Budget 2026: Extends VAT Cut on Energy But Axes Universal Electricity Credits
Budget 2026 was announced by the government this week with a focus for energy customers on electricity prices, home heating, long-term VAT relief and expanded social welfare supports for heating costs. Most concerningly for electricity customers will be the announcement that there will be no further electricity credits, as seen in recent years.
Budget 2026: What Was Announced?
Below you'll find a brief overview of the announcements from Budget 2026 most affecting Irish energy customers:
📉 Reduced VAT Rate Extension on Energy
The reduced 9% VAT rate on gas and electricity bills has been extended until December 31, 2030. This prevents the rate from reverting to the higher 13.5%.
⚡ No Universal Energy Credits
A notable absence from this year's Budget is the introduction of the broad, one-off electricity credits for all households that were a feature of previous Budgets. The government framed this Budget as a shift toward more targeted, rather than universal, supports.
💰 Targeted Energy and Heating Supports
Fuel Allowance:
The weekly Fuel Allowance rate will increase by €5.
The Fuel Allowance will be extended to include households receiving the Working Family Payment (WFP), beginning in March 2026 and backdated to January 2026.
Microgeneration Relief:
The income tax exemption on up to €400 of income earned from household microgeneration (selling power back to the grid) has been extended until the end of 2028.
Retrofitting and SEAI Programmes:
There is increased investment in home retrofitting, including an increase in social housing retrofitting funding (from €90 million to €140 million) and additional funds for SEAI retrofitting programmes.
🔧 Energy Infrastructure Investment
A significant allocation of €3.5 billion has been announced for ESB and EirGrid to strengthen energy security and accelerate the country's transition to renewable energy.
🔥 Carbon Tax
The Carbon Tax will increase to €71 per tonne of CO2.
This increase takes effect for auto fuels from today, Wednesday, October 8, 2025.
The increase will apply to home heating fuels from May 1, 2026.
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Extension of Reduced Energy VAT Rate
A crucial measure providing medium to long-term certainty for consumers is the extension of the reduced 9% VAT rate on domestic gas and electricity prices.
This discounted rate, originally introduced as a temporary measure to combat high energy inflation, was set to expire but has now been prolonged until December 31, 2030.
By extending the measure, the Government has shielded households from a significant increase in the immediate cost of energy. Had the rate reverted to the standard 13.5%, the average annual energy bill would have risen sharply. Consumer advocates have welcomed the extension as a necessary stability measure.
End of Universal Electricity Credits Sparks Concern
In contrast to the relief brought by the VAT extension, the Budget confirmed the absence of the one-off, universal electricity credits that were a key feature of the previous two years' financial packages.
This decision marks a clear shift in fiscal strategy, moving away from broad-based handouts.
- In 2023 and 2024, the credits provided substantial relief to all households, collectively amounting to hundreds of euros.
- Critics argue that the elimination of these credits risks plunging more families into energy poverty, especially as winter approaches, given that many households still carry significant arrears on their bills.
- They contend that the lack of immediate, universal relief overlooks the fact that high energy prices still impact a vast swathe of the population beyond those currently receiving social welfare payments.
Targeted Support and Fuel Allowance Enhancements
To counter the impact of removing the universal credits, the Government has focused on enhancing targeted social supports:
- Fuel Allowance Increase: The weekly Fuel Allowance payment will see an increase of €5.
Expanded Eligibility: The eligibility criteria for the Fuel Allowance are being significantly widened to include recipients of the Working Family Payment (WFP).
This expansion is due to come into effect in March 2026, with the payment being backdated to January 2026.
This specific measure is designed to address energy poverty among low-income working families who were previously excluded from the main energy support scheme. Anti-poverty groups have long campaigned for this inclusion.
Climate Action and Infrastructure Investment
The Budget also delivered key announcements related to Ireland's long-term climate action goals and energy infrastructure.
Carbon Tax Increase
The Carbon Tax is set to continue its annual incremental increase, rising from €63.50 to €71 per tonne of carbon dioxide emitted.
The timing of this increase is staggered:
- It applies to auto fuels (petrol and diesel) from October 8, 2025.
- It will be applied to home heating fuels from May 1, 2026.
| Fuel | Increase (per the rise to €71/tonne) | Total Tax (at €71/tonne) |
|---|---|---|
| *Gas | €18 a year | €160 a year |
| Petrol & diesel | 3 cent per litre | 19 cent per litre |
| **Home heating oil | €19 per fill | €180 per fill |
| *Based on average annual consumption of 11,000 kWh of gas. | ||
| **Based on a 900-litre tank. | ||
The revenue generated from the Carbon Tax remains ring-fenced for climate action projects, which include energy efficiency upgrades and retrofitting schemes.
Key Infrastructure and Retrofitting Funding
A significant capital commitment was made to the national energy system and housing:
- National Grid Investment: €3.5 billion has been allocated to semi-state bodies ESB and EirGrid. This funding is earmarked for strengthening the national grid, enhancing energy security, and accelerating the integration of renewable energy sources.
- Retrofitting Programmes: The allocation for social housing retrofitting has been boosted to €140 million, alongside additional investment in SEAI (Sustainable Energy Authority of Ireland) schemes. These investments underpin the strategy to improve the energy efficiency of Ireland’s housing stock.
Other Supportive Measures
Other supportive measures for cleaner energy include:
- Microgeneration: The income tax exemption for money earned from household microgeneration (selling excess power back to the grid) will remain at €400 annually until the end of 2028.
- Electric Vehicles (EVs): The €5,000 VRT (Vehicle Registration Tax) relief on electric vehicles has been extended until the end of 2026.
What Can I Do About Increasing Electricity Prices?
In light of these developments, Selectra urges electricity customers to manage their energy consumption and explore all available options to mitigate the impact of rising costs:
| Strategy | What It Involves | Potential Benefits |
|---|---|---|
| Switch Suppliers | Compare offers from different electricity providers and switch to a new one, especially if you're out of contract. | Significant discounts (often 30% or more) for new customers in their first year. |
| Optimize Tariff | If you're a customer of either supplier, ensure you're on a discounted contract. If you have a smart meter, consider switching to a time-of-use tariff. | Potential savings on night-time usage and overall reduced rates. |
| Actively Manage Usage | Implement energy-saving habits like unplugging electronics, using energy-efficient appliances, optimising heating/cooling, and utilising natural light. | Reduced overall electricity consumption, leading to lower monthly bills. |
| Utilise SEAI Grants | Avail of government-backed schemes (e.g., from the Sustainable Energy Authority of Ireland) for home insulation, window upgrades, or heat pump installation to improve your home's Building Energy Rating (BER). | Massive long-term reduction in energy demand (gas and electricity) and improved home comfort, potentially saving hundreds of Euro annually. |
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