A sustainable budget? Key takeaways for energy & sustainability in real estate

A long-trailed Budget (preceded by an accidental “surreal” early release from the OBR) was delivered on 26 November by Chancellor Rachel Reeves. It included measures on energy costs, EVs and supporting clean energy growth. Analysts billed it as sending mixed signals for the green economy, which grew three-times the rate of the broader economy in 2024.

Energy prices to fall

The UK faces some of the highest energy costs in the developed world. Domestic prices are 67% above the IEA median excluding taxes (46% including), so removing certain levies will be welcomed. Since 2022, elevated costs have burdened households; this change will ease bills (by £150 or c.16%) and reduce inflationary pressure. The OBR estimates all packages point to a 0.4% reduction in inflation in 2026.

Lower electricity costs will support electrification and climate targets for UK homes. The Warm Homes Plan (although we still await more) and Boiler Upgrade Scheme (BUS) continue to grow, with 30,000 redemptions in the 12 months to October 2025, from 21,000 in the previous 12-month period (42% increase). Air-to-air heat pumps are now included broadening the technologies available and the Chancellor announced a further £1.5 billion additional capital, on top of £13.2 billion already allocated to continue support.

Business energy prices remain high: UK industrial prices are 94% above the IEA median (63% including taxes), with taxes and levies accounting for 20–25%. Increased discounts for energy-intensive industries via Network Charging Cost Compensation (reflief on some levies rising from 60% to 90%) and consultation on the British Industrial Competitiveness Scheme, (slated to cut costs by £35–40/MWh) are positive, but not universal. These measures, alongside the development of the corporate power purchase agreement market (CPPA) and indexation changes, aim to boost competitiveness, yet these also require greater supply to sustain growth. 

 “Any measures to reduce energy bills are of course welcome. However, the budget shows the inherent challenge in the Government’s decarbonisation agenda. How to reduce costs to consumers whilst not reducing sustainability commitments,” notes David Goatman Global Head of Energy & Sustainability at Knight Frank. “The Government is attempting to walk a tightrope, maintaining ambitious 2030 targets but at the same time trying to reduce costs. Given the significant costs to come in order to decarbonise our power supply and grid it is questionable how much longer they can walk the tightrope. At some point balancing climate action with the high cost of living will surely come to a head.”

Supporting energy supply

Policy cost reform matters, but building capacity is critical. The Budget confirmed previously announced investments: the first small modular reactor in Wales, Sizewell C, and the National Wealth Fund. Additional measures included £14 million for low-carbon technologies in Grangemouth, as well as a nod to planning reforms and pledges to go further on grid connection reforms by:

• Reallocating released capacity and reserving future capacity for strategic projects.
• Enhanced entry requirements to ensure viable projects progress.
• Exploring self-build for high-voltage grid infrastructure and flexible connections.
• Removing speculative demand from the grid queue. The Department for Science, Innovation and Technology will set out a strategic plan for data centers to prioritise credible projects. 

Chris Jones, Head of Energy Procurement for Data Centres at Knight Frank adds: “Recent NESO reforms on the connection queue for both generation and demand are vitally needed; but they must be carefully balanced, to avoid stifling inward investment.

Clarity on the reforms and a roadmap of potential changes over the next few years to how developers can connect to the transmission network, is also required to ensure our status as the preferred location for data centres in Europe is maintained. “

While positive steps have been made, the recent delays to the first Gate 2 criteria assessment demonstrate the need for more progress. Announcements of connection dates, further refinement on Clean Power targets and the upcoming Strategic Spatial Energy Plan remain critical for more clarity and decisiveness. 

Electric vehicles also featured

The pay-per-mile tax (3p) on EV drivers from April 2028 seems inconsistent with zero-emission (ZEV) mandates and grants. The OBR estimates the levy will cost drivers c.£250 annually, although is set at half the fuel duty level. While intended to offset some lost fuel duty, timing feels counterintuitive. Battery EVs accounted for 22.4% of new registrations YTD, according to SMMT, but this remains short of the 28% ZEV target. Lower energy costs and renewable reforms may soften the impact.

Other announcements:

• Raising the expensive car supplement threshold for EVs to £50,000.
• £1.3 billion additional funding for the Electric Car Grant (extended to 2030, total £2 billion).
• Delaying changes to employee car ownership schemes.
• Consultation on permitted development rights for cross-pavement EV charging.
• Investment in charging infrastructure and review of public charger costs.
• Business rates relief on EV charging infrastructure.

With barriers like purchase price, range anxiety, and charging options, the news on grants and charging infrastructure growth provide tailwinds. Regardless of Budget specifics, real estate owners should plan for integrated EV charging, as electrification remains inevitable and adoption rises. 

What wasn’t there

The Warm Homes Plan remains delayed, leaving uncertainty on minimum energy efficiency standards for private rented and non-domestic sectors, a policy awaited for over four years. Although the industry broadly expects a minimum EPC B requirement for non-domestic real estate, clarity on timelines is essential for investment and valuation. With rhetoric in the Budget clearly favouring removing tax incentives, moves to encourage retrofit (e.g., VAT removal or stamp duty rebates) seem unlikely, despite industry suggesting such measures would spur action. 

Overall, a mixed bag for sustainability, but no surprises. The detail of who benefits from bill cuts, plus targeted plans (SSEP, grid reform, Warm Homes Plan), will likely have the greatest impact on the sector.