Energy regulator Ofgem has today (Wednesday 26 August) announced a 4% increase of the energy price cap for the period covering 1 October to 31 December 2026.
The energy price cap protects around 22 million households on default tariffs by limiting the maximum rates and standing charges that energy suppliers can charge. It is updated every three months to reflect changes in the underlying costs of supplying energy.
The current price cap for a typical household paying by direct debit for gas and electricity is £1,663.
Based on the energy use of a typical domestic household, from October, the price cap will rise by £60 per year (or £5 per month) to £1,723 for the average household using both electricity and gas if this level was sustained for a year. Around 35% of households are on fixed tariffs and will not be affected by this rise- this is about 11 million households.
This increase reflects higher wholesale gas prices as a result of the ongoing conflict in the Middle East, with volatile global gas markets remaining the dominant driver of price changes.
However, prices remain 52% below the height of the energy crisis in 2022 when the government stepped in to cap bills at £2,500.
The Government's decision to remove VAT from all domestic electricity bills is reflected in this update. While higher wholesale prices are pushing up both gas and electricity costs, the VAT reduction means electricity bills will remain broadly stable. As a result, most of the increase in the price cap is driven by higher gas costs, with gas bills rising by 8%, meaning that households which do not use gas will see a much smaller increase of less than 1%.
Without the Government's intervention on VAT, this figure would have been around £45 higher. The VAT removal also benefits customers currently on fixed tariffs, with the discount automatically applied by suppliers.
Neil Kenward, Ofgem’s Director General for Markets, said:
“High international gas prices are continuing to drive energy costs in the UK. We welcome the Government’s intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter.
“Savings are available by choosing a fixed tariff, which are available at £100 or more below the October price cap, and many suppliers offer tariffs with cheaper electricity to smart meter customers for electricity consumed out of peak times. It's also worth considering different payment methods, with prepayment customers paying the lowest price cap rates, and could save consumers an average of about £45 compared to direct debit.”
Ofgem urges anyone struggling with their bills to reach out to their energy supplier as soon as possible in the first instance. Suppliers should support customers to agree affordable repayment plans which can help households regain control and avoid falling further behind and offer routes to financial assistance and advice.