The regulator will consult on introducing an option under the energy price cap to include ‘zero-standing-charge tariffs’ alongside existing tariffs, offering consumers the ability to choose what is right for them.
Some suppliers already offer low- or zero-standing-charge tariffs, but it is not universal, and Ofgem believes more choice is needed for all consumers, including those in debt.
Tens of thousands of consumers responded to Ofgem’s call for input on standing charges. Many asked for standing charges to be removed altogether, saying that reducing or removing standing charges would make it easier for them to manage their bills or pay back debt.
However, there was also evidence that high energy users – often people with health needs – would see their bills rise significantly if standing charges were removed and unit rates increased. For this reason, Ofgem said it was important that consumers had the ability to make the right choice for their own circumstances.
Martin Lewis, founder of MoneySavingExpert.com, 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.
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“The best outcome would be to slash standing charges within the price cap, yet as that’d mean the cost of each unit of energy needed to increase, it’d require the Government to put in special support for vulnerable high energy users – such as those charging electric wheelchairs, or those with illnesses that require a very warm home. That hasn’t happened (yet?).
“Instead, I’m pleased its alternative path follows our submission suggestion of a dual price cap, one as now, a ‘higher standing charge, lower unit rate’, and a new ‘no standing charge, higher unit rate’ version that’ll benefit lower users.”
Richard Neudegg, director of regulation at Uswitch.com, said: “Under Ofgem’s price cap, standing charges have risen 43% since 2019 and disproportionately affect lower-usage households, as these fixed costs make up a higher proportion of their overall bill.
“On the January price cap, dual-fuel households on default tariffs will be paying £338 per year on average in standing charges.
“The promise of more zero- or low-standing-charge tariffs options by next winter could help bring more choice to the market, and might be a good choice for some lower-consumption households. But consumers must beware that the trade-off for lower standing charges will be higher unit rates, so comparing options will be important.”
Consultation on energy debt
The energy regulator is also planning to launch new support for customers struggling with debt.
As part of Ofgem’s plans, some customers could have their debts wiped or have repayments matched to help them clear their arrears.
The amount of money owed to suppliers by customers has nearly doubled in two years, now totalling about £3.8bn.
Ofgem is planning a “debt guarantee” to improve the standard of service offered by suppliers supporting customers in debt, which it said would give households “consistent, compassionate and tailored support”.
Richard Lane, chief client officer at StepChange, said: “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.”
The consultation is open from now until 23 January 2025.
