Industry warns Budget cuts threaten UK energy transition

The Autumn Budget has drawn sharp criticism from the energy sector, with industry leaders warning that reductions to key decarbonisation schemes place the UK’s energy transition in jeopardy. Chancellor John Healey’s fiscal measures, which prioritise defence investment and housing affordability, have led to significant cuts in funding for clean heating and industrial decarbonisation technologies. These changes have raised concerns among manufacturers and analysts that the government’s commitment to energy security and net-zero targets is being undermined by a shift towards short-term affordability measures.

A central point of contention is the £1 billion reduction in capital grants for the warm homes plan. Budget documents reveal that this funding will be redirected to fully finance a £4.7 billion first home scheme for first-time buyers. Additionally, the government intends to make a further £200 million saving from the scheme, although it has stated that funding levels for the boiler upgrade scheme will be maintained at £400 million for the 2027-28 financial year. This decision follows the recent unveiling of a new warm homes loan scheme, which encourages homeowners to use debt for energy-efficiency upgrades rather than relying on upfront grants, a move that has been criticised by industry experts who argue that grants are essential for driving immediate adoption of heat pumps, particularly among rural households dependent on oil.

The Treasury has also announced a £200 million cut to capital grants for carbon capture, usage and storage (CCUS) and hydrogen projects, citing the need to reprioritise spending towards the defence investment plan. In response, the government will focus on supporting mature projects in Teesside, Merseyside and North Wales, including the Viking cluster and HyNet, while scrapping the planned gas shipper obligation. This levy, which was intended to fund the hydrogen programme, has been replaced by direct funding for committed projects. Industry bodies have expressed concern that these cuts weaken the support for technologies critical to decarbonising industrial sectors where direct electrification is impractical, potentially widening the cost gap between UK manufacturers and overseas competitors.

Critics argue that the Budget fails to provide the long-term certainty required for investment. The Energy Intensive Users Group, representing sectors such as steel, chemicals and cement, described the measures as disappointing, noting that the cuts risk undermining the foundational industries necessary for national security. The group called for a rebalancing of levies on electricity prices to general taxation and the introduction of an industrial energy transformation fund. Similarly, the Carbon Capture and Storage Association warned that the shift towards equity and loans for future CCUS funding increases uncertainty for both mature and future projects, urging the government to provide clarity on how the energy wealth fund will operate and when funding will be available.

Analysts from LCP Delta noted that the Budget leaves longer-term transition questions unanswered, with changes to market design raising doubts about how the UK will deliver its net-zero ambitions. They warned that without further action, the number of installations supported by the boiler upgrade scheme may remain flat, missing government targets. While the government has extended the VAT tax cut on electricity until July 2027, questions remain over its ability to capitalise the £2 billion energy wealth fund using North Sea oil and gas profits, especially as tax receipts from the windfall tax have been falling. Industry representatives emphasised that protecting incentives and addressing the cost of electricity are vital to sustaining the transition to clean heating and ensuring long-term energy security.