- A typical dual-fuel household on a standard variable tariff will face an annualised bill of £1,723 from October, £60 more than under the present cap.
- Electricity VAT relief prevented a further £45 increase, but could not offset wholesale gas costs driven higher by the conflict with Iran.
- A further 9% increase is forecast for January, underlining how quickly imported gas exposure can defeat domestic bill-support measures.
UK household energy bills will rise again this autumn after Ofgem increased its default tariff cap by 4%, with wholesale gas costs overwhelming the benefit of the government’s electricity VAT cut.
From 1 October, the annualised bill for a typical dual-fuel household paying by direct debit will increase from £1,663 to £1,723. The cap will apply until the end of December and cover around 22 million households on variable tariffs, according to Ofgem.
The regulator said wholesale costs had risen by 11% over the three-month assessment period. Gas bills will increase by about 8%, while households that do not use gas will see an increase of less than 1%, reflecting the government’s removal of VAT from domestic electricity.
“High international gas prices are continuing to drive energy costs in the UK,” said Neil Kenward, Ofgem’s director general for markets.
The VAT intervention prevented the typical bill from rising by another £45. Around 35% of households, or approximately 11 million, are on fixed tariffs and will not be affected immediately.
Further winter increase expected
The latest cap is an annualised illustration based on Ofgem’s typical consumption assumptions, rather than a limit on what any household can pay. Bills remain dependent on actual consumption, tariff type, region and payment method.
Ofgem has also updated its typical domestic consumption values, making direct comparisons with older cap figures more difficult. Calculated using the previous consumption assumptions, the October cap would be £1,935, compared with £1,862 for the current quarter.
The new level nevertheless represents the highest cap in three years. Benchmark British gas prices have more than doubled since US military action against Iran began on 28 February, severely restricting shipping through the Strait of Hormuz, a route used for about one fifth of global LNG trade.
The pressure may not have peaked. Cornwall Insight’s latest forecast puts the January-March 2027 cap at £1,872, a further increase of nearly 9% from October. The consultancy cautioned that depleted storage ahead of winter made a January reduction unlikely even if the conflict ended.
The immediate political problem is that the latest increase more than absorbs the benefit of the VAT cut for a typical dual-fuel household. Together with an earlier transfer of policy levies, the government says its interventions have removed about £150 from annual bills, but those savings are now being eroded by a commodity shock largely beyond ministers’ control.
The distributional effect is also uneven. Removing VAT only from electricity offers comparatively strong protection to electrically heated homes and strengthens the incentive to electrify. Most households, however, still rely on gas for heating and therefore remain directly exposed to the fuel experiencing the sharpest increase.
For the energy transition, the episode illustrates the distinction between reducing the cost of bills and reducing the underlying causes of volatility. Tax cuts can offer immediate relief, but they do not change Britain’s exposure to internationally traded gas.
That requires a broader combination of energy efficiency, low-carbon electricity, storage, flexible demand and electrified heating. Until those investments materially reduce winter gas demand, government support will remain vulnerable to being overtaken by events in global energy markets.
