Household energy bills across Great Britain are expected to climb to a three-year high this winter as the impact of the Middle East war wipes out Andy Burnham’s tax cut on electricity bills.
The government’s cap on energy prices is on track to rise by 4% from this October to the equivalent of £1,729 a year through the last three months of 2026, which could hit struggling households especially hard this winter, according to analysis by the energy consultancy Cornwall Insight.
The forecast quarterly price cap would be the highest since July 2023, after soaring energy market prices from the Middle East were compounded by the increased use of expensive gas in power plants during heatwaves across Europe.
The rising cost of gas will more than offset the new prime minister’s promise to cut VAT from household electricity bills from October, which aimed to give voters “some breathing space” on living costs by shrinking bills by an average of £45 a year.
Craig Lowrey, the principal consultant at Cornwall Insight, said: “It is a stark reminder that our energy bills remain tied to events thousands of miles away. Moments like this are the strongest argument for reducing Britain’s reliance on volatile international gas.
“While temporary relief like VAT cuts help soften the blow, they don’t touch the underlying fact that Britain is heavily dependent on imports of natural gas. As long as we’re exposed to global markets, the risk of these price shocks will remain.”
Ofgem is due to set the price cap next Wednesday. The regulator determines the maximum price of each unit of gas and electricity based on the cost of supplying energy to homes, including the average wholesale market costs in the months leading up to the start of each new cap.
The analysts have estimated that electricity rates will rise from 26.11p a kilowatt hour to 26.57p, and gas charges will rise from 7.33p to 7.90p for households that pay via direct debit.
This is the equivalent of an annual dual fuel bill of £1,729 for the typical UK household, under the energy regulator’s new calculations, which assume that households use less energy than before. Under the previous methodology, the price cap would rise to £1,940.69 from October, according to Cornwall, from £1,862 in the three months from July.
“Rising energy bills aren’t welcome at the best of times, but with winter approaching, this latest hike will hit struggling households especially hard,” Lowrey said.
The consultancy expects bills to rise again in January based on current market prices, although this could change depending on developments in the Middle East.
Jess Ralston, the head of energy at the Energy and Climate Intelligence Unit, said: “To many households this will feel like a horrible reminder of the first gas crisis after Russia invaded Ukraine. What’s even more worrying is that wholesale gas prices have reached a near four-year high, which is likely to cause more increases to future bills.”
Ralston said the UK’s reliance on gas for home heating was “a particular concern as although electric heat pump sales are on the up, we still lag behind European neighbours going further and faster to reduce gas dependence”.
A government spokesperson said: “We’re acting to give consumers breathing space with the cost of living – cutting VAT on energy bills, ensuring around 6m households get the £150 warm home discount this winter, and making millions of homes cheaper to run through our warm homes plan.”
The spokesperson added: “Alongside our efforts to support rapid de-escalation in the Middle East, we will do everything we can to shield consumers from global energy shocks and bring down bills for good.”
