UK Approves £100 Energy Payment for Nearly 20 Million Households

Key Facts

UK Treasury Minister John Healey announced a £100 energy payment in the 2026 Budget, presented on 28 October, to be transferred directly into bank accounts starting in January 2027. Eligibility covers households in England in council tax bands A to D, and the support is expected to reach 20 million households. The government is funding a similar payment in the rest of the UK. The announcement is part of a package targeting household energy bills, alongside an extension of the VAT cut on eligible electricity. The Budget also included minimum wage increases that will not take effect before April 2027.

The government extended the zero rate of VAT on eligible domestic electricity supplies in Great Britain by a further three months, through July 2027. It estimates the extension will reduce the annual energy price cap set by Ofgem by about £50 in April 2027. The measure follows a cut that the government said removed £150 from bills in April 2026, after abolishing the Energy Company Obligation levy and the Treasury funding 75% of the Renewable Obligation. The Budget thus combines a direct payment of a set amount with a tax measure whose effect extends to the price cap. The new payment will be made later, starting in January 2027, to eligible households.

For wages, the National Living Wage and minimum wage rates will rise 3.9% from 1 April 2027. The National Living Wage will reach £13.21 an hour, equivalent to a total annual increase of £910 for a full-time worker on that rate. The government expects about 2.3 million workers to benefit from the increases. The minimum wage for those aged 18 to 20 will also rise 3.9% to £11.27 an hour. The Treasury announcement does not specify a direct effect of the increases on purchasing power; their implementation date is several months after the energy payment is due.

The package comes as the volume of UK retail sales fell 0.4% in September, after rising 0.7% in August. Sales nevertheless remained 0.8% above their level in September 2025 and rose 0.7% in the third quarter compared with the second quarter. Retailers attributed the decline in part to lower mail-order sales, with online clothing stores saying warmer weather weakened sales of autumn and winter clothing. Department store sales also fell after growing in July and August. The comparison shows the monthly decline followed an improvement in August, while the annual and quarterly readings remained positive.

The Budget revised its growth forecasts, with gross domestic product expected to grow 1.2% in 2026, compared with the spring forecast of 1.1%. But it cut its 2027 forecast to 1.0% from 1.6% in the spring estimates. The Treasury says headroom against its fiscal stability rule will be £15 billion in 2029-30, rising to £22 billion in 2030-31. In contrast, the Budget said the conflict in the Middle East led the Office for Budget Responsibility to forecast an increase of £14 billion a year in average government debt interest costs compared with the spring forecasts. These estimates link the spending room the government says it has with rising debt-servicing costs.

To fund the energy payment, the government raised the bank profits surcharge from 3% to 6% for 15 months, ending on 31 March 2028. It also announced that the British Industrial Competitiveness Scheme will begin in April 2027, supporting more than 10,000 eligible electricity-intensive businesses by cutting their bills by up to 25%. The Budget document specifies an electricity discount of between 20% and 25% for 10,000 energy-intensive manufacturers, with a backdated payment for the 2026-27 fiscal year. The government says the scheme targets electricity costs for eligible businesses, while household support is allocated according to residency criteria and council tax bands. These measures set a later date to address energy costs for businesses, after household payments begin in January.

Following the Budget announcement, the yield on 10-year UK government bonds fell 2 basis points to about 5.32%, while the 30-year yield dropped 3.5 basis points to about 5.71%. Sterling fell 0.1% to $1.3295, while the FTSE 100 rose 0.1%. Investors are next looking to the Bank of England's monetary policy meeting in the week after the Budget. Reuters expected policymakers to raise the interest rate by a quarter of a percentage point to 4%, noting that consumer inflation was 3.5% in the previous month, its highest level in 11 months. Ahead of the meeting, the September Money and Credit report is due on 29 October, followed by the October Decision Maker Panel data on 30 October.