January 2026 Energy Price Cap Increase Explained: Legal and Financial Impact

As the New Year approaches, millions of UK households will face a rise in energy bills following Ofgem’s latest announcement on the energy price cap. 

While the increase may seem modest, it comes at a time when the cost-of-living crisis continues to bite, making it essential for consumers and businesses to understand what this change means and what steps they can take to mitigate its impact.

What Is the Energy Price Cap?

The energy price cap, introduced by Ofgem in 2019, sets the maximum amount suppliers can charge per unit of gas and electricity for customers on standard variable tariffs. It also limits standing charges. Importantly, it does not cap your total bill, your usage still determines what you pay.

From 1 January to 31 March 2026, the cap will rise by 0.2%, taking the average annual dual-fuel bill for a typical household paying by Direct Debit from £1,755 to £1,758. That’s an increase of roughly 28p per month. 

Why Is the Price Cap Increasing?

Analysts had predicted a small decrease due to falling wholesale energy prices, but Ofgem confirmed a rise instead. The reasons include:

• Policy and Network Costs
  Funding for projects like Sizewell C nuclear plant and the Warm Home Discount scheme adds to bills.
• Standing Charges
  These fixed costs are increasing by 2% for electricity and 3% for gas, covering infrastructure maintenance and social levies.
• Market Volatility
  Despite wholesale prices dropping by 4% recently, global energy markets remain unpredictable.

Who Will Be Most Affected?

• High Electricity Users
  Electricity unit rates are rising by 5.1%, while gas rates fall slightly. Households with low gas usage, such as those in modern flats, could see bills rise by 3-4%.
• Prepayment Customers
  Annual costs will increase from £1,707 to £1,711, while those paying on receipt of bill will see a rise from £1,890 to £1,894.

Legal and Regulatory Perspective

For businesses and landlords, compliance with energy efficiency regulations and tenant protection laws remains critical. Rising energy costs often lead to disputes over service charges and contractual obligations. 

Energy Solicitors can assist with:

• Reviewing Lease Agreements
  Ensure energy cost clauses are clear and enforceable.
• Advising on Energy Efficiency Standards
  Non-compliance can lead to penalties under MEES (Minimum Energy Efficiency Standards).
• Debt Recovery and Consumer Protection
  With energy debt hitting £4.4 billion, expect more enforcement actions and regulatory scrutiny.

Practical Steps for Consumers and Businesses

Cornwall Insight forecasts a further rise of £57 in April 2026, taking the cap to £1,815. This underscores the importance of long-term planning for both households and businesses.

To manage rising energy costs, consider switching to a fixed-rate tariff, which can protect you from future price increases and provide greater certainty over your bills. Improving energy efficiency is another practical step, simple measures such as draught-proofing your home and reducing shower time could save between £60 and £80 annually.

Finally, don’t overlook available support schemes like the Warm Home Discount and keep an eye on potential government initiatives such as VAT cuts, which have been rumoured in the upcoming Autumn Budget 2025. 

These strategies can help ease the financial burden and keep your energy costs under control.

How Can Energy Solicitors Help?

We can advise clients on:

• Contractual risk management in energy supply agreements.
• Regulatory compliance for landlords and commercial property owners.
• Debt recovery strategies.

If you are concerned about how rising energy costs could affect your business or property portfolio, contact our solicitors today for expert legal guidance.