Energy regulator Ofgem has announced a 4% increase of the energy price cap from 1 October to the end of the year.
The current price cap for a typical household paying by direct debit for gas and electricity was £1,663, and will now rise to £1,723 from the average household. It will not impact those on fixed tariffs – around 11 million homes.
The energy regulator said the 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.
But it added prices remain 52% below the height of the energy crisis in 2022 when the UK Government stepped in to cap bills at £2,500.
This latest update also includes the decision by the UK Government to remove VAT from all domestic electricity bills. As a result, most of the increase in the price cap is driven by higher gas costs, with gas bills rising by 8%.
Ofgem said bills would be £45 higher without the VAT move, which was questioned by the electric vehicle industry, as it widens the gap between domestic and public charging costs, with the latter priced at 20% VAT.
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.
Jess Ralston, Head of Energy at the Energy and Climate Intelligence Unit (ECIU), said:
“Industry experts are clear that gas price increases due to the US-Iran war are driving up bills in October, with wholesale gas prices recently reaching a 3-year high and further bill rises expected in January.
“While large UK wind farms drove wholesale electricity prices down by around a third last year, by squeezing gas off the grid, investment in more net zero technologies like solar panels and heat pumps will be needed to further reduce exposure to the international gas market.
“With the North Sea running out of gas, irrespective of any new drilling, a slowdown in deploying these technologies, or a return to gas will leave the UK even more dependent on the Strait of Hormuz and the US which under Trump has been a much less reliable trade partner.”
Andrew Clint, CEO, myenergi, said:
“Today’s announcement from Ofgem in is a painful reminder that UK households remain far too exposed to volatile gas prices. At the same time, families are feeling the pressure of fuel costs at the petrol pump. We need to give people a practical route away from both. By electrifying our homes and transport with technologies like electric vehicle chargers, solar, battery storage all working together, households can cut their energy bills by up to £1,800 a year.
“Government needs to make that transition easier. This means consistent policy, practical support for households and a clear framework for domestic battery storage. Otherwise, we’ll keep having the same conversation every time wholesale gas prices go up.”
Unite general secretary Sharon Graham said:
“Today’s price cap increase is another nail in the coffin of household budgets this winter. The time for stopgap and ad hoc measures is long gone.
“We need a complete overhaul of the energy market based on public ownership to drive down bills and end profiteering.”
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