UK Budget 2026: 20 million households to get £100 energy payment as VAT cut extended

Around 20 million UK households will receive a £100 energy payment this winter as Chancellor John Healey unveiled measures to ease the cost-of-living burden amid elevated energy prices and economic uncertainty.

Announcing the £2.6 billion scheme in his first budget speech, Healey said the payment would go directly into bank accounts of households in council tax bands A-D to help them manage rising energy bills during the colder months.

The chancellor said the payment would help families through the winter and spring, adding that funding would also be allocated to the devolved governments of Scotland, Wales and Northern Ireland.

Electricity VAT cut extended until July

Healey also announced an extension of the zero per cent VAT rate on electricity bills until July. The reduction from the standard 5 per cent rate had been expected to expire in March 2027.

The government had faced speculation that the VAT cut could become permanent, but the latest announcement extends the relief rather than making it indefinite.

The chancellor has also announced that standing charges will be scrapped from household gas bills, as the government seeks to reduce the burden of energy costs on consumers.

Fuel duty cut extended

Motorists will receive further relief through an extension of the 5p-per-litre fuel duty cut until July next year.

Healey said continued pressure on fuel prices, driven partly by the war in the Middle East, had prompted the government to maintain the tax reduction through the winter and spring.

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The government will also increase the higher mileage rate for people who need cars for work from 25p to 35p per mile, while making the increase to the standard mileage rate permanent.

UK growth forecast downgraded

The household support measures come against a weaker economic outlook outlined by the Office for Budget Responsibility (OBR).

The OBR expects the UK economy to grow by 1.2 per cent in 2026, slowing to 1 per cent in 2027. The projected deceleration is more pronounced than many economists had anticipated, reflecting concerns over sustained energy price pressures and broader global uncertainty.

Healey described the budget as one built on fiscal discipline, pledging to steer Britain through global economic challenges while supporting households and businesses.

The measures highlight the government’s attempt to balance cost-of-living relief with the need to maintain control over public finances as the UK faces a challenging economic environment.