Energy firms will be forced to offer households tariffs free of standing charges, under plans being proposed by the energy regulator.
Standing charges are a flat daily fee for being connected to electricity and gas – and cost households hundreds of pounds a year, even if they do not use any energy.
Ofgem has said it wants firms to be ready to offer the tariffs, alongside others, by next winter.
Here’s how the new rules could work.
What are standing charges and how much do households pay?
Standing charges pay for the fixed costs to suppliers of providing energy to homes.
Under Ofgem’s price cap, standing charges have risen by 43 per cent since 2019, and from January will cost dual fuel households an average of £338 a year.
Those who use little energy are hit harder proportionally. This is because they will still have to pay the same standing charges as households that use less gas and electricity.
This often affects people who live alone or are vulnerable and find that lowering their heating usage still does not result in a much lower bill.
Since 1 October, households on a standard variable tariff that pay for their electricity by direct debit have paid on average 24.5p per unit, with a standing charge of 60.99p per day.
For gas, the average has been 6.24p per unit with a standing charge of 31.66p per day.
From 1 January, average standing charges will decrease slightly to 60.97p per day for electricity and 31.65p per day for gas.
Customers on prepayment meters face the same standing charges as those that pay by direct debit.
How would the new tariffs work?
Under the Ofgem proposals, customers would have a choice as to whether to take the new tariff, which loads these costs on energy usage charges instead, or stay on their existing one.
Some providers offer these low or no standing charge tariffs already – with the cost of using energy being higher on these deals.
Tim Jarvis, director general of markets at Ofgem, said: “Many people feel very strongly that standing charges are unfair and prevent them from being able to manage their bills effectively.
“We want to give consumers the ability to make the choice that’s right for them without putting any one group of consumers at a disadvantage. And by having a zero standing charge tariff, we would create that choice for everyone.”
The planned changes also raises the possibility of some unpaid bills that built up during a recent high-price crisis to be written off.
What do consumer experts say?
Experts have reacted to the plans with cautious optimism, saying that it is important that the tariffs do not lead to customers who have to have high energy usage being charged more.
Alex Belsham-Harris, Citizens Advice’s head of energy policy, said: “We hear from people who’ve turned off their heating, ration their hot water, and avoid charging essential mobility devices, yet still feel like they’re fighting a losing battle with their energy bills.
“It’s vital that changes to standing charges avoid driving up bills for low-income households who have higher energy needs.”
Martin Lewis, founder of the MoneySavingExpert.com website, said that the best option would be for the Government to legislate so that standing charges within the price cap were slashed, and there was extra protection for vulnerable energy users who required high amounts of usage.
He said: “Standing charges are a £338-a-year poll tax on energy bills, a moral hazard disincentivising lower users from cutting their bills.
“They also punish customers that only use gas for central heating in winter, many of whom are elderly, by making them pay for every day in summer. It’s by far the biggest single subject of complaint I get from the public about energy bills.
“The problem with presenting a choice of price caps is many vulnerable people won’t make that choice. So I will be making representation to Ofgem to ensure firms are mandated to default lower-use price cap customers on to the no standing charge tariff – or at least do that for those on the priority services register.”
Richard Lane, chief client officer at debt charity StepChange, added: “This wide-ranging consultation, geared towards supporting people struggling with energy debt, is hugely welcome.
“We have consistently called for a Help to Repay scheme, alongside sector partners, to help households tackle unaffordable energy arrears that have built up over the past few years – so we’re encouraged to see that a debt relief scheme is being explored. We’re especially pleased to see Ofgem look closely at how to raise standards of support for customers struggling with energy debt and preventing it from escalating.”
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