October's Energy Price Cap: Up 4% to £1,723, and the VAT Cut Is Already Inside That Number
Two announcements on the same day, 26 August, and they are being reported as if they add up. They do not. The £45 the VAT cut saves is already netted into the £1,723 cap. The rise is gas; electricity is close to flat and its standing charge falls.
By Energy Pages
On 26 August 2026 Ofgem announced the energy price cap for 1 October to 31 December, and the government announced that VAT comes off household electricity bills from the same date. Both are real, both are dated, and the way they are being reported together is misleading in one specific way: the VAT saving is not a further discount on top of the new cap. It is already inside it.
The headline figures
Ofgem’s own words: the cap rises by 4% for the period covering 1 October to 31 December 2026. For a typical household paying by direct debit for gas and electricity, the current cap is £1,663 a year; from October it is £1,723, a rise of £60 a year, or £5 a month. Adjusted for inflation, Ofgem says the new cap is 7% higher than the same period in 2025.
The reason given is wholesale gas: “higher wholesale gas prices as a result of the ongoing conflict in the Middle East, with volatile global gas markets remaining the dominant driver of price changes.”
And the sentence that matters for the arithmetic, from the same press release: “Without the Government’s intervention on VAT, this figure would have been around £45 higher.”
That is the whole point of this piece. The £1,723 is the after-VAT-cut number. A household expecting the cap rise and then a separate £45 off will be looking for money that has already been counted.
What VAT off electricity means, and for whom
Update, 11 September 2026. This section is a Great Britain measure and this piece did not say so. The legislation was made on 7 September, three days after publication: the Value Added Tax (Supplies of Domestic Electricity) Order 2026 zero-rates domestic electricity in England, Wales and Scotland, and keeps Northern Ireland on the 5% reduced rate. The government’s explainer of 26 August, which is what the paragraph below was written from, states no territory at all, and had still not been updated when this note was added. The text below is left as published. The scope, the reason the government gives for it, and what Northern Ireland gets instead are set out in VAT comes off electricity in Great Britain on 1 October.
The government’s announcement, also dated 26 August: from 1 October 2026, VAT is removed from household electricity bills, saving households an average of £45 a year. It applies to fixed tariffs already locked in, not only to the capped default tariff. Prepayment customers see it on top-ups from 1 October. Nothing needs claiming — “You do not need to do anything to claim the savings.” The cut is funded for the 2026 to 2027 financial year.
Ofgem’s unit-rate page carries the same boundary from the other side: “There is no VAT on electricity from 1 October 2026 to 31 March 2027.” Gas keeps its 5% VAT. So the October electricity figures below are ex-VAT and the gas figures include it, and any comparison across the two fuels has to hold that in mind.
The unit rates, side by side
These are Ofgem’s direct-debit figures, averaged across England, Scotland and Wales. Regional rates differ.
| 1 Jul to 30 Sep 2026 | 1 Oct to 31 Dec 2026 | Change | |
|---|---|---|---|
| Electricity unit rate | 26.11p per kWh | 26.32p per kWh | +0.21p |
| Electricity standing charge | 57.19p per day | 54.83p per day | −2.36p |
| Gas unit rate | 7.33p per kWh | 7.97p per kWh | +0.64p |
| Gas standing charge | 29.04p per day | 29.68p per day | +0.64p |
Read that table and the shape of October is clear. The rise is gas. The gas unit rate goes up close to 9%. Electricity is nearly flat on the unit rate and the electricity standing charge comes down by £8.61 a year. A household that heats with gas carries almost all of the £60; a household that heats with electricity carries very little of it.
One thing the table does not say, and Energy Pages is not going to guess at: what the electricity unit rate would have been with VAT still on it. Ofgem gives the £45 figure at the level of the typical bill, not the unit rate, and this piece stays with what the source states.
What it means if you heat with a heat pump
The ratio between the electricity and gas unit rates is the number a heat pump’s running cost turns on. In July to September it was about 3.6 to 1; from October it is about 3.3 to 1. That is a small move in the heat pump’s favour, and it is worth stating plainly rather than dramatising: a heat pump running at a seasonal efficiency above that ratio costs less to run than a gas boiler, and the bar just dropped slightly. The running costs guide sets out how the sum works; the October rates make it a little easier to pass.
For a household on oil or LPG, none of this applies. The cap covers mains gas and electricity only, a point made in the Boiler Upgrade Scheme uplift piece and still true.
What it means if you charge an EV or run solar
The same electricity figures apply. A home charger on the standard rate pays 26.32p per kWh from October, ex-VAT; off-peak tariffs sit well below that and the EV charging costs page compares them. For solar, every kilowatt-hour used at home displaces a 26.32p import, so the case for using generation on site rather than exporting it is unchanged in direction and a fraction stronger in size.
Warm Home Discount reopens in October
The government’s announcement also points at the Warm Home Discount: around 6 million households are eligible this winter for £150 off electricity bills. The scheme’s own page says it closed for last winter and reopens in October 2026, and that eligible households usually receive it automatically, with Scotland the exception where an application to the supplier may be needed. Eligibility differs between England and Wales and Scotland; check the government’s page rather than assuming.
What to do
Nothing, for the VAT cut. Check the Warm Home Discount page if your household is on a low income or receives a qualifying benefit. If you are on a fixed tariff, expect the VAT change to show on it too. And if you are comparing a heat pump against a gas boiler this autumn, use the October rates, not the ones in a quote written before 26 August.
Read at source, 4 September 2026: Ofgem’s press release of 26 August 2026 (the 4%, the £1,663 and £1,723, the £60, the £45 VAT sentence and the inflation comparison); Ofgem’s unit rates and standing charges page (both periods’ direct-debit figures and the VAT note); the Department for Energy Security and Net Zero’s announcement of 26 August 2026 (VAT removal, fixed tariffs, prepayment, funding period, the Warm Home Discount figures); and the Warm Home Discount scheme page on gov.uk (reopening and the application note for Scotland). The unit-rate ratios are Energy Pages’ arithmetic on Ofgem’s published figures. Energy Pages is an independent information service, not a government body, a supplier or an installer.