UK Autumn Budget 2026: Who pays and who decides?

The UK Autumn Budget of 28 October helps to answer two questions that have long shadowed UK energy policy: who should pay for reforming the energy system, and who should decide how its scarcest resources are allocated. Its proposals point in a consistent direction. Costs and price risk are being redistributed among taxpayers, consumers, and generators, while ministers acquire a firmer hand over the allocation of scarce grid capacity. Although Chancellor John Healey’s first Budget defers many of the fundamental choices to the 10-Year Plan, the 2027 Spending Review, and the consultations to follow, the contours of this new settlement, and of the risks it carries, are already discernible.

Bill relief: redistributing the burden

The Budget aims to ease the pressure of energy costs while the machinery of longer-term reform takes shape. These immediate measures include: 

• extending the temporary VAT cut on domestic electricity to 1 July 2027;
• providing up to 20 million households in council tax bands A to D in England with a £100 Household Energy Payment from January 2027;
• asking Ofgem to abolish gas standing charges; and
• recovering fixed costs through the unit rate. 

The Chancellor further confirmed that, from April 2027, the British Industrial Competitiveness Scheme is intended to reduce electricity bills by 25% for around 10,000 eligible companies in energy-intensive industries and include a back payment for 2026-27. Although these measures buy time, they also leave structural questions unresolved—including electricity market reform under the Reformed National Pricing programme, as well as the respective roles of NESO, Ofgem, and DESNZ—which risks chilling investment. 

Cost control: setting limits on bill-funded policy

Perhaps the most consequential governance innovation announced in the Budget is the Cost Control Framework—with a planned introduction at the 2027 Spending Review—which would set budgets for components of energy costs (including policy costs). Pending its introduction, the government indicates that no new policy costs will fall on bills unless they either lower bills or are essential for security of supply. Furthermore, the government will procure clean power only if it lowers overall bills and can connect to the grid. These measures point toward budgetary limits on climate policy costs recovered through energy bills, although how those limits would work remains unclear. Whether these affect schemes already in procurement through supplier obligations—such as CfD AR8—requires clarification. 

Wholesale CfDs: reallocating price risk

The same logic informs the proposed Wholesale CfD scheme, which is under consultation until 9 December 2026. Eligible existing low-carbon Renewables Obligation-supported generators, merchant generators, and legacy nuclear assets could opt into voluntary CfDs to fix wholesale revenues where this arrangement represents value for money for consumers. Proposed exclusions include advanced conversion technologies, dedicated biomass, anaerobic digestion, large-scale biomass above 100 MW, energy from waste, sewage gas, and electricity storage. 

Yet, fiscal pressure also accompanies the offer: the government intends to extend the Electricity Generator Levy for the duration of the longest Wholesale CfD. Generators securing a Wholesale CfD would be exempt for its duration, while the new investment exemption will remain. The contracts will also remain funded through the Supplier Obligation. Having ruled out locational pricing, the government intends that these proposed measures will help decouple the electricity market from gas prices. Nevertheless, their market effects remain uncertain.

Grid access: ministerial priorities and conditional support

The grid proposals would give ministers greater influence over which projects connect. Using existing powers under the Planning and Infrastructure Act 2025, the government intends to enable NESO to prioritise ‘strategic demand’ and to reserve grid capacity, while aligning post-2030 data centre connections with regional targets to limit volumes. A forthcoming Strategic Framework Document will set out selection criteria, although ‘strategic demand’ remains undefined. Data centres will compete for capacity alongside manufacturers, hospitals, and prisons. 

The Data Centre Covenant sets criteria for strategic data centres seeking enhanced support, covering energy costs, environmental performance, local jobs, Local Benefit Plans, and national security. The government also intends to explore measures to accelerate access to power. The draft Data Centre National Policy Statement specifies a minimum Power Usage Effectiveness of 1.3, but gives less detail on how Local Benefit Plans would be assessed and enforced. For developers, grid access would increasingly depend on administrative prioritisation, project readiness, progression milestones, time-limited capacity reservations, and the network’s ability to deliver connections. 

Hydrogen and CCUS: competing for public capital

Defence priorities also shape the Budget’s energy choices. DESNZ’s previously announced £2 billion savings contribution to the Defence Investment Plan includes cuts to hydrogen and CCUS funding. The £500 million earmarked in 2025 for hydrogen transport and storage also appears to have been redirected. The government will not proceed with the proposed Gas Shipper Obligation and instead intends to fund hydrogen contracts directly, with future commitments subject to value-for-money assessments. CCUS faces £200 million in capital grant savings. The government will prioritise mature projects at Teesside, Merseyside, and North Wales, while maintaining grant funding for the Viking cluster. For future projects—including Acorn—it is exploring private investment and public loans or equity stakes intended to secure returns for taxpayers, supplementing grants. 

The North Sea: capturing revenues and financing transition

The North Sea proposals combine support for production with a permanent revenue levy. Jackdaw has been approved, while a decision on Rosebank remains pending. The government intends to legislate for the Oil and Gas Revenue Levy in the Finance Bill 2026-27. The proposed 35% charge would apply to sales revenues above thresholds initially set at $90 per barrel and 90p per therm for 2026-27, adjusted annually in line with the Consumer Prices Index. It would replace the Energy Profits Levy from 1 April 2030, or earlier if that levy ends under the Energy Security Investment Mechanism. The government is also consulting on extending the UK Carbon Border Adjustment Mechanism to refinery products. Of the additional £15.4 billion announced for the National Wealth Fund, £2 billion is earmarked for an Energy Wealth Fund linked to future North Sea revenues.

An unfinished settlement: where the exposure lies

Together, these measures show how the government is responding to resource constraints: shielding consumers from price shocks, allocating grid capacity and policy costs, and exploring loans and equity alongside grants. For companies, investors, and funders, the policy direction informs strategy; the detailed rules still to come on grid access, cost recovery, and public support will determine exposure. 

For a more comprehensive analysis, please read our publication here.