How Does the Energy Price Cap Work?

What does the energy price cap actually do?

The energy price cap sets a maximum unit rate that suppliers can charge for gas and electricity. It also sets a maximum standing charge. It does not cap your total bill. That still depends on how much energy you use. A household that uses more than the Ofgem typical average will pay more than the headline annual figure, even under the cap.

Think of it like a maximum price per litre of petrol. The cap controls the price per unit, not how many units you use. A larger home, or a family that uses more heating, will always pay more than a smaller household. That is true even if the cap is the same.

What is the energy price cap right now?

From 1 October to 31 December 2026, the cap is £1,723 a year for a typical dual-fuel household paying by direct debit. Ofgem announced it on 26 August 2026. That is up £60, or 4%, from £1,663 for 1 July to 30 September 2026.

The rise is not spread evenly. Gas bills go up by around 8%, driven by higher wholesale gas prices. Electricity bills stay broadly stable. The government has removed VAT from electricity bills from 1 October 2026 to 31 March 2027. Ofgem says that without the VAT cut, the cap would have been around £45 higher. A home with no gas supply sees a rise of less than 1%.

The next cap, for 1 January to 31 March 2027, will be announced by 25 November 2026.

What happened in the July 2026 review

The July change is worth understanding, because almost every headline got it wrong. The previous cap, covering 1 April to 30 June 2026, was £1,641 a year. Put £1,641 and £1,663 side by side and the change looks tiny, close to flat. It was not. Ofgem headlined that review as a 13% increase.

The two numbers cannot be compared directly, because Ofgem changed the yardstick at the same time. The cap level is expressed as the annual bill of a household using a set amount of gas and electricity. In this review, Ofgem updated those typical usage assumptions. Typical households now use around 7% less electricity and around 17% less gas than the old assumption. In Ofgem’s own words, under the previous usage assumptions the typical bill from July would have been £1,862, up from £1,641. Lower assumed usage, priced at higher rates, lands at £1,663.

So the rates went up a lot. The assumed consumption went down a lot. The headline number barely moved. What you actually pay depends on your rates and your usage, not on the headline. Underneath, electricity prices rose around 5% and gas prices rose around 24%. So a home heated by gas felt this far more than an all-electric flat.

Capped rates from 1 October 2026

Those are the cap-level figures. The exact maximum you can be charged varies by region and by how you pay. So the numbers on your own bill will not match them precisely. Still, they are the figures to check your bill against. They are more useful than the annual headline, because they are what the cap actually controls.

Energy is one of the reasons your personal cost of living can rise faster than the published CPI inflation rate. That rate was 3.1% in the 12 months to August 2026. A 24% rise in gas prices does not show up as 24% on the national figure. Gas is only one line in a basket of around 760 things.

Who is Ofgem?

Ofgem (the Office of Gas and Electricity Markets) is the UK’s energy regulator. It sets the price cap. It reviews the cap every three months, based on wholesale energy prices on global markets. When gas prices spike, as they did after Russia’s invasion of Ukraine, the cap rises. When wholesale prices fall, the cap follows.

Ofgem is a regulator, not the Bank of England. The two work on completely different levers. The Bank sets the base rate to steer inflation across the whole economy. Ofgem sets a maximum price for one specific thing. That is why your energy bill can jump in a quarter when the base rate has not moved at all.

What exactly does the energy price cap limit?

The cap sets maximum permitted levels for the electricity unit rate (pence per kWh), the gas unit rate (pence per kWh), and the daily standing charges for both fuels. It applies to customers on standard variable tariffs. These are the default for most households who have never switched. Customers on fixed-price deals are unaffected until their deal ends.

Ofgem sets maximums for:

• Electricity unit rate (pence per kWh)
• Gas unit rate (pence per kWh)
• Daily standing charges for electricity and gas (pence per day)

The standing charge is the one that catches people out. It is charged every day, whether you use any energy or not. So a student flat that is empty over the summer still runs up a bill. From 1 October 2026, that is 54.83p a day for electricity and 29.68p a day for gas, before a single unit is used.

How is my energy bill calculated?

Your annual bill is roughly:

(electricity unit rate × electricity units used) + (electricity standing charge × 365) + (gas unit rate × gas units used) + (gas standing charge × 365)

Ofgem publishes a ‘typical household’ figure based on average usage. That is the headline number you see in the news. But your actual bill will be higher or lower, depending on your home and usage.

Two things follow from that formula. First, the standing charge is fixed. So cutting your usage to nothing does not cut your bill to nothing. Second, gas and electricity have separate unit rates, and they move by different amounts. So a review that is bad for gas can be mild for electricity. In the July 2026 review, gas rose far more than electricity. That is why homes with gas central heating felt it most.

Energy is paid out of take-home pay. So it comes after whatever income tax and National Insurance have already taken from your wages. Money you set aside for bills in advance can sit in a cash ISA, where the interest is tax free. The annual ISA allowance for 2026/27 is £20,000.

When does the energy price cap change?

Ofgem reviews and resets the price cap every three months, with new levels taking effect on:

• 1 January
• 1 April
• 1 July
• 1 October

Each change reflects wholesale energy costs over the preceding period. Ofgem announces the new level several weeks before it starts. The cap for 1 October to 31 December 2026 was announced on 26 August 2026. The next one, covering 1 January to 31 March 2027, will be announced by 25 November 2026. Kvanta covers every announcement the morning it’s confirmed.

The announcement lands well before the change. So there is normally a window where you know the new rates while still paying the old ones. That is also when suppliers reprice their fixed deals, since they can see the same numbers you can.

Do fixed energy tariffs fall under the price cap?

No. The price cap applies only to customers on standard variable tariffs and prepayment meters. Customers on a fixed-rate deal have their unit rate and standing charge locked for the length of that deal, whatever the cap does. Whether a fixed tariff ends up cheaper or more expensive than the cap depends on two things. One is the rates agreed at the time. The other is how wholesale prices move during the fixed period, which nobody knows in advance.

Fixing trades certainty against the chance of a lower cap later. It cuts both ways. A fix taken before a cap rise looks good. The same fix taken before a cap fall looks expensive. Renting adds another layer. In many shared houses, only the tenant named on the account can change the tariff at all.

Ofgem publishes guidance on energy tariff types at ofgem.gov.uk. The government’s energy-saving advice, including information on insulation schemes and efficiency measures, is at gov.uk/improve-energy-efficiency. If you own rather than rent, energy is one of the running costs of a property. The guide to how a UK mortgage works covers the others.