British Gas, Octopus Energy, E.ON and EDF customers could save up to £338 per year after a daily fee was axed.
Energy regulator Ofgem has announced new plans that will require energy suppliers to offer “zero standing charge” tariffs to UK households, alongside existing ones, by next winter.
The move aims to address growing household energy debt and comes after Ofgem received tens of thousands of responses to its call for input on standing charges, with many consumers calling for them to be axed altogether.
Standing charges are a fixed daily amount that is added to your energy bill by suppliers, regardless of how much energy you use and they cost the average dual fuel household £338 per year on average.
The charges have been criticised as they disproportionately affect households that use less energy, as the fixed costs make up a higher proportion of their overall bill.
MoneySavingExpert founder Martin Lewis described the charges as a “£388-a-year poll tax on energy bills”, which disincentivise low energy users from cutting their bills.
Under Ofgem’s price cap, standing charges have gone up 43% since 2019 and from January this year cost the average household £338 annually, with charges on standard variable tariffs costing around 60.7p per day for electricity and 31.65p per day for gas.
But Ofgem’s plans mean suppliers must offer households tariffs that are free of standing charge tariffs, alongside existing ones, meaning customers who switched to one of these tariffs could save up to £338 per year on average based on current rates.
Some suppliers already offer low or no standing charge tariffs at all, but while these tariffs are at least 10% below the price cap they have a higher unit rate so they are more likely to benefit customers who use less energy.
Ofgem said it is important for households to retain a choice of tariff so it has chosen not to remove standing charges altogether, as those who use a lot of energy – often for medical and health reasons – would see their bills rise significantly.
As such, the regulator has decided to instead require energy suppliers to offer zero standing charges tariffs alongside existing ones, giving consumers the opportunity to choose a tariff that suits them.
Tim Jarvis, director general of markets at Ofgem, said: “We know that many households continue to struggle with bills after the events of the energy crisis, which is why earlier this year, we took steps to consider all the issues around affordability and debt – including the impact of the standing charge. 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.”
Martin Lewis, founder of MoneySavingExpert.com, said the best option would be to slash standing charges within the price cap but this would require government support for vulnerable high energy users.
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.”
