Energy Policy in Transition: Highlights from the 2025 Budget

UK Chancellor Rachel Reeves has announced the 2025 budget with new measures introduced. Some, designed to cut energy bills, will be welcome, whereas others, such as a new EV tax, are proving to be a bit more controversial.

What is clear for the energy industry is that while the government remains committed to hitting its net zero targets, they are open to becoming more flexible on how to achieve this. Nuclear investment & a focus on UK-based energy sources appear to be the silver bullet that the government has chosen; however, with continued support for energy-intensive industries & a new mileage tax for EVs, some critics are concerned the split focus may be to the detriment of the industry.

Support for Energy Intensive Businesses to Continue as Planned

First, the government has reaffirmed its commitment to supporting energy-hungry industries. At the moment, businesses receive compensation for 60% of network charging costs under the Energy Intensive Industries (EII) compensation scheme. From April 2026, that support will increase to 90%, giving energy-intensive sectors even greater relief.

Eligible businesses will receive large discounts on TNUoS, DUoS and BSUoS, dramatically lowering their pass-through costs. It is expected by the government that across the industries there is around £420m per year in aggregate relief once the 90% discount is fully in place.

These enhanced discounts apply specifically to businesses that meet the eligibility criteria of the Energy Intensive Industries (EII) compensation scheme, rather than to all commercial energy users.

Energy Bill Pass Through Costs to be Lowered  

Also from April 2026, 75% of the Renewables Obligation (RO) cost will be covered by government for a three-year period, reducing the portion charged on household bills.

Final numbers are still to be confirmed, but it is expected to cut roughly 0.35p/kWh (or around £70 per year) for the average household.

Atop this, the ECO levy will not be renewed this year, meaning it will fall off household electricity and gas bills. That is estimated to remove around 0.3 p/kWh from gas and about 0.87 p/kWh from electricity, which is another £65/year on the average household.

It is important to note that these reductions apply to household bills rather than business energy users, although wider system-level impacts may indirectly influence commercial pricing over time.

Nuclear & R.A.B Charges

The Budget also seeks to continue the acceleration of the UK’s nuclear programme. A dedicated taskforce is already in place, and R.A.B charges are expected to increase gradually as nuclear development progresses.

For context, most affected customers are currently paying around 0.345 p/kWh under the first published RAB rate. The next confirmed rate has been set at 0.39 p/kWh from January 2026. Beyond these figures, the government has not released detailed projections for later years, so only published rates should be treated as definitive.

This increase signals that the government is positioning nuclear energy as a core part of its long-term net zero strategy, with further investment in this area expected over the coming years.

North Sea Drilling & Energy Profits Levy

Looking over to more traditional energy sources, the government has confirmed it will introduce new “transitional energy certificates” to allow additional drilling activity near existing North Sea fields. These certificates are intended to support production in areas where infrastructure already exists and are not the same as issuing new exploration licences.

At the same time, the government has confirmed that the Energy Profits Levy (EPL) – the windfall tax on North Sea oil and gas producers – will remain in place until 2030, consistent with the 2024 Budget announcement.

The intention behind these measures is to support short-term security of supply and maintain liquidity in the UK wholesale gas market. However, there is debate over how significant the impact will be, given that many North Sea fields are already mature and in long-term decline.

The Autumn 2025 Budget also sets out the framework for what will eventually replace the EPL: the Oil and Gas Price Mechanism (OGPM). This mechanism is designed to activate when market prices exceed a defined threshold, ensuring that exceptionally high profits are shared between industry and government in a more structured and predictable way.

Electric Vehicles

And finally, the Budget confirmed the introduction of a new “pay-per-mile” charge for electric vehicles. This is expected to help maintain road infrastructure, taking over from fuel duty as EVs become more prominent on UK roads.

This is not due to hit until 2028; however, once in place it is estimated to cost EV road users around £20/month.

For businesses, the next few years will require careful navigation. The interplay between new levies, adjusted schemes, shifting market incentives, and evolving regulatory frameworks means that costs will continue to move, sometimes subtly and sometimes sharply. Understanding how these changes flow through contracts, procurement cycles, and pass-through structures will be essential for accurate budgeting and long-term planning.

We will continue monitoring each policy as the detail emerges and ensure the implications are reflected across our validation, accruals, forecasting, and procurement processes.

If you have questions about how any of these changes may affect your organisation (now or at renewal) we are here to help.

With a century of combined experience in carbon and energy strategy, EIC Partnership is here to help you manage today and plan for tomorrow.

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