The increase in employer National Insurance Contributions (NICs) was implemented from April 2025, and Ofgem has included a small upwards adjustment for it in the core operating cost allowance within the default tariff cap1. The cap, introduced on 1 January 2019 under the Domestic Gas and Electricity (Tariff Cap) Act 2018, protects 22 million default tariff and standard variable tariff customers1.
Ofgem set out the change in its May 2025 decision on operating cost and debt allowances, which concluded a review signalled in May 2023 and consulted on in December 20241. The regulator said it considered it appropriate to allow recovery of employer NICs costs because the change results from economic policy and is passed through to suppliers1.
"Secondly, we have included a small upwards adjustment for the increase in employer National Insurance Contributions (NICs). In this case, we consider it appropriate to allow recovery of employer NICs costs as it results from changes in economic policy, which is passed through to suppliers."
The NICs adjustment sits within a package that Ofgem says reduces the cap by £8 per customer on average, with the new allowances implemented in the July 2025 cap period (cap period 14b)1. The table below shows the total allowance by payment method, expressed in April 2025 cap prices for comparability1.
| Payment method | Decision values (£ per customer) | Change on current approach |
|---|---|---|
| Direct debit | 280 | -15 |
| Standard Credit | 427 | 9 |
| Prepayment | 288 | -3 |
| Weighted Average | 312 | -8 |
Operating costs, including debt-related costs, currently account for around £300 of an annual household bill for a typical dual fuel customer, according to Ofgem1. The decision also sets a debt allowance of £71 per customer per year, described as a £2 increase versus current allowances and at the bottom of the range consulted on1. Ofgem said the allowance is in place until October 20251.
Why it matters for households
The NICs change reaches households only through the cap, not as a separate charge. Ofgem's allowance lets suppliers recover the employer contributions they pay on their own staff, and the regulator treats this as a cost passed through to them rather than one they absorb1. For a household on a default or standard variable tariff, the effect is folded into the operating cost element of the cap, which is one of several allowances alongside wholesale, network and policy costs1.
The practical consequence is that the NICs increase does not appear as a line on a bill, and its size is not separately reported. Ofgem describes it as a small upwards adjustment within a review whose overall effect is an average £8 reduction per customer1. Households on standard credit see the allowance rise by £9 against the current approach, while direct debit customers see a £15 reduction and prepayment customers a £3 reduction1. How that translates into an individual bill depends on payment method and consumption, and the figures are given at benchmark consumption of 3,100 kWh electricity and 12,000 kWh gas for a dual fuel customer1.
For energy independence in the home, the change does not alter how much energy a household uses or generates, but it does affect the standing charge and unit rate split through which supplier operating costs are recovered. Ofgem said it would continue to spread costs between the unit rate and standing charge while passing on savings from the review to the standing charge1. The cap itself is set under the energy price cap framework, and the allowances are administered by Ofgem as part of its wider regulation and policy role.
What happens next
The new set of allowances, including the NICs adjustment, is implemented in the July 2025 cap period (cap period 14b)1. The debt allowance set in this decision is in place until October 20251. Ofgem said it will keep debt costs under close review and consider further changes if costs depart from allowances in a systematic and material way1. The "float" allowance ends in July 20251.