Energy Price Cap still to RISE 3.6% from 1 October even after the Government's VAT cut
The price most households pay for gas and electricity will rise by 3.6% on average from Thursday 1 October, even after the Government's VAT cut, as energy regulator Ofgem has announced the latest Energy Price Cap. We take you through the full info and help, including MoneySavingExpert.com (MSE) founder Martin Lewis' video analysis.
Watch: Martin Lewis' instant briefing on the Energy Price Cap rise – and crucially how to avoid it
Watch Martin's video explainer below, filmed just after Ofgem's announcement on Wednesday 26 August. Rates vary by region, so you can use our updated 'What you'll pay from 1 October' calculator to see how the new Price Cap will affect you.
Full transcript of what Martin said in his video
Breaking bad news out this morning, I'm afraid. Ofgem, the energy regulator, has just announced that the Energy Price Cap is due to rise yet again on 1 October.
I want to talk you through the detail of what it means and how it will affect you – whether you're affected or not as for 35% of homes this actually doesn't matter for you – and, crucially, if you are going to see a price hike, how you can beat it if you act quickly.
So let's start with the detail. The price rise on 1 October on the Price Cap is 3.6% on average, but the detail really does change exactly what's happening. The first thing to remember is this is 3.6% on the back of the 12.6% rise we saw in July.
Now, the mitigation for the rise in July is that that was only for the low-use summer period, so it wasn't such a problem. This October Price Cap lasts until December, and that means you're getting a big rise going into winter. In fact, it's 17% more – rates are, on average, 17% higher than they were back in April.
Now, you might be thinking, hold on, I thought the Government was doing something about this. I thought it had scrapped VAT on domestic electricity? It has, and that VAT will go as well on 1 October. It only lasts six months and it's only on electricity. Without that, we would have seen a 2% extra rise. So the price would have probably been going up around 6% rather than 3.6%. And that has an impact on the nitty-gritty here of what's happening.
So, with electricity, the unit rate – the rate you pay for each kilowatt hour of electricity you use – is going up just less than 1%. And the Standing Charge – the rate you pay just for having electricity each day – is actually going down by 4%.
So if you are an electricity-only user, you're likely to see either a very small rise in what you pay in October or, if you're a very low user, you could actually see a drop.
Gas is where the real problem is. The gas unit rate is going up by 8.7% and the Standing Charge up by 2.2%. So if you have gas in your house, expect to see a bigger rise. And if you use a lot of gas, expect to see your price going up – the amount you pay going up by more than the 3.6% on average that it's being lifted.
So are you affected or not? Well, the first thing to understand is the Price Cap only applies to Standard Variable Tariffs. That is the default tariff you're on if you have not fixed, you're on a fix and it has ended, or you've not chosen a special option, such as an electric vehicle tariff or a solar tariff.
If you're just on the bog-standard tariff, then the Price Cap hits you, and almost every firm prices at the maximum of the Cap. So with almost every firm, you can expect to see your price go up on 1 October if you're on the Price Cap.
If you're on a fix or a special tariff, the Price Cap does not affect you, so your price won't change – with the exception of the fact that electricity VAT is being scrapped on 1 October. So actually, let's say you're on a fix right now and it lasts until next 1 February. On 1 October, expect to see your electricity costs come down by 4.5%.
So, if you are on the Price Cap and you're going to see a rise, what do you do about it? Well, the obvious thing here is you get a fix. And you get the cheapest fix you possibly can. And this is why...
Here's the current Price Cap. The cheapest fix on the market is around 7% less than the current Price Cap. Well, if you fix, you lock in that unit rate and Standing Charge. So, the Price Cap is going to go up by 3.6% in October, so from October, expect the cheapest fix now to be around 10% cheaper than the rate you'll be paying from October if you stayed on the Price Cap.
And the current prediction – because wholesale rates, which is what's driving this (the Middle East conflict, the fact that that fighting has gone on – and in fact the wholesale rates), the rates gas and electricity firms pay – are the highest right now that I've seen them since the Ukraine crisis – means that in January, while the Price Cap is currently predicted – though it's somewhat crystal-ball gazing – to be going up by another 10%.
So by January, the cheapest fix right now could potentially be 20% cheaper than what you'll be paying in January. That's why a fix is a no-brainer. Lock in a cheap tariff.
The one caveat, though, is unfortunately because those wholesale rates have gone up, the cheapest fixes on the market right now are far more expensive than you could have fixed at a month ago.
And if the Middle East conflict improves, you may be able to fix more cheaply in three, four or five weeks than you can right now. But nobody knows, because it's all about the big orange fella in the White House and what he decides to do.
So the safest thing to do if you're on the Price Cap is just to fix today and close your eyes to what happens to whether fixes get cheaper in future, because fixing today, on the balance of probabilities, is likely to save you.
But if you're the type of person who plays the market, or maybe you're just coming off a fix and you understand it a little bit more, there is a chance that by waiting, you may be able to fix more cheaply.
Hope this helps. More details on MoneySavingExpert.com.
Martin: '(BAD) NEWS: The Price Cap is to RISE 3.6%'
Commenting on the Energy Price Cap announcement, Martin wrote on X (formerly Twitter):
(BAD) NEWS: The Ofgem Energy Price Cap for England, Scotland and 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.
When the July Cap rose by 12.6% the mitigating fact was that it was only for the low-use summer quarter. 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. Prices are the highest they've been since winter 2023.
Here are the new 1 October Price Cap Direct Debit average UK rates (they do vary by region) including VAT when it's charged...
Elec unit rate: 26.32p/kWh (was 26.11p) – UP 0.8%.
Elec 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%.
It would've been even worse without the electricity VAT cut, as otherwise on 'typical use' it would've been a rise of roughly 6.2%.
It also means those who 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).
Ofgem says someone on what it calculates to be 'typical use' would see their equivalent annual cost rise by £60. Yet that's a bit misleading as the Cap only lasts three months and changes again on 1 January 2027 and sadly it's currently predicted to rise substantially again then, though that's a bit of crystal-ball gazing.
IMPORTANT: The Price Cap only applies to Standard Tariffs… it dictates the maximum unit rate and Standing Charges firms can levy on their Standard Variable Tariffs (which around 60% of homes are on).
Standard tariffs are the default you're on if you've never switched or your fix deal ended and you did nothing. If you're fixed, or on most special tariffs, you are not on the Price Cap so its change doesn't usually impact what you pay.
Q. Why is this happening? The vast majority of the rise is the spike in wholesale rates caused by the Middle East conflict. The October Cap is set on an average of wholesale prices from 19 May to 18 August, and they were high throughout the entire period. Worse, they've kept climbing since, which is why the prediction for January is for it to get even worse.
Q. Wasn't scrapping VAT meant to stop this? It 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.
Q. What happens to those on fixes? The electricity VAT cut for six months from 1 October applies to all tariffs, so those on fixes will see what they pay for electricity drop too. Otherwise fixes are unaffected by the Price Cap move (until the fix ends, when you're moved by default onto a price-capped standard tariff unless you choose to fix again).
Q. Is it time to fix if I'm on the Price Cap? The cheapest fixes are currently 7% less than the current Cap, so roughly 10% less than October's. With the Cap predicted to rise again in January, they look a decent bet. Your cheapest depends on usage and location, so use my whole-of-market by default comparison site CheapEnergyClub.com which also has a 'Pick Me A Tariff Tool' if you're not good at deciding.
Though it's worth noting fixes were quite a bit cheaper about six weeks ago. If, and it's a big if, things in the Middle East settle down you may be able to fix at far lower prices in future (equally things could get even worse).
So if you're someone who has been on the standard tariff for ages then the safest thing is just to get a cheap fix now (not just any fix, ensure it's as cheap as possible, don't just stick with your own firm). Though if you're a regular fixer who'll monitor the market, there's a chance waiting may turn out to be better.
There are other options than fixing too. For lower users, British Gas has a Cap Tracker that matches the Cap rates but knocks £60 off Standing Charges for a year (plus £20 dual-fuel cashback via MSE). And there are EV tariffs and time-of-use tariffs that are worth a look.
How the Price Cap works and what's changing from 1 October
The Energy Price Cap sets a limit on the maximum amount suppliers can charge households on standard or default variable tariffs (essentially everyone not currently on a fix) for each unit of gas and electricity they use. It also sets the maximum daily Standing Charges (what you pay to have your home connected to the gas and electricity grids). But there's no actual cap on what you pay, so if you use more, you pay more.
The Price Cap changes every three months. The current Price Cap, in place until 30 September 2026, is £1,663 a year for a 'typical' dual-fuel (gas and electricity) household paying by Direct Debit.
From Thursday 1 October 2026:
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If you pay by monthly Direct Debit, the new Price Cap will be £1,723 a year on average for a typical dual-fuel household. This is a rise of about £60 a year or 3.6% (Ofgem rounds this to 4%).
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If you prepay for your energy, prices will rise by 4% to £1,678 a year.
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If you pay on receipt of a bill, it'll be a 4% rise to £1,861 a year.
New Energy Price Cap rates from 1 October to 31 December 2026 | Current Energy Price Cap rates from 1 July to 30 September 2026 | |
|---|---|---|
Gas | Unit rate: 7.97p per kilowatt hour (kWh) – up 8.7% Standing Charge: 29.68p per day – up 2.2% | Unit rate: 7.33p per kilowatt hour (kWh) Standing Charge: 29.04p per day |
Electricity | Unit rate: 26.32p per kWh – up 0.8% Standing Charge: 54.83p per day – down 4.1% | Unit rate: 26.11p per kWh Standing Charge: 57.19p per day |
Rates and Standing Charges are averages, which vary by region. Assumes payment by Direct Debit and includes VAT (at 5%) for gas only. For those who pay each month after getting a bill, it's 8% higher, on average. If you prepay for your energy, it's 3% cheaper, on average.
VAT will be temporarily scrapped on electricity – though the saving will be eaten up by the Price Cap rise
In July, the Government announced that it will remove VAT from electricity bills – including fixes – for six months between 1 October 2026 and 31 March 2027.
The move will see VAT cut from 5% to 0% on electricity unit rates and Standing Charges in England, Scotland and Wales. It will not apply to gas, which will continue to have 5% VAT added to both unit rates and Standing Charges.
Plus, despite this electricity reduction, the October Price Cap has still risen by 3.6%, on average. At the time of the announcement of the VAT cut in July, Martin welcomed it as a "good totemic step" but added that in practice most won't feel much benefit. Without the cut to VAT, the Price Cap would have increased by 6% on 1 October.
VAT is separately detailed on your energy bill, so you'll see that listed as dropping from 5% to 0% for electricity, but you won't see a full breakdown of what that means in terms of the total reduction to your final bill.
In Northern Ireland, the Executive proposed on Tuesday 25 August to combine funding for the VAT cut alongside the circa £30 off electricity bills scheme that was due to apply in September. It says it anticipates both discounts will now apply from October, which it expects means a price cut of "over £50". However, it says funding associated with the VAT reduction is still to be confirmed by the Treasury.
This hike is coming before the winter period, when we use more energy
Any increase in energy bills is bad news, but this hike is coming in before the winter months, when we generally use more energy.
While October's 3.6% rise isn't as shocking as the 12.6% rise in July, it'll hit just as we enter the higher-use winter period, when our energy use tends to skyrocket – typically we use about 31% of our annual energy usage between October and December (compared to 14% between July and September).
How to check if you're on a Price-Capped tariff
If you're not on a fix or special deal, you are likely to be on the Price Cap. These are firms' standard default consumer tariffs, often called 'Standard Variable' or 'Flexible' tariffs. You can check if you're on the Energy Price Cap using our new tool.
On the Price Cap? Check if you can save by fixing
Energy wholesale prices are still high due to conflict in the Middle East, so there are a handful of deals available that are cheaper than the current Price Cap. Whether you should fix now depends on how risk averse you are and your current situation.
Need help choosing a tariff? Try our new Pick Me A Tariff tool - just tell us a deal based on what's important to you (such as price, service, a name you know, fix and tariffs we can monitor) and we'll find you your closest matching tariffs.
If you're on the Price Cap, the risk averse thing to do right now is to fix your energy, as this will lock in your rates for a year. But don't just grab any fix, ideally you'd want a fix that's priced less than the current Cap, meaning you'll save now, but more importantly, you'll protect yourself against the upcoming 3.6% increase in the Price Cap from 1 October.
There are several tariffs that currently beat the July Price Cap, including these two (links take you to our Cheap Energy Club comparison where you can see how they stack up for you – as your cheapest will depend on your region and your usage):
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Cheapest fix on the market. Fuse Energy August 2026 Fixed (18m) v10. This 18-month fix is 7.6% less on average than the July Price Cap (including MSE cashback). For new customers only. Exit fees of £50 per fuel apply. No smart meter required.
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Cheapest one year fix. E.on Next Fixed 12m Exclusive v8. This 12-month fix is 5.8% less on average than the July Price Cap (including MSE cashback). For new and existing customers. Exit fees of £50 per fuel apply. No smart meter required.
There are other cheaper two-year fixes available but since they're longer fixes, it's hard to predict what will happen and so we've only suggested the shorter tariffs above.
Already on a fix? Martin says to 'be very careful about fixing again early'
Martin warned on X:
WARNING. Those with time to go on energy fixes should be very careful about fixing again early...
You'll be ditching what is likely a very cheap fix to lock in at a much higher rate, and may have to pay an early exit penalty to do so. Fix rates today are the most expensive they've been for three years.
There is no guarantee or logic that says fixes will be more expensive in four months time than they are now. The fact the Price Cap is going up is irrelevant to the rate you can fix at... as the Price Cap is set based on a long time-lag, where the rate you can fix at is based on that day's wholesale prices (it literally moves daily).
It is very possible that today's high wholesale rate is just a short-term spike and in a couple of weeks or months you'll be able to fix at cheaper rate. Equally, if the crisis in the Middle East worsens, then wholesale rates could get even higher and fixes will be even more expensive.
As what will happen to the rate you can fix at is a total unknown, personally I'd take the bird in the hand of sticking on your existing relatively very cheap fix as long as you can, especially as it covers much of the high-use winter period.
Only those who are incredibly risk-averse (or on cr*p old fixes – a comparison site will tell you how your old fix compares to today's) should consider ending their current fix to lock in again and having to pay an exit penalty to do so now.
In general...
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If you're already on a fix but it's ending soon. If you've less than 50 days left on your current deal, you can't be charged exit fees, so you're free to ditch it and switch. But with very few tariffs below the Cap, you may be better waiting and regularly doing a comparison to see if cheaper fixes become available over the next few weeks. If you switch now, you'll likely pay a bit more, so it could be worth holding out right now to see if cheaper deals become available.
Though do make sure to grab a new tariff before your deal finishes, as otherwise you'll be rolled onto your supplier's standard variable tariff when it ends. -
If you're on a cheap fix with more than than 50 days remaining, now might not be the best time to think about switching, as ditching your current deal and getting another fix will likely mean you'll pay more and will almost certainly have to pay early exit fees.
Options other than fixing
Those with low usage should consider looking at British Gas' special tracker deal, which discounts £60 off the dual-fuel annual Standing Charge (with low usage, that's a bigger proportionate saving). Meanwhile, sophisticated users could look at (or likely already know about) time-of-use tariffs.
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