Energy Price Cap October 2026: What Actually Changes on Your Bill

Ofgem will confirm the energy price cap for 1 October to 31 December 2026 on or before 26 August. On the day the new cap takes effect, VAT on domestic electricity drops from 5% to 0%. Two changes, one bill, and they pull in opposite directions.

Let me be direct about why I am writing this a few days early.

By the end of this week, every comparison site in the country will have published the same headline. I would rather explain the part that usually gets skipped, which is why the numbers you are about to read look nothing like the numbers you remember from the spring, and why a tax cut on your electricity might not show up in your bill at all.

What we know right now

The current price cap runs until 30 September. For a typical household paying by direct debit, that is around £1,663 a year, based on 26.11p per unit of electricity with a standing charge of 57.19p a day, and 7.33p per unit of gas with a standing charge of 29.04p a day. Those published rates include VAT at the current 5%, which matters for a reason I will come to.

Ofgem sets the cap every three months and publishes each level roughly five weeks before it starts. The next one covers 1 October to 31 December and will be published by 26 August. The one after that, covering January to March 2027, is due on 25 November.

On 20 August, Cornwall Insight published its final forecast ahead of the announcement. It expects a rise of around 4%, taking the annual figure for a typical household to roughly £1,729, and says that on a unit-for-unit basis this would put bills at their highest since July 2023.

That forecast already accounts for the VAT cut. Which brings us to the important part.

Why the numbers look lower than you remember

This is the bit that confuses almost everyone, and it is worth two minutes of your time.

On 1 July, Ofgem changed the yardstick it uses to describe a typical household. Annual electricity use came down from 2,700 kWh to 2,500 kWh, and gas from 11,500 kWh to 9,500 kWh, to reflect the fact that British homes now use meaningfully less energy than they did at the last review.

The effect is that the same cap can be described two different ways. The cap in force today was announced as £1,862 under the old measure. Under the new one, it is £1,663. Cornwall Insight's October forecast is £1,729 on the new basis, or £1,941 on the old one.

Nothing about your unit rate changed. Only the illustration did.

So if you see a figure this week that looks lower than something you read in the spring, check which basis it is using before you celebrate. And treat your own bill as the real number, because the "typical household" is a modelling convenience, not a household.

The VAT cut: what it covers, and what it does not

From 1 October, VAT on domestic electricity falls from 5% to 0%. It was announced on 21 July as one of the new government's first cost-of-living measures, and the government's estimate is that it is worth around £45 a year against the price cap for a typical household.

Four things worth knowing:

It is electricity only. Gas is not included. If you heat with gas, most of your winter bill is untouched.

It is temporary. The cut runs to 31 March 2027. Whether it continues beyond that is a decision for the Autumn Budget on 28 October.

It applies to fixed tariffs too. The government has said it expects every supplier to pass the reduction on, including to customers already on a fixed deal, because it removes a tax rather than changing a unit price.

It applies in Great Britain only. Post-Brexit arrangements mean EU VAT rules still govern goods, including electricity, in Northern Ireland, so the rate there stays at 5%. The Northern Ireland Executive is receiving comparable funding to provide equivalent support instead.

The part that does not get said out loud

Here is the honest version.

Cornwall Insight's forecast of a 4% rise is not a forecast of what happens before the VAT cut. It already includes it. In other words, the expectation is that bills go up in October despite the tax coming off, not before it.

I am not going to pretend £45 is nothing. But if it lands inside a rise, most people will never see it as a reduction. They will see a bill that is higher than the one before, and a tax cut they were told about in July that appears to have gone somewhere.

This is the pattern I have watched for years. A measure is announced. The headline is genuinely positive. And then the underlying cost of electricity moves and quietly takes it back.

I am not making a political point. Every government of every colour has faced the same problem, which is that you cannot subsidise your way out of a volatile wholesale market. You can soften the edges of it. You cannot remove it.

What you can do is stop being fully exposed to it.

What this means for businesses, charities and care homes

This part has had almost no coverage, and it matters to a lot of the organisations we work with.

The VAT reduction is not limited to households. The government's announcement specifically names small businesses that qualify for domestic energy VAT relief and are not registered for VAT, along with charities and residential care homes eligible for the reduced rate.

That "not registered for VAT" detail is the whole point. A VAT-registered business already recovers the 5% as input tax, so for most companies this changes nothing. Where it genuinely lands is with organisations that cannot reclaim it, which is exactly the profile of a lot of small care providers, nurseries and charities.

If that is you, it is worth confirming with your supplier that the change has actually been applied from 1 October rather than assuming it has. And it is worth planning on the basis that it is a six-month measure rather than a permanent one.

The only part of your bill you actually control

Three things determine what you pay: the rate, the amount you use, and how much of it you have to buy in the first place.

The rate is set by a regulator every three months and you have no say in it. The amount you use has a floor, because there is only so much of a British winter you can turn down.

The third one is the only genuine lever, and it is the one the price cap cannot touch. Electricity you generate yourself is not capped, not taxed and not subject to a quarterly announcement. It is simply not on the bill.

That is the whole argument for solar and storage, and it does not need dressing up. It is not about saving the planet in a single decision, and it is not about going off-grid. It is about moving a portion of your energy out of a market that changes its price four times a year and into something that does not.

We have had this same conversation every autumn for years now. At some point it is worth asking how many more of them you want to have.

Frequently asked questions

When is the October 2026 price cap announced?

Ofgem will publish it by 26 August 2026. It takes effect on 1 October and runs to 31 December.

Does the price cap affect me if I am on a fixed tariff?

No. The cap applies to standard variable and default tariffs. A fixed deal is unaffected for its duration, though it can sit above or below the cap. The VAT cut, however, should reach fixed tariffs as well.

Does the VAT cut apply to gas?

No. It applies to domestic electricity only, from 1 October 2026 until 31 March 2027.

How much will the VAT cut save me?

The government's estimate is around £45 a year for a typical household, measured against the price cap. Your actual saving depends on how much electricity you use.

Does the price cap limit my total bill?

No, and this is the most common misunderstanding. It caps the unit rate and the standing charge, not the total. Use more, pay more.

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