UK Approves £100 Energy Payment for Around 20 Million Eligible Households
Key Facts
The UK’s 2026 budget announced a £100 energy payment to be transferred directly into bank accounts from January 2027, reaching up to 20 million households in England in council tax bands A to D, according to the Treasury. The government plans to provide support to households elsewhere in the UK through funding made available to devolved governments to offer similar assistance. The budget allocated £2.6 billion to the Household Energy Payment programme. The government said the programme would reach 83% of households affected by fuel cost pressures in England, and 88% of households in the lowest three income bands. That puts eligibility requirements and coverage at the heart of the government’s plan to ease the impact of energy costs on households.
Household energy prices have remained far above previous levels. The budget said overall consumer prices had risen by about 33% from the 2020 average, while household energy prices had climbed 73%. Britain’s energy regulator, Ofgem, set an annual cap of £1,723 for a typical household paying by direct debit for the period from October to December 2026, up 4% from the previous cap period. Ofgem attributed most of the increase to higher gas costs and said gas bills had risen 8%. The Office for National Statistics also said transport, particularly motor fuel, was the largest upward contributor to the monthly change in the annual CPI and CPIH inflation rates in September. These indicators reflect simultaneous pressure from energy and transport costs on household budgets.
Alongside the cash transfer, the government will extend the temporary zero rate of VAT on electricity until July 2027. The budget expects the extension to lower Ofgem’s annual cap by about £50 in April 2027. The government says budget measures intended to give households breathing room are expected to reduce inflation by 0.1 percentage points in 2027. But the Office for Budget Responsibility expects inflation to peak at 3.8% in the first quarter of 2027, after rising to 3.5% in September, according to the budget forecasts. The projections show that the announced support comes as price pressures persist, despite the expected effect of the measures on inflation.
The programme’s funding reflects mounting fiscal pressure on the government. The Office for Budget Responsibility expects the UK to pay an average of £14 billion more a year to service its debt than forecast in the spring, after borrowing costs rose since the conflict in the Middle East began. To help fund the support, the government will temporarily raise the bank surcharge on corporation tax from 3% to 6% for 15 months, from 1 January 2027 to 31 March 2028. The decision thus combines household support with partial funding from a tax increase on banks, as the budget faces higher debt-servicing costs. The budget linked the rise in borrowing costs to the conflict in the Middle East, without attributing it to any particular country.
Further changes to energy bills are planned. The government has asked Ofgem to abolish standing charges for household gas in Great Britain, targeting implementation by the end of 2027. The budget said the cost of recovering those charges would be shifted to gas unit rates. A 2027 spending review is also expected to set a comprehensive framework for controlling energy costs, including budgets for their components. For businesses, a scheme will begin in April 2027, giving 10,000 energy-intensive manufacturers a discount on electricity of between 20% and 25%. The Office for National Statistics is scheduled to publish the next inflation data on 18 November 2026.