Ofgem announced a 4% increase in the UK domestic energy price cap effective October 1, 2026, raising it to £1,723 per year from £1,663 in the July-September period [1, 2, 3]. The cap affects around 22 million households on default or variable tariffs, about 65% of UK customers [1, 3].

The rise is driven by soaring wholesale gas prices tied to the ongoing Middle East conflict, particularly the war involving Iran and disruptions to shipping through the Strait of Hormuz [1, 2, 3]. Wholesale gas prices more than doubled since US military action against Iran began on February 28, 2026 [1]. Neil Kenward, Ofgem’s Director General for Markets, said, "High international gas prices are continuing to drive energy costs in the UK. We welcome the government’s intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter" [1].

Removing VAT on electricity bills from October will partially mitigate the price increase but is unlikely to fully offset it [1, 2]. There are differing views on the VAT cut’s impact: Ofgem suggests it has prevented a £45 rise in bills compared to what they would have been without the VAT removal [1], while government assessments indicate the high wholesale prices may limit the benefits consumers see [2].

The UK government shifted some levies in April 2026 to cut around £150 from average bills [1]. However, the energy price cap increase of 13% in July 2026 contributed to driving the UK’s annual inflation rate up to 2.9% by that month, partly due to rising energy costs [2].

Energy Secretary Miatta Fahnbulleh acknowledged the pressure on households, stating, "We know people are under huge amounts of pressure due to the cost of living, and I know that people are really worried about their energy bills, and we are absolutely alongside them and trying to do everything we can" [3]. She added, "We will keep looking at what more we can do to protect families from unaffordable bills" [1]. Opposition Shadow Energy Secretary Claire Coutinho criticized the government for rising bills, noting, "Labour promised to cut energy bills by £300, but they have gone up by nearly £400 instead" [3].

The new price cap and VAT removal will take effect on October 1, 2026 [1, 2].