Meanwhile, the UK arm of French utility EDF said the typical household energy bill will hit £1,760 from October. That includes a £97 increase from current levels. The jump comes from wholesale energy markets, where the cost of natural gas and power contracts has gone haywire.
In July, the UK's month-ahead natural gas price jumped by 40%, reaching its highest level since March. The cost of power contracts increased by one-fifth over the same period, per Bloomberg data.
Energy consultant Cornwall Insight ran the numbers both ways. With the VAT cut baked in, the October price cap lands at around £1,700.
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Kate Mulvany, director of Mulvany Consulting, put it plainly. She said, "The VAT cut will be welcome, although it risks becoming another example of an intervention whose value is quickly obscured by wider movements in the bill." She added that the saving is "meaningful, but precarious in the face of wider market movements."
At the heart of the issue is the ongoing military confrontation between the US and Iran. Disruptions to Middle Eastern energy supplies have pushed prices higher across the board. The UK buys natural gas on global markets, so when something rattles the Persian Gulf, it shows up in your heating bill a few weeks later.
The energy price cap, set by regulator Ofgem, limits the maximum amount suppliers can charge per unit of gas and electricity. It is updated every three months based on wholesale market trends. The October cap will reflect the surge in gas prices caused by the conflict, which has disrupted shipping routes and raised fears of supply shortages.
Without the VAT cut, the cap would have been even higher - roughly £1,760.
Additionally, the conflict has disrupted liquefied natural gas shipments through the Strait of Hormuz, a vital route for global energy trade, further straining prices. The Strait of Hormuz is a critical chokepoint; about one-fifth of the world's LNG passes through it, so any disruption there quickly feeds into UK wholesale costs because Britain imports a sizable share of its gas as LNG.
Reducing living costs has been a central goal of Burnham's government, especially regarding energy.
The interplay between policy and global markets means that even targeted relief can be quickly overshadowed. For a typical household, the £45 saving from the VAT cut is real but represents only a fraction of the overall bill increase. The October cap of roughly £1,700 still leaves families paying significantly more than they did just three months earlier. Without further intervention, the next cap review in January could bring even higher numbers if gas prices remain elevated.
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