More than four million households in the UK on standard energy tariffs will see their bills rise by £60 a year from Thursday, October 1, as Ofgem's price cap increases by 4%. The average household in England, Scotland and Wales paying by direct debit for gas and electricity will see their annual bill reach £1,723, up £5 a month or £60 a year, if this level were sustained over 12 months.
VAT removal partially offsets rise
Also taking effect from Thursday is the Government's decision to remove VAT from household electricity bills, which is included in the price hike. Estimates from the Government show that removal of the 5% levy until March 31 next year will save the average bill payer around £45 a year. Households will still pay 5% VAT for gas.
The new policy was announced in July on the day after Andy Burnham took over as Prime Minister, in what was one of the former Mayor of Greater Manchester's first moves in Downing Street.
Wholesale prices and conflict drive increase
According to Ofgem, the increase to its price cap reflected higher wholesale gas prices as a result of the ongoing conflict in the Middle East. Volatile global markets remain the dominant driver of price changes.
Households without smart meters are being urged by comparison site Uswitch to send in readings to their supplier by the end of the month to avoid being charged higher rates for energy used before October 1.
October costs and future forecasts
Those with homes on a standard tariff with average usage are expected to spend £145 on energy in October, up from £109 in September. This increase of a third is due to a combination of increased usage due to cooler temperatures and higher unit rates under the latest price cap.
In November, the energy regulator will announce its next price cap, covering January to March 2027. Major provider EDF is now predicting a 30% increase to £2,098, up £375 on October's rate. The additional blow during the rising cost of living crisis arrives amid the US-Iran conflict, which has driven up energy costs worldwide.
Charity warns of darker winter ahead
National Energy Action chief executive Adam Scorer said: “This latest price cap rise, just before winter, means there is simply no light at the end of the tunnel for vulnerable and low-income households.
“In fact, if forecasts for the January 2027 price cap are correct, then it’s set to get a whole lot darker in the new year.
“The headline price cap figure is already bad, but it doesn’t reflect the even worse reality for millions of fuel poor households. Our evidence shows vulnerable and low-income households already skipping food and heating even before this next price cap rise and temperatures start to drop.”
He added: “The Autumn Budget must deliver additional targeted support for households most at risk this winter, alongside action to tackle energy debt and improve the least energy efficient homes.”
Largely based on the cost of energy on wholesale markets, Ofgem changes the price cap for households every three months. The energy price cap was introduced by the Government in January 2019. It sets a maximum price that energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy they use. It does not limit total bills because householders still pay for the amount of energy they consume.
