Energy price cap will rise by 4% from October

Energy regulator Ofgem has announced a 4% increase in the energy price cap for the period covering 1st October to 31st 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.”

Rachel Duffey, CEO at PayPlan said “Another increase in the energy price cap will be a worrying development for many households already struggling to keep up with rising living costs. While the extent of the impact will vary depending on energy usage, any increase in the cost of such an essential household expense risks placing further pressure on already stretched budgets.

“Ongoing cost of living pressures and the experience of not having enough money for so long has become exhausting for people. Our data shows that increased cost of living remains the number one cause of debt among people seeking support from PayPlan in 2026, with more than 26% of people in all parts of the UK citing it as a contributing factor to their financial difficulties.

“As household bills continue to rise, many people who were previously just about managing may find there is even less room in their budgets to absorb unexpected costs. Seeking debt advice is nothing to be ashamed of and the earlier people access support, the more options they are likely to have to get their finances back on track.”

Emma Spencer, Energy Expert at Compare the Market said “Today’s price cap announcement will be felt most sharply by households on standard variable tariffs, so it is worth checking whether a competitive fixed deal could offer better value.

“The temporary removal of VAT on domestic electricity from October will provide some welcome relief, but households should look at the overall cost of their tariff rather than assuming this will automatically mean lower bills. Wholesale costs, standing charges, how much energy you use and where the price cap moves next will all play a part in what you pay.

“Households should also check whether they’re eligible for the £150 Warm Home Discount this winter. For the 2026/27 scheme, eligibility is based on circumstances on 23 August, so it is important to make sure the relevant person is named on the electricity bill by this date. Eligible households should then receive the discount through their energy supplier.

“Lastly, with bills still under pressure, households should take simple steps such as turning down the thermostat, avoiding estimated bills, adjusting boiler flow settings and using smaller, more energy-efficient appliances where practical. These small things could help keep costs more manageable.”

Independent Age Chief Executive Joanna Elson, CBE said “Today’s Ofgem energy price cap announcement will heap more pressure on the already stretched budgets of the 1.7 million older people in the UK living in poverty and the million others teetering on the brink.

“With winter on the horizon, older people on low incomes will once again be forced to take drastic action to keep themselves warm as rising energy bills eat away at already inadequate incomes.

“Each winter we hear heartbreaking testimony from older people wearing winter clothing to bed to fend off the cold, being forced to choose between putting food on the table or using their heating, and some are abandoning their cold homes altogether to find warmth in public buildings.

“We are urging Andy Burnham’s government to protect people on low incomes, including people in later life, from relentless energy price hikes. Boosting the Warm Home Discount from £150 to £400, funding this increase directly and improving targeting would make an immediate difference to those who cannot make ends meet.

“In the long-term, the development of a more comprehensive targeted energy social tariff is essential to protect low-income households from the all too regular price shocks that are pushing them deeper into financial hardship and poverty.”