The Ofgem energy price cap will rise to its highest level in three years this autumn, with the regulator confirming a four per cent increase that will push the default household tariff to £1,723 per year for the final quarter. The increase follows a 13 per cent jump in the previous quarter and comes as the conflict in the Middle East continues to drive gas and oil prices higher.
The latest adjustment adds £60 a year, or £5 a month, to typical bills for the roughly 22 million British households on default tariffs. Ofgem said the rise was driven primarily by sustained pressure on global energy markets from the Middle East conflict, compounded by extreme weather across Britain and Europe that has pushed up power demand and limited generation capacity.
Oil prices have climbed sharply over the period. Brent crude, the international benchmark for oil, tipped above $110 at the height of the conflict and has remained above $85 per barrel for the past month. At the start of the year it was trading around $60.
Government pledges relief as Ofgem energy price cap squeezes households
The announcement puts fresh pressure on Prime Minister Andy Burnham, who pledged to give households some ‘breathing room’ when he took office last month. In one of his first moves in Downing Street, Burnham unveiled plans to remove VAT from domestic electricity bills.
According to the BBC, that VAT reduction, from five per cent to zero, is set to come into effect on 1 October and is expected to save a typical household about £45 a year. The government also expects the measure to lower the headline rate of inflation by 0.1 percentage points, a modest offset against the broader upward pressure that rising energy costs are already exerting on prices.
Reacting to the Ofgem update, the government said it would look at what more it can do ‘to protect families from unaffordable bills’. Energy secretary Miatta Fahnbulleh said: ‘Families will be understandably concerned about the cost of energy bills this winter, which is being driven up by the Iran war.’
The VAT cut is not the first intervention on household energy costs. The BBC also reported that former chancellor Rachel Reeves removed one levy and shifted others onto general taxation in April to lower bills. The cumulative picture is of a government reaching repeatedly for targeted reliefs while the underlying market forces continue to push in the opposite direction.
Cornwall Insight forecasts another rise in January
The autumn increase is unlikely to be the last. Analysts at Cornwall Insight are warning of a further nine per cent jump in the Ofgem energy price cap in January, which would heap yet more pressure on Burnham to find additional relief for consumers heading into the coldest months of the year.
Craig Lowrey, principal consultant at Cornwall Insight, said: ‘Households will see rising energy bills going into winter, with the risk that, unfortunately, January will bring even more hardship. What is frustrating is these rises, as we have seen time and time again, have very little to do with what is happening in Britain.’
His point reflects the structural difficulty the government faces. The price cap acts as a ceiling on the rates and standing charges energy suppliers can levy, not a fixed price, and its quarterly resets are tied directly to wholesale market movements that Whitehall cannot control.
The inflationary knock-on is already visible. Official figures showed inflation rose to 2.9 per cent for the 12 months to July after the energy price cap reset, up from 2.6 per cent the previous month. The Office for National Statistics noted at the time that ‘the prices of raw materials and goods leaving factories slowed again, driven by a drop of crude oil and refined petroleum respectively’, suggesting some partial offsets lower down the supply chain. Economists have suggested the headline rate is set to climb further in the latter months of the year as energy costs continue to rise, with the January reset now firmly in view.
