Analysis of the Autumn Budget 2026 energy bill measures

In the Autumn Budget on 28 October 2026, the Chancellor announced two measures on household energy bills. A one-time £100 Household Energy Payment will go to households in council tax bands A to D in England from January 2027, and the 0% rate of VAT on household electricity, in place since 1 October 2026, is extended to 1 July 2027. The Budget presents the two together: "almost all households in the UK will benefit from the extended VAT cut to electricity … and around 80% of households in England will gain further from the £100 Household Energy Payment."

We at PolicyEngine have analysed the effects of both measures on UK households. This analysis builds on our energy bills dashboard, which evaluated seven policy options before the Budget, and our July analysis of the original six-month VAT cut.

Key results for 2026-27:

• The two measures cost £2.81 billion: £1.97 billion for the payment and £0.84 billion for the VAT cut
• 19.7 million households in England, 80.6% of the total, receive the £100 payment
• Household net income increases by an average of £96 per UK household
• The Gini index of income inequality falls by 0.12% from the payment and 0.04% from the VAT cut

Use PolicyEngine's Autumn Budget 2026 dashboard to view the full results or calculate the effect on your household.

Table 1: The Budget's energy bill measures

	Household Energy Payment	VAT cut on household electricity
Change	£100 payment, delivered through the council tax system	VAT falls from 5% to 0%
Eligibility	Households in council tax bands A to D	Households with an electricity bill
Geography	England	Great Britain from 1 October 2026; expected UK-wide from April 2027
Timing	One-time payment from January 2027	1 October 2026 to 1 July 2027
HM Treasury cost	£2,625 million in 2026-27	£755 million in 2026-27 and £305 million in 2027-28

Sources: Budget 2026, paragraphs 3.4 to 3.6 and 6.24, and Table 6.1, rows 1 and 2.

Prior to the Budget, the Government had reduced VAT on household electricity to 0% from 1 October 2026 to 31 March 2027 (SI 2026/987). Consistent with the Treasury's costing, we treat the entire period from 1 October 2026 to 1 July 2027 as a Budget measure and compare both measures against a baseline in which VAT on household electricity remains at 5%.

This analysis does not model three related funding allocations: the devolved governments' share of the payment's funding, which the Budget states will enable them to provide similar support; £100 million for local authorities in England "to provide further targeted support to households acutely impacted by rising energy bills", including some households above band D; and funding for the Northern Ireland Executive to provide "comparable support with household electricity bills" in 2026-27, before the VAT cut is expected to extend to Northern Ireland in April 2027.

Consider a household that consumes 2,500 kWh of electricity per year, Ofgem's typical consumption value. At the prices in our energy bills dashboard, its annual electricity bill is £906 in 2026-27 and £952 in 2027-28, including £43 and £45 of VAT, respectively. Because the zero rate applies for only part of each year, we remove VAT from the share of annual electricity consumption that falls within those months: 56.7% in 2026-27 (October to March) and 22.3% in 2027-28 (April to June).¹ The VAT cut therefore increases this household's net income by £24 in 2026-27 and £10 in 2027-28.²

If the household lives in a band A to D property in England, it also receives the £100 payment, for a total increase in net income of £135 across the two years. The same household gains £35 in a band E to H property in England or in Wales or Scotland, and £10 in Northern Ireland. Table 2 presents each case.

Table 2: Change in net income for a household consuming 2,500 kWh of electricity per year

Location and council tax band	Payment, 2026-27	VAT cut, 2026-27	VAT cut, 2027-28	Total
England, band A, B, C or D	£100	£24	£10	£135
England, band E, F, G or H	£0	£24	£10	£35
Wales, band C	£0	£24	£10	£35
Scotland, band C	£0	£24	£10	£35
Northern Ireland	£0	£0	£10	£10

Figures are rounded to the nearest pound; totals may therefore differ from the sum of the columns.

Households with higher electricity consumption receive larger savings. For example, a couple with two children renting an all-electric home in the North West of England, with annual electricity spending of £1,800, would save £49 in 2026-27 and £19 in 2027-28.

Neither measure reduces benefit entitlements in our model. For example, a lone parent with one child aged 4, earning £14,000 and renting a band B property in England for £975 per month, receives £14,585 of Universal Credit in 2026-27 with or without the payment, so the household's net income increases by the full £100.

According to PolicyEngine's static modelling, the two measures cost £2.81 billion in 2026-27, compared with £3.38 billion in the Treasury's Table 6.1. The VAT cut costs a further £0.35 billion in 2027-28. Table 3 compares the estimates.

Table 3: Cost of the energy bill measures (£ million)

Measure	PolicyEngine, 2026-27	HM Treasury, 2026-27	PolicyEngine, 2027-28	HM Treasury, 2027-28
Household Energy Payment	1,969	2,625	0	0
VAT cut on household electricity	840	755	353	305
Total	2,808	3,380	353	305

Figures may not sum because of rounding.

Our estimate for the payment covers only the £100 payments in England: £1.97 billion ÷ £100 = 19.7 million households, consistent with the Government's estimate of up to 20 million.³ The Treasury's £2,625 million also includes the £100 million for local authorities and funding for the devolved governments. Excluding the £100 million and our estimate of the devolved share, approximately £425 million, leaves approximately £2.10 billion for payments in England; our estimate is 94% of that amount.⁴

Our estimate for the VAT cut is 11% higher than the Treasury's in 2026-27 and 16% higher in 2027-28. The Treasury's costing also includes electricity supplied to charities and some businesses, and it assumes that some households shift consumption from gas to electricity. Both factors would raise the Treasury's estimate relative to ours, so they do not account for the difference.⁵

Table 4: Reach of the Household Energy Payment in England, 2026-27

	PolicyEngine	Budget 2026
Households in England in bands A to D	19.7 million (80.6%)	Up to 20 million, around 80%
Fuel-stressed households in England that receive the payment	82.9%	83%
Households in England in the bottom three income deciles that receive the payment	89.1%	88%

Sources: Budget 2026, paragraphs 3.5 and 3.6.

The Budget defines a household as fuel-stressed if it spends more than 10% of its income after housing costs on energy. Under that definition, 10.5% of households in England are fuel-stressed in our data.⁶

Figure 1 shows the average change in household net income by income decile in 2026-27.

Average change in household net income by income decile, 2026-27

The payment increases net income by an average of £67 per UK household, and by between £68 and £73 in each of the bottom eight income deciles. The average falls to £47 in the top decile, as fewer higher-income households live in band A to D properties in England. Households in Wales, Scotland and Northern Ireland do not receive the payment, which lowers the average in every decile.

The VAT cut increases net income by an average of £29 per household in 2026-27, ranging from £26 in the bottom decile to £37 in the top decile, as higher-income households consume more electricity. As a share of net income, however, the gain declines from 0.10% in the bottom decile to 0.02% in the top decile. We project that 28.4 million households in Great Britain gain from the VAT cut in 2026-27, close to the Budget's estimate of "around 29 million households across the UK".

Combined, the two measures increase net income by an average of £96 per household in 2026-27.

Neither measure changes poverty rates in our model. Consistent with the Government's Households Below Average Income statistics, we measure poverty using income before energy costs, so a reduction in electricity prices does not affect it. Our poverty figures also exclude the £100 payment, consistent with PolicyEngine UK's treatment of the similar £150 council tax rebate paid in 2022.⁷

The payment lowers the Gini index of income inequality by 0.12% in 2026-27, and the VAT cut lowers it by 0.04%.

The £100 Household Energy Payment and the extended VAT cut on household electricity together cost £2.81 billion in 2026-27, and the VAT cut costs a further £0.35 billion in 2027-28. In 2026-27, the two measures increase household net income by an average of £96, and the payment reaches 19.7 million households in England. Neither measure changes poverty rates as measured in our model.

As policymakers evaluate reforms such as these, analytical tools like PolicyEngine offer critical insights into the impacts on diverse household compositions and the broader economy.

We invite you to explore our additional analyses and use PolicyEngine to calculate your own taxes and benefits or design custom policy reforms.

The population results come from PolicyEngine's Autumn Budget 2026 dashboard, which uses the policyengine Python package (version 6.11.1) with PolicyEngine UK (version 2.151.0) and Microcosm UK 2024-25 data. The dashboard implements both measures as reforms to PolicyEngine UK: the payment adds £100 for households in England in bands A to D in 2026-27, and the VAT cut removes the VAT on each household's electricity spending for the months in which it applies. The household examples apply the same reforms in PolicyEngine UK household calculations, using electricity prices from our energy bills dashboard (replication code).