Ofgem’s price cap rose 4% to £1,723 on 1 October, and only electricity got a VAT cut. Whether the Chancellor adds help on 28 October is unannounced; Ofgem sets the January cap by 25 November.
Households on the price cap are paying more for energy this winter, and the help announced so far does not cover the rise to come. From 1 October the regulator’s cap for a typical dual-fuel household paying by direct debit is £1,723 a year, up from £1,663 in the summer.1 That is a 4% increase, and it follows a 13% rise in July.7
The government’s one measure so far, removing VAT from electricity, is already inside that figure. Ministers put its value at about £45 a year, and it applies only to electricity: VAT on gas stays at 5%.17 The cut runs until 31 March 2027. Without it, the October rise would have been larger.
The larger question is January. The consultancy Cornwall Insight forecasts a cap of about £1,999, a rise of £276 or 16% and the biggest since January 2023.2 Energy UK, the industry body, puts the average of forecasts at £2,077, and Uswitch’s average of forecasts from British Gas, EDF and E.ON implies a 26% rise.38 Those are forecasts, not Ofgem decisions, but they frame what the Chancellor, John Healey, faces on Wednesday.
Ofgem is explicit that the cap moved by formula. Updating the inputs, it said, was “not making a policy decision”.1 The input that moved was wholesale cost. Its allowance rose 11%, lifting wholesale energy from 44% to 47% of the cap, with gas up 13% and electricity up 10%.1
Ofgem blamed continued conflict and instability in the Middle East, uncertainty over liquefied natural gas supply, and an extreme-heat summer across Europe that raised cooling demand and left electricity more reliant on gas.1 Because gas sets the price of power in most hours, a gas shock feeds both bills. Network, operating and policy costs held their shares.
Cornwall Insight says the January rise follows from the same cause. EU gas storage was about 65% full at the start of September, the lowest for the month in 15 years, and wholesale prices touched a four-year high that month before easing.2 Even if the conflict ended, it said, supply disruption would take months to clear and still feed the first quarter’s cap. Fuel is the same story in a different bill: the 22 October inflation piece traced September’s jump in consumer prices to petrol and diesel.
The VAT cut helps households in proportion to their electricity use. A home that heats with gas pays 5% VAT on that fuel as before, so it carries the full wholesale rise. Energy UK argues that once changes to how the cap is calculated are allowed for, and because households now use less energy, bills are effectively back at the level that triggered universal support in 2022 and 2023.3
The industry body also projects household energy debt will reach £7 billion by the end of 2026, with a quarter of the population financially vulnerable and another quarter at risk.3 A coalition including the Joseph Rowntree Foundation, the New Economics Foundation and the TUC wrote to the Chancellor and the Energy Secretary asking for help. Polling commissioned by the foundation found 66% of adults think the government should do more.7
Nobody on the record says nothing should be done. The argument is over who should get help and how much room the Treasury has. The government’s stated position is that it has already taken £150 of costs off bills, extended the Warm Home Discount to about six million households, and has little further room: Prime Minister Andy Burnham has acknowledged there is not “huge room for manoeuvre”.7
The TUC’s general secretary, Paul Nowak, called the situation an “energy bill emergency”, and the New Economics Foundation wants every household to get a basic amount of energy at a low fixed price.7
The Resolution Foundation proposes about £2 billion for households under £24,000, averaging £175, and warns against “wasteful universal support”.5 The Institute for Government wants support “targeted and time-limited”, citing the IFS figure of £35 billion for the 2022–23 schemes.4
The money is tight. Bloomberg, relayed by Briefs on 11 October, reported that Healey is preparing short-term winter help through existing channels such as the Warm Home Discount, with a temporary petrol VAT cut and a fuel duty freeze also considered. The details come from unnamed people, and the Treasury declined to comment.6 The Resolution Foundation says headroom against the fiscal rules has roughly halved since spring, to as little as £12 billion; the Institute for Government cites a £24 billion buffer in the spring forecast.45 Our 19 October piece covers that squeeze.
What the Budget will contain on energy. The Treasury has not said, and the reports above are unattributed. The January cap is also not set: Ofgem fixes it from wholesale prices in a window that runs from 19 August to 17 November, so forecasts differ widely, from 16% to 26%, and have moved and may move again. Nor does public data show how many households use gas but little electricity, and so how many the VAT cut misses.
The Budget is on Wednesday 28 October, alongside the Office for Budget Responsibility’s forecast. If it adds winter help, it will be set against the headroom figure published that day. The Bank of England decides on interest rates on 5 November, a decision our 21 October piece linked to the same energy shock. Ofgem has said it will announce the January to March cap on or before 25 November, 28 days after the Budget, once its wholesale window closes on 17 November.8
The electricity VAT cut is set to end on 31 March, three months into the cap period that Ofgem will announce next.1 Whether it is extended, replaced or left to lapse is the other decision that sits with the Chancellor.