UK defies VAT cut relief: Energy price cap set at £1,723 after 4% October rise

The energy regulator Ofgem has confirmed that the UK energy price cap will rise by 4% starting October 1, 2026.

For a typical dual-fuel household paying by monthly Direct Debit across England, Scotland, and Wales, the annual cap will increase by £60 (about £5 a month), taking the average bill to £1,723 per year through December 31, 2026.

The hike is primarily driven by surging wholesale gas prices linked to ongoing geopolitical conflicts in the Middle East, which have driven up international energy costs.

The rise would have been notably steeper, but it has been partially offset by the government’s temporary removal of VAT on domestic electricity bills (cutting electricity VAT from 5% to 0% from October 1, 2026, through March 2027. 

However, the gas bills will still retain the standard 5% VAT rate.

While the 4% upward adjustment applies uniformly across standard variable rates, the exact annual average differs by payment structure—reaching £1,723 a year for Direct Debit, £1,678 a year for Prepayment Meters, and £1,861 a year for Standard Credit paying upon receipt of the bill, though households locked into fixed-rate tariffs remain insulated from these immediate changes until their current contract terms expire

Analysts and consumer advisors are warning that wholesale pressures could prompt further increases when the cap is reviewed again for January 2027.