The Autumn Budget 2026 what does is mean for business energy costs?
Energy was once again a major theme in the 2026 Budget, with the Chancellor stating that the government's aim is to "get UK energy costs down in line with Europe". He argued that achieving this would require deep reform of the energy system, with measures announced at the Budget building on the government's existing 10-Year Infrastructure Strategy.
A lot of the Budget’s energy announcements focused on households, including a £100 payment to 20 million domestic consumers to help with rising energy bills, the abolition of gas standing charges on domestic energy bills in Great Britain, and an extension of the electricity VAT cut. But what did the Budget have to say about business energy costs?
This UK has some of the highest industrial electricity prices in the developed world. Non-domestic electricity prices are around four times higher than in the US, and 50% more than in France and Germany, and businesses have repeatedly warned that high energy costs are undermining competitiveness, investment and growth.
Since coming to power, Labour has consistently acknowledged the challenge posed by industrial energy prices. However, many of its flagship energy policies, including plans for a largely carbon-free power system by 2030 and expanded nuclear capacity, are intended to deliver benefits over the longer term rather than reduce bills in the immediate future. Indeed, the proximity of the target and our distance from it is feeding fears that pushing to meet it more forcefully could stoke transition costs further, given constraints in the construction sector and the conflict in the Middle East. Against that backdrop, the Budget was an opportunity for the government to demonstrate that it is addressing businesses’ more immediate concerns. So, what did it announce?
British Industrial Competitiveness Scheme
The government reiterated its commitment to the British Industrial Competitiveness Scheme (BICS), which is expected to cut electricity bills by up to 25% for 10,000 energy-intensive industrial firms from April, with backdated support covering this year’s energy costs.
The application window for the scheme is open from the 1 October until 11:59pm on 30 November 2026.
Businesses that may be eligible should use the government’s online eligibility checker tool, review the application guidance and submit an application as soon as possible and before the deadline.
While BICS remains the centrepiece of the government’s industrial energy strategy, it was first announced in June 2025. Moreover, only a relatively small proportion of businesses will qualify and the scheme does not address the structural drivers of high energy costs. For eligible firms, however, the savings could be significant.
GB Grid and network reform
The Budget confirmed plans to establish GB Grid and pursue wider reforms to the institutions governing the energy system.
First outlined at the Labour Party conference in September, GB Grid is intended to work with network companies and the private sector to accelerate grid connections, increase competition and reduce the cost of building new energy infrastructure.
Businesses waiting months or even years for grid connections will welcome the focus on the issue. The key question, however, is whether the reforms can materially improve the speed and efficiency of a network upgrade programme that has long been hampered by delays and complexity.
Expanding fixed-price contracts for renewable generation
The government also confirmed plans to extend fixed-price arrangements to more existing renewable energy projects as part of its efforts to reduce the influence of international gas prices on UK electricity costs.
Under proposals first published earlier this year, existing low-carbon generators that are not already covered by a Contract for Difference (CfD) would be able to opt into a new voluntary wholesale CfD scheme. Together, these generators account for around 30% of Britain’s electricity supply.
The rationale is straightforward: when wholesale electricity prices exceed the agreed strike price, excess revenues are returned to consumers. Bringing more generators into the scheme could therefore reduce exposure to volatile gas prices and help stabilise bills. However, because participation will be voluntary, the eventual impact remains uncertain.
A consultation published alongside the Budget provides further detail on the government’s preferred approach.
Hydrogen funding moved off energy bills
One of the more significant new announcements was the decision to abandon a planned levy on gas bills that would have funded low-carbon hydrogen projects through the proposed “gas shipper obligation”.
Instead, the government will fund hydrogen support through general taxation. Businesses that pay gas bills will therefore avoid what would otherwise have been an additional energy-related charge.
Commitment to a Cost Control Framework
The government has pledged not to place any new policy costs on energy bills until a comprehensive cost-control framework has been established. Further details are expected at the 2027 Spending Review.
The government also announced a freeze in the main electricity rates of the Climate Change Levy from April 2028, with the stated aim of reducing electricity costs for businesses in real terms.
The Budget contained few genuinely new measures on industrial energy costs. While many of the government’s ongoing energy reforms may help reduce costs over time, for businesses facing high energy prices today the Budget offered little immediate relief.
Full list of energy policies announced in Budget 2026:
- £100 council tax rebate for households in bands A to D.
- Abolition of gas standing charges on domestic energy bills in GB.
- Recommitment to the British Industrial Competitiveness Scheme, giving up to 10,000 energy intensive manufacturing firms up to 25% off their electricity costs, starting in April 2027, including a back payment for 2026-27.
- Commitment to reforming electricity standing charges, with further details to be announced in 2027.
- Implementation of a strategy to tackle energy debt in GB.
- Cancellation of the planned Gas Shipper Obligation levy and announcement that government will instead directly fund hydrogen projects.
- Commitment to publish a Cost Control Framework at the spending review in 2027, which will set budgets for components of energy costs, including policy costs.
- Intention to publish the UK and devolved governments’ response to the Zero Emission Vehicle (ZEV) Mandate Review consultation by the end of 2026, with a view to any changes taking effect from 2027.
- Suspension of tariffs on a selection of food products and kerosene heating oil until 31 December 2028, and fertiliser until 31 December 2027, starting on 26 November 2026.
- Commitment to procure new generation only where it lowers bills, benefits the system, and can be accommodated by the grid.
- Publication of a consultation alongside the Budget on wholesale Contracts for Difference, with the aim of fixing the price paid to some renewable projects to weaken the link between electricity and gas prices.
- Extension of the 5p fuel duty cut and freeze, while maintaining the Heavy Goods Vehicle road tax holiday, to 1 July 2027.
- Freezing of the main rate of the Climate Change Levy on electricity from 1 April 2028.
About the author
Alex Hall-Chen is Principal Policy Advisor for Sustainability, Employment, and Skills at the IoD. She previously worked in education research and as a Policy Advisor at the CBI. She holds a BA in Politics and Sociology from the University of Cambridge and an MSc in Comparative and International Education from the University of Oxford, and is a school governor for the Thinking Schools Academy Trust.
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