Martin Lewis has explained why Prime Minister Andy Burnham's VAT cut isn't reducing bills for everyone as the Ofgem price cap for October was announced. On Wednesday, August 26, the regulator announced a 4% increase of the energy price cap for the period covering October 1 to December 31, 2026.
Lewis, the founder of personal finance website MoneySavingExpert.com responded to the announcement on X, laying out how the change will impact households across Great Britain.
"(BAD) NEWS: The @Ofgem Price Cap for Eng, Scot & Wales for the three months starting 1 October is to RISE 3.6%, even when you include the Government's six-month cut to electricity VAT that starts the same day," he wrote. It's worth noting that Ofgem rounds that 3.6% increase to 4% in its announcement.
Why energy bills are going up and what can I do?
"When the July Cap rose by 12.6% the mitigating fact was that it was only for the low-use summer quarter," Mr Lewis explained. "Now it will rise 3.6% ON TOP of that, so rates will be nearly 17% higher than they were in April, over the high-use winter period," he added, saying prices are "the highest they've been since Winter 2023".
However, that's only for households on dual-use tariffs (gas and electricity) and Mr Lewis notes that those with "electricity-only use rather than gas too will see a much lower rise, and some on very low electricity-only usage may see a slight fall, as the electricity Standing Charge has been cut (mainly due to the scrapping of VAT)".
Last month the prime minister laid out plans to tackle rising bills with a tax cut to remove VAT from domestic electricity bills from October 1 in time to impact the next Ofgem price cap.
New October 1 Price Cap rates
Mr Lewis laid out the new October 1 Price Cap Direct Debit average UK rates including VAT when it's charged, noting that the rates vary by region. They include:
- Electricity unit rate 26.32p/kWh (was 26.11p) up 0.8%
- Electricity standing charge 54.83p/day (was 57.19p) down 4.1%
- Gas unit rate 7.97p/kWh (was 7.33p) up 8.7%
- Gas standing charge 29.68p/day (was 29.04p) up 2.2%
And while millions of Britons will be facing additional costs from October, Mr Lewis said they would be "even worse" without the electricity VAT Burnham's Labour government announced in the opening days of his premiership. Without it, on 'typical use' there would have been an increase of roughly 6.2%, he added.
Mr Lewis said the VAT cut was "designed to shift some costs off bills and into general taxation, and it does - but it's a drop in the ocean compared to the rise in wholesale rates". "Plus it's only VAT on electricity that's gone, which cuts electricity costs by 4.8%, all else being equal, yet all else isn’t equal, hence the overall rise. The VAT scrapping is worth about 2.5% off the Cap, without it, prices would've risen more."
What the cap means for households
Mr Lewis stresses that the cap applies only to standard variable / default tariffs and dictates the maximum Unit Rate and Standing Charges firms can charge on their Standard Variable Tariffs. It doesn't apply to people on fixed tariffs, with rates locked in for a set period, or to most special tariffs. Mr Lewis also offered advice on whether it's a good idea to get on a fixed tariff now, ahead of any further price rises.
On Wednesday, the Government laid out how the VAT can help lessen the burden of bills, which have surged in the wake of the US-Iran conflict. "In July 2026, the Prime Minister cut taxes on electricity bills," the GOV.UK website explains. "From 1 October 2026, VAT will be removed from household electricity bills, saving households an average of £45 per year. This has limited the rise in Ofgem’s energy price cap. It follows the £150 of costs we removed from bills earlier this year." Around 6 million households are also eligible for our Warm Home Discount this winter, which provides a further £150 off electricity bills.
The Department for Energy Security and Net Zero has been approached for comment.
