Energy price cap explained: what the £1,723 figure really means
Energy price cap explained: the October 2026 unit rates and standing charges, how to work out your own bill, the zero VAT change and January forecasts.
Why it matters
The cap sets the price per unit and the daily charge for millions of British households on standard tariffs, so the rates, not the £1,723 headline, decide what each home pays. A further change is due in January 2027.
A household in Great Britain that uses no gas at all will see its energy bill rise by less than 1% this winter, while a gas-heated home faces an 8% jump on its gas costs. Both are under the same “4% rise” in the energy price cap, which took effect on October 1, 2026 and set the typical annual bill at £1,723 (about $2,300).
Quick answer: The energy price cap is the maximum price per unit of energy and the maximum daily standing charge that suppliers in England, Scotland and Wales can charge on standard variable tariffs. From October 1 to December 31, 2026, the average Direct Debit limits are 26.32p per kWh and 54.83p a day for electricity, and 7.97p per kWh and 29.68p a day for gas. The £1,723 figure is an example bill for a typical home, not a ceiling on what anyone pays.
That last point catches out a lot of people. Ofgem, the energy regulator for Great Britain, says plainly on its own guidance page that the cap “does not limit the cost of your total bill.” Use more energy and you pay more. Use less and you pay less. Northern Ireland is outside the scheme and has its own regulation.
What does the October 2026 price cap set?
Ofgem published the cap for October 1 to December 31, 2026 on August 26. The typical dual fuel bill for a household paying by Direct Debit went from £1,663 to £1,723, a rise of £60 a year, or about £5 a month.
The limits that actually bind suppliers are four numbers. These are the averages across England, Scotland and Wales for Direct Debit customers:
| Charge | Electricity | Gas |
|---|---|---|
| Unit rate | 26.32p per kWh | 7.97p per kWh |
| Standing charge | 54.83p per day | 29.68p per day |
| VAT included | 0% | 5% |
Source: Ofgem, energy price cap unit rates and standing charges, October 1 to December 31, 2026.
A kilowatt-hour (kWh) is the unit printed on every bill and meter reading. The standing charge is a fixed daily amount you pay for being connected, whether you switch anything on or not.
Your own rates will differ from the table. Ofgem sets separate caps for each region, because network costs and local demand vary, and for each payment method. The typical bill under standard credit (paying on receipt of a bill) is £1,861, and under a prepayment meter it is £1,678, according to Ofgem’s summary letter. Economy 7 customers with a multi-rate meter have a typical bill of £1,046, up 1%.
How to work out your own bill from the cap
The headline bill is simply the four numbers above multiplied by an assumed amount of energy use. You can redo the sum with your own usage. Take this example home, which uses 2,000 kWh of electricity and 8,000 kWh of gas a year:
- Find your annual usage in kWh for each fuel. It is usually on your annual statement or in your supplier’s app, often labelled “estimated annual consumption”.
- Multiply electricity use by the unit rate: 2,000 x 26.32p = £526.40.
- Add a year of electricity standing charges: 365 x 54.83p = £200.13. Electricity total: £726.53.
- Multiply gas use by the gas unit rate: 8,000 x 7.97p = £637.60.
- Add a year of gas standing charges: 365 x 29.68p = £108.33. Gas total: £745.93.
- Combine the two: £1,472.46 a year, or about £123 a month, if October rates applied all year.
Run the same sum with Ofgem’s typical usage (2,500 kWh of electricity and 9,500 kWh of gas) and you land at about £1,724. That is within a pound of the official £1,723; the gap comes from Ofgem rounding the published rates to two decimal places.
Two caveats matter. The rates only hold until December 31, so a 12-month figure is an illustration, not a forecast. And the standing charges are the same however little you use, which is why a small flat with a low gas bill can still pay over £300 a year in standing charges alone.
Why the “typical” bill is suddenly smaller
Anyone comparing £1,723 with figures from 2025 or early 2026 is comparing different things.
From July 1, 2026, Ofgem cut its Typical Domestic Consumption Values, the assumed yearly use behind the headline bill. Medium use fell from 2,700 kWh to 2,500 kWh for electricity and from 11,500 kWh to 9,500 kWh for gas. Ofgem said households now use about 7% less electricity and 17% less gas than when the values were last reviewed in 2023.
On the old basis, the October bill would be £1,935, up from £1,862 in July. On the new basis, it is £1,723. Nobody’s tariff got £200 cheaper. The example household got smaller.
The change did nudge real prices slightly. Some supplier costs are recovered through unit rates, so spreading them over fewer assumed units pushed rates up a little: by 0.8% for electricity and 1.3% for gas when the new values came in, according to Ofgem’s revised July summary. Ofgem’s unit rates page now warns that costs “cannot be compared directly to previous periods because of this change.”
Zero VAT on electricity until March 2027
The government removed VAT from all household electricity bills from October 1, 2026 to March 31, 2027, cutting it from 5% to zero. The change applies to every electricity bill, including fixed tariffs, not only those on the cap. Gas keeps its 5% VAT over the same period.
That is why the 4% headline hides such different outcomes. Ofgem says electricity bills stay broadly stable, gas bills rise about 8%, and homes without gas see an increase of under 1%. Without the VAT cut, the typical bill would have risen by about £45 more, the regulator said.
Watch the end date. Unless the government extends it, VAT on electricity returns in April 2027, which would show up in the April to June cap.
What goes into the price
Ofgem does not choose the cap level freely. Every quarter it feeds updated costs into formulas fixed by earlier decisions. Its August letter to the industry says that in doing so, “we are not making a policy decision or exercising a judgment.”
The biggest input is wholesale energy, what suppliers pay for gas and power on the markets. Its share of the typical Direct Debit bill rose from 44% to 47% between the summer and October caps:
| Cost component | July to Sept 2026 | Oct to Dec 2026 |
|---|---|---|
| Wholesale energy | 44% | 47% |
| Networks (pipes and wires) | 25% | 24% |
| Operating, debt and industry costs | 17% | 17% |
| Policy costs | 6% | 6% |
| Supplier profit allowance | 2.6% | 2.7% |
Source: Ofgem, summary of changes to the energy price cap, August 26, 2026.
The wholesale allowance rose 11% for the October cap: 13% for gas and 10% for electricity. Ofgem’s letter linked the movement to the conflict in the Middle East and uncertainty over liquefied natural gas (LNG) supplies, plus extreme heat across Britain and Europe and low wind output, which made Britain more reliant on gas-fired power stations. Because gas plants often set the price of electricity in Britain, dearer gas pushes up power prices too. Our explainer on the Strait of Hormuz covers why disruption there moves gas markets.
For a longer view, Ofgem says the October cap is 52% (£1,859) below the peak of the 2022 energy crisis, when the government’s Energy Price Guarantee limited the typical bill to £2,500. After adjusting for inflation, it is 7% higher than a year earlier.
When is the January 2027 price cap announced?
Ofgem is due to publish the January 1 to March 31, 2027 cap on or before November 25, 2026, according to its published timetable as reported by Uswitch and IBTimes UK. The wholesale prices that count are those observed between August 19 and November 17, 2026, so most of the window has already passed.
Forecasters expect a rise, though they disagree on how big:
- Cornwall Insight, the energy consultancy, put the January cap at £1,999.28 in its update of October 14, a 16% rise of £276. The figure uses market prices from September 28 and Ofgem’s new consumption values. It would be the largest quarterly rise since January 2023, the consultancy said.
- Suppliers’ own forecasts are higher. Uswitch, the price comparison site, reported on October 21 that the average of predictions from British Gas, EDF and E.ON pointed to a 26% rise.
- EDF alone forecast £2,165 in mid-September, as reported by IBTimes UK.
Craig Lowrey, principal consultant at Cornwall Insight, called the situation “the second energy crisis of the decade.” The consultancy pointed to EU gas storage at about 65% full at the start of September, its lowest level for that month in 15 years, and argued that refilling depleted stores could keep prices high into summer 2027.
Watch for: Ofgem’s announcement by November 25, 2026. Check whether the four unit rates and standing charges change, not just the headline bill, and whether reports use the new 2,500 kWh and 9,500 kWh basis. A forecast quoted on the old 2,700 kWh and 11,500 kWh basis will look roughly £200 higher for the same prices.
Forecasts made weeks before the window closes move with wholesale markets, and Cornwall Insight’s own January figure climbed from £1,872.15 in its September 23 update, as reported by IBTimes UK, to £1,999.28 three weeks later. The number that counts is the one Ofgem publishes. When it does, the quickest way to see what it means for one home is to drop the new rates into the six steps above.
This article is for information only and is not financial advice.
