Labour promised us cheaper energy bills, so why has there been a surprise cap-rise (again)?

On Friday, Ofgem announced that the energy price cap for January to March 2026 will increase by a mere 0.2% — superficially reassuring news, but one that conceals a deeply troubling trend. The standing charge for both electricity and gas is climbing again, and electricity unit rates are rising, while gas unit rates are actually falling.

For a government that claims to want us off gas and onto clean electricity, this is another bizarre, counter-intuitive choice when it comes to their net zero policy.

What the new cap actually means for the average customers

Under the revised cap:

• The electricity unit rate will go up to 27.69p/kWh, from 26.35p, a rise of about 5.1%.

• The electricity standing charge (the fixed daily cost) will increase to 54.75p per day, up from 53.68p, about 2% increase.

• Gas unit rates, by contrast, are dropping to 5.93p/kWh from 6.29p, a fall of 5.7%.

• The gas standing charge will go up to 35.09p/day, from 34.03p, an increase of 3.1%.

These figures are national averages; actuals vary slightly by region and payment method (e.g., prepayment meters have lower standing charges but higher units). The net effect for high-usage households (e.g., with gas heating) is cushioned by the gas drop, but low-usage or all-electric homes face a sharper hit from rising fixed/electricity costs.

These shifts may look small in isolation, but they reflect a striking allocation of cost burden. People using electricity will pay more per unit; gas users will pay slightly less per unit, a deeply unbalanced outcome for a system that claims to be incentivising switching to electric.

Standing Charges Going Up (again)

Standing charges, the daily fixed cost consumers pay just to be connected to the grid, now make up ~24% of a typical bill, up from 18% in 2021, are rising again because of a complex mix of costs that energy suppliers and networks face:

1. Network Maintenance & Upgrade Costs

   • The cost of maintaining and upgrading electricity networks (especially to handle more distributed generation, heat pumps and EV charging) is rising. Utilities must pass these capital costs through somehow.

2. Policy Costs & Social Schemes

   • Several policy levies are being recovered via network and supplier costs: obligations linked to the Warm Home Discount, compensation schemes, and social programs are increasingly burdening networks.

   • There are also costs from decarbonisation policy: supporting low-carbon generation (like nuclear or renewables), paying for grid flexibility, and integrating distributed energy resources — all of which feed downstream into fixed charges.

3. Regulatory Risk and Inflation

   • Inflation and higher borrowing costs for network companies have driven up their financing costs, which ultimately land on consumer bills.

   • Regulators are trying to balance affordability with network resilience, but the result is more standing-charge risk being shared by all consumers.

Why Is Electricity Getting More Expensive While Gas Gets Cheaper?

For a net zero policy that requires a huge shift from gas to electricity this combination is deeply ironic and the visuals/narrative are not exactly supportive of that policy shift. Policy makers frequently argue that households should move away from gas to electricity (for heating, transport, storage), get heat pumps and stop using traditional gas boilers in order to meet net-zero goals.

The price signals now do exactly the reverse:

• Electricity is being driven up because of grid investment, climate-policy costs, and the need to enhance network capacity, essentially penalising those who use the very energy system the government claims it wants people to adopt.

• Gas unit costs are falling, likely because wholesale gas markets are easing, and gas suppliers are absorbing or passing on those lower commodity costs. Meanwhile, the infrastructure and fixed-cost burden is still being borne by consumers via standing charges.

• By making electricity more expensive and gas slightly cheaper on a per-unit basis, the system riskily disincentivises switching in the short-term, because people’s cost calculus starts favouring gas for use (especially heating) over electricity.

This is not a good look for UK net zero. It’s also bad policy coherence.

What This Means for Labour’s £300 “Energy Bill Saving” Promise

Labour has promised to save people £300 on their energy bills (not entirely sure by when, but it is now looking likely that they'll be having to save a lot more than £300 with these increases!!!), a headline-grabbing pledge that assumes control-oriented interventions and targeted support. But with standing charges rising and electricity usage becoming more expensive, that commitment faces a real test:

• Many of the households that could benefit from Labour’s energy-relief plan will see their electricity costs increase, potentially eroding any promised savings.

• The increase in fixed daily charges hits low-usage households particularly hard, such as those working from home part-time, or on low incomes who limit consumption, undermining the fairness of the £300 promise.

• Unless Labour also commits to reforming how those network and policy levies are financed (e.g., shifting more cost recovery away from fixed charges, strengthening cross-subsidy protections, or targeting low-income support more directly), the pledge risks being undermined from within.

Why This Is a Policy Mistake...Not Just a Pricing Quirk

1. Misaligned incentives

   • The pricing structure now risks incentivising continued gas use, undermining long-term decarbonisation goals.

2. Unfair distribution of cost

   • Consumers who have already switched to clean electricity (or are trying to) may face a disproportionate burden, while gas users avoid the worst of it.

3. Further erosion of trust

   • When people see that decarbonisation is adding to their bills, public support for green policies could weaken dangerously.

4. Short-term political budgeting over climate strategy

   • It suggests that Treasury decisions are still dominated by short-term fiscal concerns rather than a coherent, long-term net-zero plan.

What Should the Government Do Instead?

To avoid undermining its green ambitions, and to preserve the credibility of pledges like the £300 saving, the government should:

• Restructure cost recovery so that network and climate-policy costs fall more on consumption than fixed standing charges, particularly for low-use customers.

• Target decarbonisation levies more fairly, using progressive mechanisms or exemptions for low-income households.

• Reform standing charges to better reflect network usage and avoid penalising low- or off-peak consumers.

• Communicate clearly about why standing charges are rising and how they will deliver long-term value (network resilience, lower emissions, cleaner local grids).

• Tie energy affordability relief to green transition, ensuring that subsidies, taxes and protections are designed to support low-carbon switching, not hinder it.

Conclusion

The upcoming 0.2% cap rise might look modest, but the devil is in the details. Rising standing charges, higher electricity unit costs and falling gas rates create a deeply perverse set of incentives at a time when the UK needs people to switch to electric heating, clean transport and distributed renewable power.

Rather than penalising its cleanest energy users, the government should take this opportunity to reform how energy costs are shared, to restore coherence to its climate policy and to deliver on its commitment to both green transition and lower bills.

If it gets it wrong, the price cap will not just cap prices, it may cap ambition too. It might also be time to finally listed to the Climate Change Committee, formerly Committee on Climate Change, and remove environmental and social policy costs from electricity bills to make them cheaper for consumers?!