British households face another squeeze on their finances this winter after Ofgem confirmed that the energy price cap will rise by 4 per cent from October, pushing the annual benchmark to £1,723 just as millions of households prepare to turn their heating back on.
The increase, which takes effect on October 1 and runs until December 31, adds £60 to the annual cost for a typical household, up from the current £1,663.
The rise is the latest blow to households already facing elevated living costs and comes against a backdrop of higher international gas prices, with the conflict in Iran adding further volatility to wholesale energy markets.
Cornwall Insight had forecast a slightly higher cap of £1,729 in its final estimate before Ofgem’s announcement. On a unit-for-unit basis, that would have represented the highest level since July 2023.
The cap does not place a ceiling on a household’s total bill. Instead, it limits the maximum unit rates suppliers can charge for gas and electricity, alongside standing charges. Actual bills therefore depend on how much energy each household consumes.
The cap applies to standard variable tariffs in England, Scotland and Wales. Households on fixed-rate deals are unaffected, while Northern Ireland operates under a separate energy market. The latest figure is also difficult to compare directly with previous caps because Ofgem changed its definition of a typical household from July 1 to reflect falling average energy consumption.
At the same time, VAT on domestic electricity is being removed from October, meaning the headline increase would have been higher without the tax change. Energy Secretary Miatta Fahnbulleh said the Government was expanding support for households through the £150 Warm Home Discount and its Warm Homes Plan.
“Families will be understandably concerned about the cost of energy bills this winter, which is being driven up by the Iran War,” she said.
“Energy is an everyday essential and it needs to be affordable for everyone, which is why we have cut VAT on electricity bills from October, to give families some breathing space.
“This has limited the rise in the price cap and follows the £150 in costs we removed from bills earlier this year, and we will keep looking at what more we can do to protect families from unaffordable bills.”
The increase nevertheless underlines the limits of government intervention when wholesale energy markets are being driven by geopolitical shocks. 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.”
Consumer groups warned households not to be reassured by the £1,723 benchmark, arguing that the figure may bear little resemblance to the bills faced by individual families.
Sebrina McCullough, director of External Relations at Money Wellness, said: “People don’t budget using Ofgem’s typical household. They budget using their own energy bill. Ofgem’s benchmark has changed, but your household hasn’t.
If you’re already struggling with your energy bills, don’t wait until the winter to ask for help. Contact your supplier and get advice early. The sooner you act, the more options you are likely to have.”
The timing of the increase is particularly uncomfortable for consumers. October marks the point when households begin using substantially more gas and electricity for heating, meaning the financial impact of higher unit prices could become apparent rapidly.
The Government’s VAT intervention will soften the increase, but it cannot eliminate the underlying exposure to global gas markets. For households already operating with limited financial headroom, the message from the regulator is therefore stark: the price cap may constrain what suppliers can charge, but it offers no protection against the cost of using more energy as winter arrives.
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