communications. The breakdown is approximately £88 from shifting 75% of RO into taxation, £59 from not renewing ECO, and a further £7 due to reduced VAT on bills.
For Ofgem’s ‘typical’ dual‑fuel medium household, the policy change equates to about £134 off the price cap. The figure is lower than the all‑households average because typical‑consumption homes use less electricity than the population average.
The unit‑rate effects used in the Budget calculations are: around £24.80 per MWh off the electricity unit rate from the RO change (excluding VAT), plus about £8.91 per MWh off electricity and £3.15 per MWh off gas from ending ECO. These reductions address the policy‑cost component only.
Illustrative bill impacts including VAT vary by consumption. A typical dual‑fuel household using 2.7 MWh of electricity and 11.5 MWh of gas a year is expected to save around £134. A high‑demand rural home with poor energy efficiency, at roughly 3 MWh of electricity and 30 MWh of gas, would save about £205.
A gas‑heated household with medical equipment and constant heating using around 4 MWh of electricity and 25 MWh of gas is estimated to save close to £224. A low‑demand flat or one‑bedroom home using about 1.8 MWh of electricity and 7.5 MWh of gas would save roughly £88. A high‑use storage‑heated electric household consuming 12.5 MWh of electricity and no gas could see a saving of around £442.
Customers on fixed tariffs are expected to see the reductions passed through from April 2026, subject to tariff terms. The Government states the changes will continue to affect bills for the next three years.
Policy costs are only one driver of bills. Wholesale energy prices, which account for around 40% of a typical bill and are set by global markets, will remain the largest determinant of the cap. Network charges and investment to maintain a secure system will also continue to be recovered through bills.