LONDON, United Kingdom, October 6, 2026: Two changes to household energy bills took effect on October 1, and they pull in opposite directions. Ofgem’s price cap went up for the winter quarter, while the government removed VAT from domestic electricity. For millions of households, the result is a bill that is slightly higher overall but smaller than it would have been without the tax cut.
What is the energy price cap?
The price cap limits the unit price and daily standing charge that suppliers can charge on default tariffs. It is not a cap on your total bill, so what you pay still depends on how much energy you use. Ofgem reviews it every three months, and the new level runs from October 1 to December 31, 2026. About 22 million households are covered by the cap, according to Ofgem.
The new cap: £1,723
From October 1 to December 31, the cap is £1,723 a year for a typical household using electricity and gas and paying by Direct Debit. That is a rise of 4% compared with the previous period. This figure uses Ofgem’s updated definition of average energy use.
Ofgem announced the new level on August 26. Its figures show the average electricity unit rate moving from 26.11p to 26.32p per kWh, while the daily standing charge for electricity fell from 57.19p to 54.83p.
Why are bills rising?
The main driver is gas. According to Ofgem’s breakdown, gas costs for a typical household rise by around 8%, while electricity bills stay broadly steady. Global energy markets have been under pressure this year because of the conflict in the Middle East, which has pushed up wholesale prices.
The VAT cut on electricity
Prime Minister Andy Burnham announced on July 21, in one of his first major policy decisions, that VAT on domestic electricity would be cut from 5% to 0%. The cut applies from October 1, 2026 to March 31, 2027.
Several details matter:
It covers electricity only. Households still pay 5% VAT on gas.
It applies automatically. Customers do not need to take any action.
It covers fixed and variable tariffs, and some small businesses covered by the price cap benefit too.
The government estimates the cut takes around £45 a year off the cap compared with leaving VAT in place.
Ofgem notes that cost figures can’t be directly compared with earlier periods because of the VAT change.
Why £45 is not the whole story
The £45 figure is an estimate for a typical household and comes from the Treasury’s calculation against the price cap. Your own saving will depend on your usage and your supplier.
Households that use more electricity than gas, or only electricity, will see a bigger reduction. That includes many homes with electric heating and some people who have heat pumps or electric vehicles. Households that rely mainly on gas will notice less benefit, because gas VAT has not changed.
Consumer expert Martin Lewis has pointed out the timing problem. As he put it, around 4.8% comes off electricity bills while around 3.1% goes onto bills overall through the new cap. In other words, the VAT cut softens the increase but does not remove it.
Earlier support
The VAT cut follows earlier help. One source notes it comes on top of £150 taken off bills at the last Budget. The government has described the measure as part of a wider cost-of-living effort. Burnham has talked about giving people “breathing space” on living costs.
What it means for the Budget
The VAT cut is not free. Removing tax on electricity reduces government revenue, and analysts say it adds to the pressure on the Treasury ahead of Chancellor John Healey’s first Budget on October 28. Commentators have speculated about a similar cut on gas, although nothing has been announced. The electricity VAT cut currently runs for six months, to the end of March 2027, so a decision about extending it will come later.
What households can do
Even with the cap and VAT changes, there are practical steps:
Check your tariff. The price cap applies to default tariffs. Fixed deals may be cheaper or more expensive, depending on the offer.
Submit meter readings. Accurate readings help avoid estimated bills.
Look at your Direct Debit. Ask your supplier if your payment matches your real usage.
Ask for help if you struggle. Tell your supplier if you cannot pay your bills, because suppliers have to offer support.
Compare using an independent service. Check that it is accredited and confirm details with Ofgem.
What to watch next
The January price cap. Ofgem will set the next level for January to March. Wholesale gas prices and the Middle East situation will matter.
The Budget on October 28. Watch whether the Chancellor extends or widens the energy support.
Whether the VAT cut is extended. The current cut ends on March 31, 2027, which is the end of the winter heating season.
Effects on inflation. Energy costs feed through into overall inflation, which in turn affects Bank of England decisions on interest rates.
Final thoughts
The October energy changes show how tricky cost-of-living policy can be. A tax cut can reduce part of a bill, but market prices can still push the total up. For most households, the practical result is a bill that rises modestly rather than sharply, with electricity users gaining a little more than people who rely on gas. As winter approaches, the main questions are whether wholesale prices stay stable and what the government announces at the end of the month.
Sources: Ofgem (price cap announcements and rates), HM Treasury figures as reported by consumer sites, Sainsbury’s Energy, MoneySavingExpert analysis as quoted by Energy Made Easy, Skint Dad, Traders Union.
