British households are paying the fourth-highest electricity prices in Europe, even after the government announced it will cut VAT on domestic power from 5% to zero this October. Analysis from the BBC shows that medium-use households in the UK faced some of the steepest bills in the second half of last year, including taxes and levies.
Three structural factors explain why. First, the wholesale price is set by the most expensive generator needed to meet demand — often gas-fired plants, which pay a carbon price and buy fuel. Even when gas supplies just 1% of electricity, it can set the price for every kilowatt-hour sold, a quirk that has worsened since wars in Iran and Ukraine pushed up gas costs.
“UK households pay fourth-highest electricity prices in Europe due to gas-linked pricing, high gas reliance, and rising grid costs.”
Second, the UK generates a relatively high share of its power from natural gas: 31% in 2025. In France, which relies on nuclear for 69% of its electricity, gas accounts for only 3%. The US burns even more gas (40%) but American wholesale prices are far lower, thanks to two decades of shale production.
Third, network costs have risen sharply. State subsidies to encourage private investment in wind and solar farms, plus spending to expand and modernise the grid, are added to household bills. The wholesale energy component of a typical bill increased from £311 in 2024-25 to £320 in 2025-26, but network costs have also climbed as the grid is rebuilt to carry renewable power to homes and businesses.
The VAT cut, due in October, will offer some relief, but analysts point out that the underlying pricing system and the country's energy mix mean British households will continue to pay a premium for power — a cost driven by the very market designed to encourage competition.