The energy regulator Ofgem has proposed new rules that will force energy companies to offer customers tariffs that do not include a standing charge. Currently, only a few providers offer such deals, with the vast majority of households paying the fixed daily charge. Under the proposed changes, all suppliers would need to offer customers a tariff that moves the cost of the standing charge onto energy use rates instead. It would then be possible to choose between paying a standing charge or not, with both options covered by the energy price cap.
The regulator's move comes after pressure to abolish standing charges entirely in the face of the debt owed to energy suppliers soaring by 91% in the last two years to £3.8bn.
What are standing charges?
A standing charge is a flat daily fee paid to a provider in order to connect a property to an energy supply. It is used to fund several costs including maintaining energy infrastructure, fitting new meters and administrative costs such as billing. Essentially, any cost the provider incurs in providing you with energy, excluding the cost of the electricity or gas itself.
No matter how great or small the amount of electricity or gas you use, you will still need to pay the same standing charge. As the standing charge is not affected by how much energy you use, it can be a barrier to consumers reducing costs. It means that a household struggling to pay their energy bill would not necessarily save a significant amount by turning the heating off. One argument for abolishing standing charges is that it will give consumers more control over their bills.
Tim Jarvis, the 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."
Will energy bills go down?
Cutting the standing charge will not necessarily mean bills will go down, as unit rates would need to be increased to compensate. Bills would likely fall for people who have a low level of usage, but those households that require a large amount of energy would expect to see their bills rise without a standing charge because the cost per kilowatt hour of energy would go up.
Among the population who use a significant amount of electricity or gas, there are likely to be many people who do so for medical and health reasons. This could be because they need to power specialist medical equipment, heat their homes more often or use more hot water. Moving away from a standing charge tariff would likely hike their costs significantly. This fuels the argument against ditching standing charges, as it could hurt the most vulnerable households disproportionately.
Whether or not your bills will go down will also depend on where you live, as standing charges vary across the UK. If you live in a high standing charge area, the new system could save you money, though Ofgem have warned that the costs "need to appear in bills somewhere".
This will disappoint many campaigners who want to see more ambitious reform to help significantly reduce the cost of energy for consumers, rather than shifting costs around.
What to do if you are struggling with your energy bills
These proposed changes come at a time when energy consumers are slipping into higher and higher levels of debt. The total owed to suppliers has almost doubled in recent years, though Ofgem has set out plans to address this by next winter. These include new rules to make ability to pay assessment more consistent across suppliers, requiring suppliers to accept debt repayment offers from reputable third parties, toughening rules on on suppliers' processes for working with third parties acting on behalf of consumers, and improving how suppliers can help consumers struggling with their bills access additional support.
We provide some tips if you are struggling to afford your energy bills in our article 'How to save money on your energy bills'. There are also a number of grants and schemes available for those who are most vulnerable. More information and help on the cost of living can be found in our Cost of Living guide.
