After a tiny decrease in the energy price cap in October, variable energy rates will rise again on 1 January.
In November, market analysts predicted a further increase to the energy price cap on 1 April, but this has since been adjusted following an annoucement in the Autumn Budget that certain costs will be removed from energy bills at the same time. The government promised that this should see the average household save £150 a year.
We explain where the changes are coming from, and how they will affect your bills. Plus, see how to keep the cost of energy bills to a minimum in 2026.
See the latest table of the cheapest energy tariffs: How to get the best energy deal
Autumn Budget energy bill changes
In the Autumn Budget, the government announced an end to funding for the Energy Company Obligation (ECO) and Renewables Obligation (RO) schemes.
The ECO scheme dictates that energy suppliers must help households reduce the costs and carbon emissions of their home heating by fitting energy-saving measures, with a focus on low income households and those in vulnerable situations. The RO scheme was designed to encourage generation of electricity from eligible renewable sources in the UK.
Both schemes are currently funded through costs to your energy bill. The government has announced that ECO funding will end from 31 March 2026, while 75% of RO costs will now be funded from general taxation. You’ll start to see the savings from this reflected in your bills from April 2026.
Who will benefit from the savings?
The intervention in this Budget update will bring down the policy costs that influence the level of the price cap, so people paying price-capped variable tariffs will benefit from a lower price cap than would otherwise have been the case from April.
However, the government has also confirmed that it expects energy companies to pass on equivalent savings to customers on fixed tariffs from April 2026. That means that if you are currently fixed into an energy deal, your provider should reduce your rates accordingly from 1 April.
How much will the changes cut from my energy bills?
The precise saving that the government has estimated for an average household is £154. This is made up of:
- £88 from funding the RO through general taxation
- £59 from not renewing ECO
- £7 of VAT savings.
The actual savings you’ll see will depend on how much energy you use throughout the year. This table shows estimated savings for five different household types.
The government explains its calculations in more detail in its data sources.
So, will my energy bills be lower in 2026?
There’s some cause for cautious optimism on this front. But while the policy costs that contribute to Ofgem’s price cap will be lower, there are many other factors that influence the level of the price cap, including:
- The wholesale cost of energy (this is the biggest factor affecting energy bills)
- The cost of upgrading our national energy infrastructure
- General energy market dynamics.
Energy price cap changes in 2026
The energy price cap, which sets the maximum price per unit for customers on variable energy tariffs, is due to rise slightly by 0.2% from 1 January 2026. This will equate to an annual bill of £1,758 for a typical household (using 2,700kWh per year of electricity and 11,500kWh per year of gas), or £146.50 a month, from January to March 2026, compared with £1,755 (£146.25 a month) between October and December 2025.
Before the announcements in the Budget, experts anticipated a further price cap increase on 1 April 2026.
Now, expert forecasters Cornwall Insight are predicting a substantial decrease to the price cap in April – to £1,669. This would equate to a reduction of £89, or 5%, on annual energy bills for a typical household compared with the price cap from January to March 2026.
However, the eagle-eyed among you will have noticed that the predicted energy price cap cut is a fair bit less than the annual savings of £154 that the government has promised through its funding changes.
This suggests that market dynamics and wholesale costs are likely to bump up April’s price cap setting, eating into the government’s predicted savings, with further fluctuations likely later in the year.
Find out more: What is the energy price cap?
5 easy ways to cut your energy bill in 2026
We can’t rely on government funding changes to keep our energy bills to a minimum. Here are four easy tactics that are worth trying.
- Consider switching to a fixed tariff: If you’re currently on a variable rate tariff, we’ve calculated that you could save more than £200 a year by switching to one of the best fixed energy deals currently available. The government has confirmed that those on fixes will benefit from the April reduction in policy costs, so you don’t need to hold out for that.
- Use household appliances efficiently: Small shifts in how you use your washing machines, dishwashers, tumble dryers and other appliances can add up to big savings – find out more in our guide to energy saving.
- Make the most of smart thermostats and smart tech: Smart thermostats, especially when combined with thermostatic radiator valves, give you precise control over your home’s heating, ensuring heat isn’t blasting out at times or in rooms it’s not needed.
- Try our home energy planning tool: Our free home energy planning service provides personalised advice for a more energy-efficient home and lower bills.
- Service your boiler and adjust its flow temperature: An efficiently running boiler and heating system can make sure you’re not paying more than you need to for your heating.
Find out more: Best energy suppliers for 2025