Energy bills set for winter jump as cap rise threatens to erase VAT relief

Forecast points to a sharp rise in winter bills

Household energy bills across Great Britain are on course to rise again this autumn, with new analysis suggesting the next price cap will climb enough to leave many homes facing a difficult winter. According to a report from The Guardian Business, Cornwall Insight expects the regulator’s cap on energy prices to increase by 4% from October, taking the typical annual bill to the equivalent of £1,729 for the final three months of 2026. That would be the highest level since July 2023 and would come after months of pressure in international energy markets.

The consultancy says the increase is being driven by a combination of forces that have pushed wholesale prices higher. One is the conflict in the Middle East, which has unsettled energy markets. Another is the greater use of expensive gas-fired power stations during heatwaves across Europe. Together, those factors are feeding through into household costs at a time when the country is moving toward colder weather and higher demand.

VAT cut savings look likely to be swallowed up

The expected rise matters because it is likely to erase the financial benefit of the government’s planned VAT cut on household electricity bills. That tax change, due from October, was presented as a way to give voters “some breathing space” on living costs and was expected to reduce bills by an average of £45 a year. But Cornwall Insight says the increase in gas costs will more than offset that relief.

In practical terms, the forecast means households could see their bills go up even after the tax cut takes effect. The price cap sets the maximum amount suppliers can charge for each unit of gas and electricity, and it is based on the cost of supplying homes, including wholesale prices in the months leading up to each new cap period. Ofgem is due to announce the new cap next Wednesday.

Cornwall Insight estimates that for direct debit customers, electricity prices will move from 26.11p a kilowatt hour to 26.57p, while gas prices will increase from 7.33p to 7.90p. The consultancy also said that under the regulator’s new methodology, the typical annual dual-fuel bill would be £1,729. Under the older method, the same bill would have been calculated at £1,940.69 from October, up from £1,862 in the July quarter.

Analysts warn households remain exposed to global shocks

Craig Lowrey, principal consultant at Cornwall Insight, said the forecast underlines how closely British bills remain tied to events far beyond the country’s borders. His comments echoed the central concern in the consultancy’s analysis: the UK’s dependence on imported natural gas leaves homes vulnerable to international price swings.

Lowrey said temporary measures such as VAT cuts can soften the immediate blow but do not solve the deeper problem. In his view, the underlying issue is Britain’s heavy reliance on gas imported from global markets. As long as that dependence continues, he said, price shocks of this kind are likely to remain a risk. The Guardian Business report on the winter price-cap forecast set out the same analysis and the pressure it is putting on household budgets.

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said the situation will feel familiar to many households because it resembles the first gas crisis that followed Russia’s invasion of Ukraine. She also pointed to another worrying development: wholesale gas prices have reached a near four-year high, which she said is likely to feed through into further bill increases later on.

Ralston added that the UK’s dependence on gas for home heating remains a particular concern. She noted that although sales of electric heat pumps are increasing, Britain is still behind several European neighbours in moving away from gas use. That slower transition, she said, leaves households more exposed to the kind of market shocks now pushing up prices again.

Another increase could follow in January

The current forecast may not be the end of the story. Cornwall Insight expects bills to rise again in January if current market conditions continue, though it says that projection could change if the situation in the Middle East improves. That means households may be facing a winter in which energy costs stay under pressure even after the October adjustment has been made.

For the government, the forecast is awkward because it comes alongside a policy that was meant to ease pressure on consumers. A spokesperson said ministers are acting to provide breathing space by cutting VAT on energy bills, ensuring around 6 million households receive the £150 warm home discount this winter, and making millions of homes cheaper to run through the warm homes plan.

The spokesperson also said the government would keep working to reduce the impact of global energy shocks and bring bills down permanently. It said that alongside efforts to support rapid de-escalation in the Middle East, it would do everything it could to shield consumers from international turbulence.

What it means for households now

For many families, the immediate significance of the forecast is straightforward: even with tax relief, energy bills may still move higher as winter approaches. The combination of a higher price cap, elevated wholesale gas costs and ongoing geopolitical uncertainty leaves little room for comfort. If Cornwall Insight’s projection proves accurate, households will be paying more at the very point in the year when they are most likely to need extra energy.

The wider lesson, according to the analysts quoted by The Guardian Business, is that short-term support can ease the pain but cannot fully insulate Britain from the global gas market. Unless the country reduces its exposure to imported fossil fuels, the same cycle of relief and renewed pressure is likely to keep returning.