What's happened
Energy bills in the UK will increase by 0.2% in early 2026, driven by policy costs despite falling wholesale prices. The price cap will rise to £1,758 annually for typical households, with further increases expected in April due to network and policy levies. The government is considering support measures in the upcoming budget.
What's behind the headline?
The modest increase in the energy price cap masks underlying long-term pressures on bills. While wholesale prices have fallen, rising costs related to network upgrades, nuclear funding, and environmental levies are driving bills higher. The government’s plans to support households, such as removing VAT or shifting levies into taxation, could mitigate some costs but face political and logistical challenges. The focus on long-term energy resilience through renewables will likely keep costs elevated in the short term, but it aims to reduce dependence on volatile international energy markets. The upcoming budget will be critical in determining whether households will receive targeted support or if policy costs will continue to be passed directly to consumers, impacting affordability.
What the papers say
The Guardian reports that the energy price cap will rise slightly to £1,758, driven by policy costs like the Nuclear RAB levy and network charges, despite stable wholesale prices. Sky News highlights the potential for further support measures, such as VAT removal, to ease costs. Reuters notes the rise is partly due to funding for nuclear projects, with analysts predicting a rise again in April. The Independent emphasizes the long-term shift to renewables and the challenge of balancing affordability with resilience. The New York Times discusses the broader context of rising winter heating costs and delayed federal aid, illustrating the global impact of energy price fluctuations and policy decisions. Overall, the coverage shows a consensus that policy-driven costs are the main factor behind rising bills, with government support measures under active consideration.
How we got here
The rise in energy bills is primarily driven by government policy costs, including levies for nuclear funding and network upgrades, rather than wholesale energy prices which have fallen slightly. The UK government has pledged to reduce energy bills and is considering measures such as VAT removal and shifting policy costs into general taxation to ease household burdens. The energy price cap is set by Ofgem and reflects these policy and operating costs, not wholesale prices.
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