UK energy bills to rise 4% in October as VAT relief limits increase

Energy costs for millions of households in Great Britain will rise from October 1 after Ofgem announced a 4% increase in the domestic price cap. The increase comes as the government removes VAT from household electricity bills temporarily, limiting—but not eliminating—the rise.

Ofgem said on August 26 that the cap for the October 1-December 31, 2026, quarter will lift the annualized figure for a typical dual-fuel household paying by direct debit from £1,663 to £1,723. That is an increase of £60 a year, or roughly £5 a month if the October rate were sustained for a full year.

The £1,723 figure is an illustration based on typical usage and capped rates. It is not a fixed bill or a limit on what a household can spend. Actual costs will vary according to consumption, region, meter type and payment method.

Who is affected

The price cap limits the unit rates and daily standing charges suppliers can apply to customers on default, or standard variable, tariffs. Ofgem says the relevant cap protects about 22 million households in Great Britain.

Households on fixed tariffs are not affected by this particular cap adjustment. Ofgem estimates that about 11 million households are on fixed tariffs. The separate electricity VAT removal will still apply to fixed tariffs, according to the government.

Northern Ireland is outside the Ofgem cap figures described here. The typical bill figure and rate changes in this article apply to Great Britain—England, Scotland and Wales.

Why bills are rising

Ofgem said higher wholesale gas prices are the main reason for the October increase. The regulator linked the market volatility to the ongoing conflict in the Middle East, while Reuters also reported that the conflict has pushed up wholesale energy costs.

Ofgem said gas costs will account for most of the increase in the typical combined bill. Its technical guidance says the October electricity rate for a typical direct-debit default-tariff customer will average 26.32 pence per kilowatt-hour, excluding VAT, while the gas rate will average 7.97 pence per kilowatt-hour, including 5% VAT.

What the VAT measure does

VAT will be removed from domestic electricity bills from October 1, 2026, through March 31, 2027. The government estimates that the measure will save an average household £45 a year and says suppliers will apply the reduction automatically.

The relief applies to domestic electricity, not gas. Gas remains subject to 5% VAT. The £45 figure is an average estimate, so the saving will differ according to a household’s electricity use and supplier rates. The measure also applies to customers on fixed tariffs and to prepayment customers.

Targeted help remains available

The government says about 6 million households may qualify for the £150 Warm Home Discount this winter. The discount is eligibility-based assistance, not a universal payment to every household.

The government says it will continue looking at ways to protect families from unaffordable bills. Any further assistance should be treated as uncertain unless and until it is formally announced.

Households worried about paying should contact their supplier promptly. Suppliers can discuss affordable repayment plans, emergency credit for some customers and other routes to financial assistance or advice.

Ofgem is scheduled to announce the next price-cap level on November 25, 2026, for the January 1-March 31, 2027, period. Any January figure reported before that date would be a forecast, not a confirmed Ofgem decision.

Sources

Look for updates to this story

Discover more from Interactive News

Subscribe to get the latest posts sent to your email.