Educational, not advice. This article explains how Ofgem’s energy price cap is set and how to read the figures around it. It is general information, not personal financial advice. Savvy Investor Guide is not authorised or regulated by the Financial Conduct Authority. Nothing here tells you whether to fix your tariff, switch supplier or stay put.
What this article covers: what Ofgem confirmed on 26 August 2026 for the October to December cap, how the cap is actually constructed, the change to Ofgem’s typical-household assumptions that makes year-on-year comparisons misleading, what the electricity VAT cut does to it, and why the published forecasts sit further apart than the forecasters actually disagree.
What it does not cover: whether to fix, or which supplier to use. It covers Great Britain only; Northern Ireland is outside the cap and runs its own system.
In short
- Confirmed on 26 August 2026: £1,723 a year on direct debit, up 4% on July. Standard credit £1,861, prepayment £1,678, Economy 7 £1,046.
- The cap is not a cap on your bill. It limits unit rates and standing charges. Use more, pay more.
- Ofgem changed its “typical household” assumptions on 1 July 2026, cutting assumed gas use from 11,500 to 9,500 kWh and electricity from 2,700 to 2,500 kWh.
- That is why the July cap has two figures: £1,862 on the old basis, £1,663 on the new one. Both are Ofgem’s. Neither is wrong.
- Unit rates went up partly because the assumption came down, since fixed costs are recovered per unit across a smaller assumed volume.
- VAT on domestic electricity falls from 5% to 0% on 1 October, which the government expects to take around £45 off the cap.
- The forecasts are not as far apart as they look. Most of the spread is two accounting choices, not disagreement about energy prices.
Ofgem will confirm the October to December 2026 price cap by 26 August. When it does, you’ll see a single number in every headline, and that number will be compared with last quarter’s and last year’s.
Those comparisons are going to be wrong more often than usual this time, and for a reason that has nothing to do with energy prices. The confirmed figures are below, but they are worth very little without the part that follows them.
The cap is not a cap on your bill
Start with what the thing actually is, because the name misleads people every single quarter. Ofgem’s own words:
We set the energy price cap. This is the maximum amount your supplier can charge for a unit of energy and standing charge together.
Ofgem
And, in case that leaves any doubt:
It does not limit the cost of your total bill. The more energy you use, the higher your bill will be.
Ofgem
The headline figure is what a household using a specified amount of gas and electricity would pay across a year at the capped rates. It is an illustration, not a ceiling on what you owe.
It applies to standard variable tariffs in England, Scotland and Wales. If you are on a fixed deal, it does not apply to you. If you are in Northern Ireland, the GB cap does not apply at all; there is a separate tariff review process overseen by the Utility Regulator.
The change that breaks comparisons
On 27 May 2026 Ofgem published a decision that gets almost no coverage and matters more than most things that do. It changed the Typical Domestic Consumption Values, the assumed usage figures that convert capped rates into a headline annual figure.
Effective 1 July 2026, for a medium-usage household:
| Fuel | Old assumption | New assumption | Change |
|---|---|---|---|
| Gas | 11,500 kWh | 9,500 kWh | 2,000 kWh lower |
| Electricity (single rate) | 2,700 kWh | 2,500 kWh | 200 kWh lower |
| Electricity (Economy 7) | 3,900 kWh | 3,400 kWh | 500 kWh lower |
Note the asymmetry. The gas assumption fell by about 17%, the single-rate electricity assumption by about 7%. Ofgem’s stated reason is that households are simply using less than they were.
Ofgem is admirably direct about what this does to the headline number:
Updating the TDCVSs will lower the reported ‘typical’ annual bill. This reflects revised assumptions about typical usage rather than a reduction in energy prices.
Ofgem, Review of typical domestic consumption values: decision, 27 May 2026
The cleanest illustration is Ofgem’s own, and it is better than anything you can build from the July figures because it holds prices completely still:
Based on the new TDCVs, we estimate the April 2026 to June 2026 price cap would have been £1,489 for a medium usage customer on a dual fuel standard variable tariff paying by direct debit. This is compared to the current April 2026 to June 2026 price cap set at £1,641 using the current TDCV.
Ofgem, TDCV decision
Same quarter. Same cap. Same prices. £152 apart, purely because of what you assume a household uses.
So the July cap has two correct numbers
This is where the confusion bites. Ofgem publishes the current July to September cap both ways:
- £1,862 on the old consumption basis, which is the figure that compares like for like with every quarter back to 2019.
- £1,663 on the new basis, which is the figure the current unit rates actually produce.
Both are genuine. The first is for comparing across time. The second describes today. Quote one against the other and you manufacture a £200 change that did not happen.
For completeness, the July to September rates the second figure is built from, on direct debit, including VAT: electricity 26.11p per kWh with a 57.19p daily standing charge, gas 7.33p per kWh with a 29.04p daily standing charge.
Why unit rates rose while the assumption fell
If Ofgem now assumes you use less, you might expect the rates to be unaffected. They were not, and the reason is counterintuitive and entirely deliberate.
Some costs in the cap are fixed in total but recovered per unit of energy. Spread the same fixed pot across a smaller assumed volume and the per-unit figure has to rise. Ofgem quantified it: the change adds 0.19p per kWh to the typical electricity unit rate and 0.07p per kWh to gas.
The changes are intended to maintain the recovery of fixed costs which are recovered volumetrically, given the impact of reduced demand. The aim is not to increase the total amount that a default tariff customer pays toward fixed costs which are recovered volumetrically, relative to the situation before consumption fell.
Ofgem, TDCV decision
In other words: not a price rise, an accounting rebalance. Whether it feels like that on a bill depends entirely on whether your own usage looks like Ofgem’s assumption.
The VAT cut lands in the same quarter
VAT on domestic electricity drops from 5% to 0% on 1 October 2026, announced on 21 July. Gas is unaffected.
Because the cap is quoted inclusive of VAT, this flows through the October figure rather than arriving separately. The government’s own estimate is that it takes “around £45 off the yearly Ofgem price cap in October”, and the announcement was explicitly timed “in time to impact the next Ofgem price cap”.
It is funded for this financial year, so to 31 March 2027, with any extension to be considered at the Autumn Budget. That makes it a temporary measure with a review date, not a permanent change to how electricity is taxed.
Why the forecasts look further apart than they are
Ahead of any cap announcement, several organisations publish forecasts. This time they span roughly £1,700 to £1,900, which reads like serious disagreement. Mostly it is not.
| Forecast | Published by | Dated | Consumption basis | Before or after the VAT cut |
|---|---|---|---|---|
| £1,899 | Cornwall Insight | 27 May 2026 | Old | Before |
| £1,709 | Cornwall Insight | 27 May 2026 | New | Before |
| £1,906.27 | Cornwall Insight | Superseded | Old | Before |
| £1,699.59 | Cornwall Insight | 22 July 2026 | New | After |
| £1,717 | E.ON Next | 11 August 2026 | New | After |
Read down the last two columns and the spread largely dissolves. Two variables are doing the work: which consumption basis the forecaster used, worth roughly £150 to £200 on its own, and whether the forecast predates the VAT cut, worth about another £45.
Compare only forecasts that share both, and Cornwall Insight’s £1,699.59 and E.ON Next’s £1,717 are about £17 apart. That is a genuine difference of view, and it is a small one.
Now that the figure is out, both were close. E.ON Next’s £1,717 landed £6 below the confirmed £1,723, and Cornwall Insight’s £1,699.59 was £23 below. Both sat far nearer the answer than the raw £1,700 to £1,900 spread suggested, which is the whole point of separating the assumptions from the actual disagreement.
One note on provenance: Cornwall Insight is an independent analyst. E.ON Next is a supplier, and its own page is careful to say Ofgem “don’t typically issue public predictions in the same way that independent analysts do”, which is a fair disclaimer to make about your own forecast.
Standing charges: a pilot, not a change to the cap
Standing charges attract more complaint than any other part of a bill, so it helps to be clear about where the reform actually got to.
In September 2025 Ofgem decided against mandating low or zero standing charge tariffs, noting the proposals “were opposed by many charities and consumer groups, the majority of suppliers and just over half of individual consumers.” What it did instead was a pilot, running from June 2026, with EDF, E.ON, Octopus and British Gas taking part initially.
The trade-off is explicit. Customers who opt in “could expect to pay about £150 less per year on standing charges”, but “could pay more for the energy they use depending on their energy use”, because the unit rates on those tariffs are higher. Ofgem’s own summary of the whole exercise is the most honest line in any of its documents: “We cannot remove these charges, we can only move costs around.”
This is an opt-in pilot tariff. It is not a change to the default cap Ofgem announces in August, and nothing published ties it to that figure.
How to read the announcement when it lands
Four questions to ask of whatever number appears:
- Which basis is this? If Ofgem repeats its dual-figure convention, there will be two. Headlines will pick one.
- Is the comparison like for like? A change quoted against July must use the same consumption basis at both ends.
- Does it already include the VAT cut? It should, since the cap is quoted inclusive of VAT and the cut starts on the first day of the period.
- What are the unit rates? For anyone whose usage is well above or below Ofgem’s assumption, the rates matter far more than the headline.
That is the checklist. Here is what it produces against the actual announcement.
Confirmed: £1,723 on direct debit, up 4%
Ofgem published cap period 17a on 26 August 2026, covering 1 October to 31 December. Every figure below is Ofgem’s own, and the percentage changes are Ofgem’s own like-for-like comparisons rather than anything worked out here.
| Payment method | July to September 2026 | October to December 2026 | Change |
|---|---|---|---|
| Direct Debit | £1,663 | £1,723 | 4% |
| Standard Credit | £1,796 | £1,861 | 4% |
| Prepayment | £1,620 | £1,678 | 4% |
| Economy 7 (Direct Debit) | £1,039 | £1,046 | 1% |
Note there is only one set of figures this time. Ofgem states that “all figures in this letter reflect the latest (2026) Typical Domestic Consumption Values (TDCV) at medium consumption”, so the dual old-basis and new-basis presentation that made the July cap so easy to misreport has gone. The comparison against July above is like for like at both ends.
The unit rates, which matter more than the headline
Averaged across England, Scotland and Wales, for a direct debit customer: electricity 26.32p per kWh with a standing charge of 54.83p a day, and gas 7.97p per kWh with a standing charge of 29.68p a day. If your consumption sits well above or below Ofgem’s assumption, those are the numbers that decide your bill, not the £1,723.
What moved it
The wholesale cost allowance rose 11% and now makes up 47% of the cap against 44% last quarter, with the gas allowance up 13% and electricity up 10%. Ofgem attributes the movement to “continued conflict and geopolitical instability in the Middle East”, extreme temperatures across Britain and Europe, liquefied natural gas supply risk, and increased cooling demand meeting tighter-than-normal margins and low wind generation.
Pulling the other way, the electricity VAT cut lands in this same quarter. Ofgem confirms the government “has decided to reduce the level of VAT from all electricity bills from 5% to zero”, applying “from 1 October 2026 to 31 March 2027”, with gas unchanged at 5%. Its own cost breakdown shows the electricity VAT line moving from 5% to 0% between the two quarters. Without it the rise would have been larger than 4%.
Two things the announcement did not do. It made no mention of the standing charge pilot, which stays a supplier opt-in rather than part of the cap. And Ofgem noted separately that a decision on a Bill Discount Scheme allowance, starting April 2027, follows later this week.
FAQ
When exactly does Ofgem announce the October cap?
By 26 August 2026. Ofgem’s own page for the current cap states the October to December level will be published by that date. In the equivalent 2025 cycle the announcement came at 7am on the day, with Ofgem noting it would not provide embargoed copies because of market sensitivity.
Does the cap mean my bill cannot go above that figure?
No. Ofgem caps the unit rate and the standing charge, not the total. Its own wording is that the cap “does not limit the cost of your total bill. The more energy you use, the higher your bill will be.” The headline figure describes a household using a specified amount of energy.
Why do I see both £1,862 and £1,663 for the current cap?
They are the same cap on two different consumption assumptions. £1,862 uses the older figures and is the one that compares like for like with previous quarters going back to 2019. £1,663 uses the assumptions that took effect on 1 July 2026 and is what the current unit rates actually produce. Both are Ofgem’s own.
If Ofgem assumes I use less energy, why did unit rates go up?
Because some costs are fixed in total but collected per unit. Spreading the same fixed amount over a smaller assumed volume raises the per-unit figure. Ofgem put the effect at 0.19p per kWh on electricity and 0.07p on gas, and says the intention is not to increase what a customer contributes to those fixed costs overall.
Will the electricity VAT cut show up in the October cap?
It should. The cut from 5% to 0% takes effect on 1 October, the first day of the cap period, and the cap is quoted inclusive of VAT. The government estimated the effect at around £45 a year. It is funded to 31 March 2027, with any extension a matter for the Autumn Budget.
Which forecast should I believe?
None of them is a decision, and this article does not pick one. The more useful move is to check what basis a forecast uses and whether it predates the VAT cut, because those two things explain most of the apparent gap between them. Ofgem’s confirmed figure is the only one that settles anything.
Does the cap apply in Northern Ireland?
No. Northern Ireland has separate electricity and gas markets overseen by its own Utility Regulator, with a tariff review process rather than a price cap.
Information, not advice. This article explains how the Ofgem price cap is set, as at 31 July 2026, ahead of the October to December cap being confirmed. Figures quoted for future periods are forecasts published by third parties, not confirmed levels. It is general information and not a personal recommendation about your tariff. Savvy Investor Guide is not authorised or regulated by the Financial Conduct Authority. For free impartial help with energy bills, Citizens Advice is the government-backed consumer service for energy in Great Britain.
Key sources
- Ofgem, Energy price cap explained, for what the cap does and does not do.
- Ofgem, Price cap unit rates and standing charges.
- Ofgem, Changes to the energy price cap, 1 July to 30 September 2026, which also states the October cap will be published by 26 August 2026.
- Ofgem, Review of typical domestic consumption values: decision (PDF), 27 May 2026, the source of the consumption table and the two quotes this article turns on.
- gov.uk, electricity VAT cut announcement, 21 July 2026.
- Ofgem, Lower standing charge tariffs: next steps, for the pilot and its trade-offs.
- Cornwall Insight, Default tariff cap predictions.