UK Government reduces household energy bills through cuts

Chancellor Rachel Reeves announced that the Energy Company Obligation (ECO) scheme will be scrapped, reducing average household energy bills by around £150.

The Office for Budget Responsibility (OBR) report also confirmed the government will partially fund the Renewables Obligation (RO) scheme from 2026–2029. The RO is a legacy subsidy for renewable energy generation, the costs of which suppliers currently pass onto consumers. The government will cover 75% of the domestic RO, reducing bills for households over the next four years.

Analyst Josie Murdoch, of climate think tank Ember, welcomed the changes: “By making power cheaper, the UK government has set a lodestar for navigating the energy transition. Cheaper electricity not only lowers energy bills for every UK household but also increases the competitiveness of heat pumps and electric vehicles, cutting national dependence on costly fossil imports across the economy.”

However, electricity prices remain under pressure. Ofgem recently announced a rise in the energy price cap to £1758 per year from January, driven in part by standing charges, unit rates, and policy costs like the RO and Warm Homes Discount.

Founder of Money Saving Expert, Martin Lewis, criticised the previous system: “Shifting policy charges onto consumer bills was ‘policy perversion’, making electricity pricier than gas because of policies designed to move people away from fossil fuels.”

Trade body RenewableUK also weighed in. Executive director of policy and engagement Ana Musat said the organisation had submitted recommendations prior to the budget to: “Provide much needed relief for billpayers by ensuring that the costs of the energy transition are distributed more fairly. Cheaper power will also make the electrification of heat and transport more attractive, which could further lower bills. It’s a virtuous circle.”

Meanwhile, the energy sector’s profits continue to attract scrutiny. Trade union Unite reported policy charges accounted for less than a third of energy sector profits in 2024, with the industry posting over £30 billion in total. Unite general secretary Sharon Graham said: “The chaos of the current system has resulted in the highest energy bills in Europe.”

In addition to energy reforms, transport tax measures drew attention. Howard Cox, founder of FairFuelUK, commented: “Our months of lobbying in the lead up to the Winter Budget seems to have paid off. Drivers, especially those that fill up with diesel remain the highest taxed in the world, but it would be churlish not to thank the Chancellor for listening in her second Budget to her own MPs.”

Mr Cox also highlighted concerns over new EV taxation: “Rachel Reeves’s 3p ‘Pay per mile’ on EVs is I fear the thin end of the wedge to make all vehicles, whatever their type of fuel, pay tax as they drive.

“Whilst Fuel Duty and VAT continues to deliver billions to the exchequer, both types of taxation cannot work alongside each other. It’s time Government listens to and consults drivers as to developing a long term road user tax plan that's fair to UK’s 37m drivers and the economy.”