From 1 October 2026, households in Great Britain will see two changes to their energy costs: VAT on qualifying domestic electricity will temporarily fall to 0%, while the energy price cap will rise by around 4%. The important detail is that the increase is being driven mainly by gas, not electricity.
For households with heat pumps, electric heating or off-gas-grid properties, this changes the comparison between heating systems. However, the right decision still depends on your home, its heat loss, your tariff and how the system is designed.
What is changing on 1 October 2026?
Two separate announcements take effect at the same time.
1. VAT on domestic electricity falls to 0%
From 1 October 2026 until 31 March 2027, VAT on qualifying domestic electricity supplies in Great Britain will be reduced from 5% to 0%.
The change applies automatically. Households do not need to contact their supplier or apply.
It applies to qualifying domestic electricity supplies in England, Scotland and Wales. Northern Ireland is not included and will continue to use the 5% reduced VAT rate.
The VAT reduction is temporary. Unless the measure is extended, the 5% rate will return after 31 March 2027.
2. The energy price cap rises by 4%
Ofgem’s price cap for a typical household paying by Direct Debit will rise from £1,663 to £1,723 per year between 1 October and 31 December 2026.
That is an increase of approximately £60 per year, or around £5 per month.
The cap is not a fixed annual bill. It limits the unit rates and standing charges suppliers can apply to standard variable tariffs. Your actual bill will still depend on how much energy you use.
Around 11 million households on fixed tariffs will not be directly affected by this particular cap increase, although they will still benefit from the reduction in VAT on qualifying electricity.
The rise is being driven by gas, not electricity
This is the most important point for anyone reviewing their heating costs.
Ofgem says the October price cap increase is mainly linked to higher wholesale gas prices. Wholesale gas costs rose by around 11% over the relevant period, while gas bills increased by about 8%.
Electricity prices are also affected by wider energy market costs, but the temporary VAT reduction offsets much of the increase for domestic electricity users. Ofgem has said that households that do not use gas will see an increase of less than 1% overall.
Without the VAT intervention, the price cap would have been around £45 higher.
This means the headline 4% rise does not affect every household in the same way. A home that uses gas for heating and hot water will feel the increase differently from a home whose heating system runs on electricity.
The price cap also remains well below the crisis peak of around £2,500 seen in 2022. That does not make current bills insignificant, but it does provide useful context when comparing the latest figures.
What does this mean if you already have a heat pump?
If your heat pump uses electricity for heating and hot water, the temporary VAT reduction applies to the electricity supply used by your home, subject to the qualifying rules.
You are also less exposed to the gas-driven part of the price cap increase because you do not buy gas to run your heating system.
That does not mean a heat pump will always be cheaper for every property. Electricity generally costs more per unit than gas, so performance depends on how efficiently the heat pump operates. The building’s heat loss, the distribution system, controls, hot water requirements and your electricity tariff all matter.
A correctly designed system can deliver useful heat from each unit of electricity consumed. A poorly sized or poorly controlled system may not perform as expected, regardless of the VAT rate.
Our heat pump installation service starts with assessing the property, not selecting equipment first. This helps determine whether a heat pump is suitable, what improvements may be needed, and how the system should integrate with the existing heating system.
Smart tariffs could make a bigger difference
The temporary VAT reduction is helpful, but it is only one part of the running-cost picture.
Some electricity tariffs offer cheaper rates at selected times, usually overnight or during periods of lower demand. If the tariff suits your household and the system is designed to operate flexibly, a heat pump may be able to shift some of its electricity use away from peak periods.
This could include preparing hot water at a lower-cost time or keeping the property at a steady temperature rather than relying on short, intensive heating periods.
However, a smart tariff is not automatically the best choice for every home. It depends on:
- Your daily routine
- When the property is occupied
- How much hot water you use
- Whether your heating system can be controlled effectively
- The tariff’s unit rates and standing charge
- The property’s insulation and heat-loss characteristics
The correct approach is to look at the whole system, not simply choose a tariff because it advertises a low off-peak rate.
Gas boiler households should examine their actual heating costs
For a home heated by a gas boiler, the October changes concentrate the pressure on the fuel used for heating.
The price cap is based on typical consumption, so it cannot tell you exactly what your own gas boiler costs to operate. A larger or less efficient property may use much more than the typical household, while a smaller, well-insulated home may use less.
It is worth looking at your actual annual gas consumption and separating heating and hot water costs from electricity used elsewhere in the home.
If your boiler is older, oversized or serving a property with significant heat loss, replacing the boiler alone may not address the underlying issue. Insulation, controls, radiator performance and the building’s heat-loss profile all influence energy use.
A heat loss survey provides room-by-room calculations rather than relying on the size of the existing boiler. It can show where heat is being lost and whether a different heating system could meet the property’s requirements efficiently.
Oil and LPG homes have no Ofgem price cap protection
Oil and LPG users need to consider a different set of risks.
Heating oil and LPG are not covered by the domestic Ofgem energy price cap. This means no cap limits the price you pay for the fuel, as it does for mains gas and electricity.
Your costs can therefore be affected by changes in wholesale markets, delivery prices, storage levels and local supplier pricing.
This does not mean every oil or LPG property should replace its existing system immediately. An upgrade needs to be based on the property and the owner’s circumstances. Some homes may need insulation improvements, emitter changes, or pipework alterations before a renewable heating system is appropriate.
For eligible off-gas-grid properties in England and Wales, the Boiler Upgrade Scheme currently provides up to £9,000 towards an air-to-water or ground source heat pump when replacing an existing oil or LPG heating system.
The higher grant is available until 31 March 2027, subject to the scheme’s eligibility rules and available funding. The temporary 0% VAT period on domestic electricity ends on the same date.
That creates a useful decision point, but it should not be a reason to rush into an unsuitable installation. Our guidance on replacing gas or oil heating explains why a proper assessment is important before considering the grant.
A survey is the best way to understand your position
Energy policy gives useful context, but it cannot calculate the cost of heating your individual home.
Before recommending a heat pump or any major heating change, we assess:
- The construction and age of the property
- Insulation levels
- Windows, doors, floors, walls and roof
- Room-by-room heat loss
- Existing radiators and other heat emitters
- Pipework and available space
- Hot water requirements
- Current heating controls
- Likely tariff and usage patterns
- Potential grant eligibility
A thermal imaging survey can add visual evidence by identifying cold spots, insulation gaps, air leakage, thermal bridges and areas where heat is escaping. Thermal imaging does not replace heat-loss calculations, but it can help explain why certain rooms feel colder or why energy use is higher than expected.
The result should be a clear plan. That might be a heat pump installation, improvements to the existing system, insulation work first or a phased approach.
What should homeowners do now?
No action is required to receive the electricity VAT reduction. Your supplier should apply it automatically from 1 October to qualifying supplies.
You can, however, use the changes as an opportunity to review your heating system.
Consider:
- Check your actual energy use, rather than relying only on the typical price-cap figure.
- Identify which fuel your heating system depends on. Gas, electricity, oil and LPG are affected differently.
- Review your tariff, including standing charges and off-peak rates.
- Check the condition of your heating system and controls.
- Arrange a survey before requesting installation quotes.
- If you use oil or LPG, check whether you may qualify for the higher BUS grant before 31 March 2027.
Clima Renewables is independent of manufacturers and has more than 20 years of experience designing renewable heating systems. We work with homeowners and businesses across Northamptonshire, Cambridgeshire and Bedfordshire, using property data to guide recommendations.
Frequently asked questions
Will my electricity bill automatically have 0% VAT from 1 October?
If your supply qualifies and your property is in Great Britain, your supplier should apply the temporary 0% VAT rate automatically. You should not need to submit an application. Northern Ireland remains at 5%.
Does the 4% price cap rise mean my bill will increase by exactly £60?
No. The £60 figure applies to a typical household paying by Direct Debit. Your actual bill depends on your energy use, payment method, region, tariff and the amount of gas and electricity you consume.
Are heat pump households protected from all energy price rises?
No. A heat pump uses electricity, so its running costs are still affected by electricity prices, standing charges, and tariff changes. The temporary VAT reduction and potential access to off-peak rates may help, but performance depends on the home and system design.
Are oil and LPG covered by the Ofgem price cap?
No. Heating oil and LPG are outside the Ofgem domestic price cap, so their prices can move with the wider fuel market.
Can oil and LPG households claim the £9,000 Boiler Upgrade Scheme grant?
Eligible off-gas-grid properties in England and Wales may qualify when replacing an existing oil or LPG heating system with an eligible heat pump. The higher grant is currently available until 31 March 2027, subject to the official scheme requirements.
Conclusion: look beyond the headline figures
The changes arriving on 1 October send a clear message: the latest increase in household energy costs is being driven mainly by gas, while qualifying domestic electricity in Great Britain receives temporary VAT relief.
For heat pump owners and households considering electric heating, this may improve the short-term running-cost picture. For gas boiler users, it is a reason to examine actual gas consumption. For oil and LPG households, the lack of price-cap protection and the temporary £9,000 grant uplift make a proper review worthwhile.
But you can't choose the best heating system from a price-cap announcement alone. It must be designed around the building, the heat loss, the emitters, the controls, and how the property is used.
Book a heat loss survey with Clima Renewables to understand what these changes could mean for your home and whether a heat pump is a sensible long-term option. Contact Clima Renewables to discuss your property.