Budget 2025: A Turning Point for Fairer Energy Prices — And the Beginning of the End for the Spark Gap”

By Liam Walsh, Assembly Renewables

The UK’s 2025 Budget has delivered some genuinely positive news for households looking to cut bills, reduce carbon emissions, and future-proof their homes. While the Boiler Upgrade Scheme (BUS) stays firmly in place and untouched (a win in itself), the real headline is this:

The Government has formally committed to reducing electricity prices.

This matters because electricity is still close to four times the price of gas, a problem known as the Spark Gap, and one of the biggest obstacles facing families switching to cleaner heating.

Today’s Budget may finally be the moment the Government starts addressing that imbalance.

A Direct Budget Commitment: “Reduce Electricity Prices”

Budget 2025 explicitly states:

“The government is taking significant steps to deliver on its modern Industrial Strategy commitments to reduce electricity prices for business, bringing them more in line with other major economies in Europe.”— Budget 2025 (Investing in the UK’s energy security)

Although this line refers to businesses, the supporting measures announced today, particularly the changes to electricity policy costs, will flow through to households as well. And that is very good news for anyone running or considering a heat pump.

Lower Electricity Bills Are Coming

One of the most impactful Budget announcements is that the Government will take on most of the policy costs currently added to electricity bills. Specifically:

“The government will fund 75% of the domestic share of the Renewables Obligation… in 2026-27, 2027-28 and 2028-29.”— Budget 2025, Table 4.1

This is a major shift. It means a large portion of the green levy costs currently sitting on electricity bills will be removed and funded by the Exchequer instead.

What does that mean for homes?

• Lower electricity unit prices

• A smaller Spark Gap

• Cheaper running costs for heat pumps

• A fairer comparison with gas boilers

For years, electricity has been overloaded with environmental and social levies while gas has carried almost none. Today’s changes start unwinding that imbalance.

What Exactly Is the Spark Gap?

The Spark Gap is the difference between the unit cost of electricity and gas.

Right now, according to Ofgem’s cap:

• Gas: 6.29p/kWh

• Electricity: 26.35p/kWh

And from January 2026:

• Gas: 5.30p/kWh

• Electricity: 27.69p/kWh

So electricity is still nearly four times the price of gas — even though it’s the cleaner option and increasingly generated by renewables.

The Spark Gap exists mainly because:

• We still generate a lot of electricity from gas

• Global gas prices set electricity prices

• Environmental levies are placed almost entirely on electricity

This is why Budget 2025 matters so much: lowering electricity policy costs directly weakens the Spark Gap.

Why This Is Good for Heat Pumps

With electricity prices marked for reduction and policy costs being rebalanced, heat pumps become even more attractive:

• Lower running costs

• Higher efficiency savings vs gas

• More predictable long-term bills

• A stronger financial case for switching to low-carbon heating

Add in the unchanged £7,500 BUS grant, and 2025–2028 could become the best period we’ve ever seen for heat pump adoption in the UK.

Will the Spark Gap Disappear Overnight?

No, but today is a big step and crucially, the Government has acknowledged the issue in writing and committed funding to fix it.

Electricity will still be more expensive than gas for a while, but the direction of travel has changed, decisively, towards a fairer system where clean energy isn’t penalised.

Final Thoughts

Budget 2025 didn’t just protect the heat pump grant, it signalled a strategic shift in how the UK prices energy.

• Electricity is being made cheaper.

• Policy costs are being moved off bills.

• The Spark Gap is finally being addressed.

• Running a heat pump will become cheaper over time.

For homeowners, that’s a win. For the climate, it’s a win, and for the future of clean home heating, it’s the clearest positive signal we’ve had in years.

If you’d like a personalised performance estimate or want to understand what these changes mean for your home, the Assembly Renewables team is here to help. To find out more, click here or email hello@assemblyrenewables.com