Move renewables charges to tax

Policy baseline

Budget 2025 funds 75 percent of domestic legacy Renewables Obligation costs through taxation. Bills fall, but the Exchequer pays instead.

• Average household bills fall by about GBP 150 with wider measures.
• The measure is temporary across the review period.
• It shifts costs rather than removing them.

Core trade-offs

The direct beneficiaries are households through lower energy bills. The costs fall mainly on taxpayers through higher borrowing or taxes. The main economic question is the policy reduces bills but not system cost.

• Households through lower energy bills gain most directly.
• Costs fall mainly on taxpayers through higher borrowing or taxes.
• Key risk: the policy reduces bills but not system cost.

Fiscal impact by 2028-29

+GBP 1.5bn to +GBP 3.0bn. Central estimate: +GBP 2.1bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Higher public employment or procurement demand; shortages may shift workers from private firms.
• Wages: Direct gains for funded staff or suppliers; taxes fund the transfer.
• Prices: Public prices rarely rise directly; private prices may rise if labour is scarce.
• GDP / productivity: Potentially positive if capacity improves; negative if bottlenecks or crowd-out dominate.

Assessment

This is a real trade-off, not a free gain. Households through lower energy bills benefit, while taxpayers through higher borrowing or taxes bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Delivery bottlenecks: Staffing, procurement and capital constraints may stop extra money becoming better services.
• Crowding out: A tight labour market can shift workers from private firms rather than add capacity.
• Permanent baseline: Temporary programmes can become recurring spending commitments.

Safeguards

• Publish unit-cost benchmarks before rollout.
• Tie funding to measurable service capacity.
• Use staged delivery with independent audits.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for move renewables charges to tax Internal - PolicyLens, 2026
• Budget 2025 policy costings UK government costing - HM Treasury, 2025
• Budget 2025 UK government budget - HM Treasury, 2025
• Tax Incidence Academic chapter - Kotlikoff and Summers, Handbook of Public Economics, 1987
• The Macroeconomic Impact of Europe’s Carbon Taxes Academic working paper - Metcalf and Stock, NBER, 2020
• Economic and fiscal outlook October 2024 UK fiscal forecast - Office for Budget Responsibility, 2024
• Change: Labour Party Manifesto 2024 Party policy source - Labour Party, 2024

Other Labour policies

• Raise employer National Insurance
• Apply VAT to private school fees
• Replace non-dom tax status
• Raise capital gains tax rates
• Extend the Energy Profits Levy
• Capitalise the National Wealth Fund
• Capitalise Great British Energy
• Expand the Warm Homes Plan