Energy bills across Great Britain are forecast to rise to a three-year high this winter, potentially negating the benefits of Andy Burnham’s VAT cut on electricity.
The government’s energy price cap is expected to increase by 4% in October, reaching an annual equivalent of £1,729 for the last three months of 2026, according to analysis by Cornwall Insight. This would be the highest level since July 2023.
The surge is attributed to soaring energy market prices, exacerbated by the Middle East war and increased reliance on expensive gas in power plants during recent European heatwaves.
The rising cost of gas is projected to outweigh the new prime minister’s promise to cut VAT on household electricity bills from October, a measure intended to provide consumers with some relief on living costs by reducing bills by an average of £45 annually.
Craig Lowrey, principal consultant at Cornwall Insight, stated, "It is a stark reminder that our energy bills remain tied to events thousands of miles away. Moments like this are the strongest argument for reducing Britain’s reliance on volatile international gas."
He added, "While temporary relief like VAT cuts help soften the blow, they don’t touch the underlying fact that Britain is heavily dependent on imports of natural gas. As long as we’re exposed to global markets, the risk of these price shocks will remain."
Ofgem is scheduled to announce the official price cap next Wednesday. The regulator sets the maximum price for gas and electricity units based on supply costs, including average wholesale market prices in the preceding months.
Cornwall Insight estimates that electricity rates will rise from 26.11p per kilowatt hour to 26.57p, and gas charges will increase from 7.33p to 7.90p for households paying by direct debit.
Under the energy regulator’s revised calculations, which assume lower household energy consumption, this translates to an annual dual fuel bill of £1,729 for a typical UK household. Using the previous methodology, the price cap would have risen to £1,940.69 from October, up from £1,862 in the July-September quarter.
"Rising energy bills aren’t welcome at the best of times, but with winter approaching, this latest hike will hit struggling households especially hard," Lowrey commented.
The consultancy anticipates further bill increases in January, contingent on current market prices and developments in the Middle East.
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, remarked, "To many households this will feel like a horrible reminder of the first gas crisis after Russia invaded Ukraine. What’s even more worrying is that wholesale gas prices have reached a near four-year high, which is likely to cause more increases to future bills."
Ralston highlighted the UK's dependence on gas for heating as a significant concern, noting that despite an increase in electric heat pump sales, the UK lags behind European nations in reducing gas dependency.
A government spokesperson stated, "We’re acting to give consumers breathing space with the cost of living – cutting VAT on energy bills, ensuring around 6m households get the £150 warm home discount this winter, and making millions of homes cheaper to run through our warm homes plan."
The spokesperson also added, "Alongside our efforts to support rapid de-escalation in the Middle East, we will do everything we can to shield consumers from global energy shocks and bring down bills for good."
