Ofgem has decided to remove the deadband from the backwardation allowance in the default tariff cap and will implement the change from price cap period 16b, covering July to September 20261. The decision, published on 21 November 2025, follows an August 2025 consultation on options to reduce cost-recovery risk without raising bills in aggregate or increasing seasonality1.
The deadband is a threshold of £9, split as £4 for electricity and £5 for gas in pounds per customer per quarter, applied symmetrically around zero1. Below it, backwardation costs and benefits are not passed through to customers. Ofgem set the level at £9 because that figure was found to be the standard deviation of historical data centred around zero, and the deadband was first introduced in October 20221. Under the decision, costs and benefits currently inside the deadband will instead be recovered through the cap on a rolling 12-month period, while timelier six-month recovery is maintained for costs above the deadband1.
"We have decided to proceed with our consultation proposal of removing the deadband from the backwardation allowance and allowing costs currently subject to the deadband to be recovered over a rolling 12-month period"
Ofgem said it expects the deadband removal to be bill neutral in the long term1. On the timing, it said implementation in January 2026 would have led to a short-term increase of £9 per dual fuel customer in the January to March 2026 price cap, and that applying £9 of cost recovery over six months could affect any given quarterly cap rate by up to £50 on an annualised basis, depending on the demand share for that cap period1. It estimated the impact of the chosen date as equivalent to a loss to suppliers of £0.28 per dual fuel customer, considerably lower than the forecast cumulative impact on suppliers in either April 2026, at minus £8, or October 2026, at plus £51. The document also cites a £6.2 loss per electricity customer and a £5.9 benefit per gas customer in the backwardation position1.
The consultation ran from 27 August 2025 to 25 September 2025 and drew nine responses from suppliers, one from a consumer group and one from a consumer1. Several respondents asked for the change to be brought in at the earliest opportunity, January 2026, to reduce risk exposure and potential losses1. Ofgem said the July 2026 date balances the interests of customers and suppliers, avoiding an immediate short-term increase over the coming winter1.
| Item | Detail |
|---|---|
| Deadband level | £9 (£4 electricity, £5 gas per customer per quarter) |
| Introduced | October 2022 |
| Recovery period after removal | Rolling 12 months |
| Implementation | Price cap 16b, July to September 2026 |
| Consultation responses | Nine suppliers, one consumer group, one consumer |
Why it matters for households
The deadband sits inside the mechanism that sets the price cap, which limits what suppliers can charge households on standard variable and default tariffs1. Because the first £9 of backwardation cost or benefit has not been passed through, some costs have been absorbed by suppliers and some benefits have not reached bills. Removing the threshold means those amounts move into the cap calculation, recovered over a year rather than a single quarter. Ofgem's own assessment is that this is bill neutral over the long term, so the change is not presented as a saving or a cost to households, but as a shift in how and when such amounts appear in the cap1. For a household's energy independence, the practical point is that the cap's treatment of wholesale purchasing differences becomes more predictable, while the quarterly rate may still move for other reasons. The history of cap levels and announcement dates sets out how each period is set.
What happens next
The change takes effect in price cap period 16b, covering July to September 20261. Ofgem said the precise cumulative recovery position at the point of July implementation is subject to change with movements in the forward curve, and that it retains the ability to change the cap methodology if material and systematic issues arise1. It said it may reconsider the removal date if a concerning level of under- or over-recovery emerges, but would not do so lightly given the regulatory uncertainty and additional process it would bring1. No further dates have been reported. Households weighing a fixed tariff against staying on the price cap will see the effect only through the cap rates announced for that period.