Ofgem has confirmed that the energy price cap will rise by 4% from 1 October, taking the average annual bill for a typical household paying by Direct Debit from £1,663 to £1,723 — an increase of £60 a year, or roughly £5 a month.
At first glance, that looks like a modest rise compared to July’s brutal 13% jump. But look closer and the picture is far less comfortable. The government has just scrapped VAT on electricity bills, and Ofgem has changed the way it measures “typical” household usage — two things that are flattering the headline number. Strip them both out, and the reality is that the price of the energy itself, unit for unit, has climbed to its highest level in three years.
Why Are Bills Rising Again?
The story is a familiar one: wholesale gas prices, driven by the ongoing conflict in the Middle East. Ofgem says wholesale prices have risen by 11% in just the last three months, and that volatility remains “the dominant driver of price changes” heading into winter.
Gas bills are bearing the brunt of it, rising by 8% under the new cap. Electricity, by contrast, is described by Ofgem as “broadly stable” — but as we’ll come to see, that stability has been manufactured by a tax cut rather than a genuine cooling of costs.
Around 35% of households — roughly 11 million — are on fixed tariffs and won’t feel this rise at all. For the remaining 20 million or so on standard variable tariffs, the increase lands just as households start turning their heating back on for winter.
The VAT Cut: Real Help, But Don’t Be Fooled
From 1 October, the government is removing VAT from domestic electricity bills entirely, cutting it from 5% to 0% for six months, through to the end of March 2027. It’s a genuine, welcome saving — Ofgem says that without it, October’s price cap would have been around £45 higher than it is.
But this is where the headline figure starts to mislead. The VAT cut applies to electricity only — gas still carries its 5% VAT in full. And because the tax cut and the underlying cost rise are landing on the same day, they partially cancel each other out on paper. Ofgem’s own figures confirm that electricity costs are only staying “broadly stable” because the VAT cut is absorbing a wholesale price increase that would otherwise have pushed electricity bills up too.
In other words: the unit price you’re actually being charged for the electricity itself has gone up. It’s the tax removed from that price which is masking the increase on your bill. Take away the government’s intervention, and electricity would be rising in exactly the same direction as gas.
The Real Reason the Headline Looks Smaller: TDCVs
There’s a second reason October’s £60 rise looks tame next to July’s £221 jump — and it has nothing to do with wholesale prices at all.
In July, Ofgem changed the way it calculates “typical” household energy use — the Typical Domestic Consumption Value, or TDCV. Recognising that homes are using less energy than they used to (Ofgem estimates 7% less electricity and 17% less gas than at the last review), it lowered the assumed usage figures used to build the headline number.
That single change is why comparisons can look so confusing. Ofgem’s own notes confirm that, calculated on the old, pre-July consumption basis, the £1,663 figure currently in place would actually be £1,862 — and from October, that old-basis figure would rise not to £1,723, but to £1,935.
That £1,935 is the number that reflects what’s actually happening to the cost of energy. The £1,723 headline is doing real work to look smaller, because it’s dividing rising costs across a lower assumed usage figure. TDCV is a presentational tool — it changes how the bill is illustrated, not what a unit of gas or electricity actually costs you.
Unit Prices Are the Highest They’ve Been in Three Years
This is the part of the story that’s easy to miss behind the headline figures — and it’s the part that matters most if you actually want to know whether energy is getting more or less expensive.
Gas unit rates are rising by 8% this quarter, and industry analysts including Cornwall Insight estimate the new gas unit rate will land at around 7.9p per kWh. To put that in context: the gas unit rate was 7p per kWh back in October 2023, at the tail end of the energy crisis, and has been below that level every quarter since — until now. If that estimate holds, gas will be more expensive per unit this October than at any point in the last three years.
Electricity tells a similar underlying story, just dressed differently. Wholesale electricity costs have risen in line with gas, because the UK still relies heavily on gas-fired power stations to meet demand. The only reason the electricity unit rate isn’t visibly spiking is that the VAT cut is being applied at exactly the same moment, hiding the increase within the tax change.
So while the headline £1,723 figure looks like a modest rise, the true cost of the energy itself — what you’re actually charged per kWh before any tax adjustment — is higher than it has been in three years. Falling TDCVs and a falling tax rate are doing the heavy lifting on the number households see. They are not doing anything to make energy itself cheaper.
What Ofgem Says
Neil Kenward, Ofgem’s Director General for Markets, acknowledged the pressure directly:
“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.”
He pointed to savings available through fixed tariffs — currently around £100 or more below the October cap — and noted that prepayment customers pay the lowest price cap rates, saving an average of about £45 compared to Direct Debit.
Ofgem also stressed that anyone struggling with their bills should contact their supplier as soon as possible to discuss an affordable repayment plan, rather than falling further behind.
The Bigger Picture
It’s worth holding two things in mind at once. Prices remain 52% below the peak of the 2022 energy crisis, when government intervention capped bills at £2,500. But Ofgem also confirms that, adjusted for inflation, October’s cap is 7% higher than the same quarter last year — meaning bills are getting more expensive in real terms, not just in cash terms.
For households who’ve already cut back everything they reasonably can — lower thermostats, shorter showers, fewer appliances running — there’s little comfort in a headline figure that owes more to accounting changes than to genuinely cheaper energy.
What You Can Do
The clearest way to protect yourself from another rise in January — which several analysts are already flagging as a possibility if the Middle East conflict drags on — is to compare fixed tariffs now. Ofgem itself says fixed deals are currently available at £100 or more below the new cap, and switching payment method or getting a smart meter can bring further savings depending on when you use electricity.
Anyone still on a standard variable tariff who hasn’t reviewed their options recently should do so before winter usage kicks in and this rise starts showing up in bills.
Final Thoughts
Ofgem’s headline figure of £1,723 makes October’s price cap update look like the gentlest rise of the year. In cash terms, for the “typical” household as currently defined, it is. But that headline is being shaped by two things that have nothing to do with the cost of the energy itself: a lower assumed usage figure, and a temporary tax cut landing on the same day as the increase.
Underneath both of those, gas is heading for its most expensive unit price in three years, and electricity’s underlying cost is moving in the same direction — it’s simply being offset, for now, by the VAT cut rather than genuinely falling. Households would do well to judge this update by what a unit of energy actually costs, not by the number on the letter.
