Households are set to save around £45 a year after the Government cut VAT on electricity but rising wholesale costs mean bills are still expected to increase this autumn.
Cornwall Insight now forecasts the October energy price cap at £1,700 a year for a typical dual-fuel household under the new consumption measure introduced this month. Under the previous definition of typical use, the equivalent cap would be £1,906.
The 5% VAT cut will reduce electricity costs but Cornwall Insight expects the overall cap to rise by around 2% from its current level. It said growing unrest in the Middle East has pushed up wholesale energy prices and largely wiped out the benefit.
The tax change will also slightly narrow the price gap between electricity and gas, which has long been seen as a barrier to households switching to heat pumps and electric vehicles.
Cornwall Insight said that gap must continue to close if consumers are to be encouraged to move away from fossil fuel heating and transport.
The announcement comes as Miatta Fahnbulleh takes over as Secretary of State for Energy Security and Net Zero following the Government reshuffle.
Attention will now turn to the Budget, with ministers considering whether some policy levies should be moved from energy bills into general taxation. Block tariffs, which could charge different rates depending on household consumption, are also under discussion.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight, said: “The real question now is what the new energy secretary does with the Budget, given that the government has stated that the VAT reduction is only confirmed until the end of the current financial year.”
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