£130 energy bill discount announced from next year

The Chancellor, Rachel Reeves, announced a £130 discount on energy bills from next year, funded for three years, in her second Budget¹. The Resolution Foundation, an independent think tank, said the measure was intended to "ease energy bills, the epicentre of the cost of living crisis, with a £130 discount from next year"¹.

Half of the energy bill package comes from the Exchequer picking up some of the social and energy policy costs currently added to bills, but this funding will only last for three years, meaning £55 is set to be added back onto electricity bills in 2029-30¹. The Resolution Foundation noted that 2029-30 is also the most likely year of an election¹.

The Budget also included a freeze in rail fares and a continuation of the freeze in duties on petrol¹. The Resolution Foundation said these measures are forecast to shave 0.5 percentage points off inflation in Spring 2026, which it said should help the Bank of England bring down interest rates, giving space for one or more interest rate cuts to be brought forward¹.

The Resolution Foundation said the Chancellor also announced the abolition of the two-child limit on welfare payments, which it said should result in 450,000 fewer children living in poverty by 2029-30¹. It said most of the revenue raising was done by extending the freeze of personal tax thresholds for another three years, until 2030-31, and that a typical employee will face a £220 higher tax bill in 2030-31 as a result of the freeze extension¹.

The Resolution Foundation said the Budget's decisions, along with those from the government so far, have been progressive, with incomes of the poorer half rising roughly £90 on average compared with losses of £1,000 for the top half¹. It said real household disposable income is forecast to grow more slowly over this Parliament than during any other on record bar the previous one¹.

Why it matters for households

The £130 discount applies to energy bills from next year, and the funding behind it lasts three years¹. From 2029-30, £55 is set to be added back onto electricity bills¹. Households on the personal tax threshold freeze will see a typical employee face a £220 higher tax bill in 2030-31¹. The Resolution Foundation said the abolition of the two-child limit should result in 450,000 fewer children living in poverty by 2029-30¹. The rail fare freeze and the continuation of the petrol duty freeze are forecast to shave 0.5 percentage points off inflation in Spring 2026¹.

What happens next

The energy bill discount takes effect next year¹. The £55 addition to electricity bills is set for 2029-30¹. The personal tax threshold freeze runs until 2030-31¹. The Resolution Foundation said the tax changes are backloaded, with more than three-quarters coming in around or after the most likely date for the next election¹.