UK energy firms must offer 'zero' standing charge tariffs - Ofgem

Industry regulator Ofgem on Thursday said the option to have a tariff including no standing charges will have to be available under the quarterly price cap.

Standing charges are applied daily to gas and electricity bills irrespective of usage. Critics have called the fees a “poll tax” on energy consumption as they form a disproportionately large part of bills for people who ration usage.

Under Ofgem’s price cap, standing charges have risen by 43% since 2019, and from January will cost dual fuel households an average of £338 a year - or almost £1 a day after a miniscule cut. The cash raked in by firms is used to pay for running the network.

Public anger at the charges is so high that Ofgem said tens of thousands of Britons replied to its consultation on a shakeup of the industry. Lower-income households are hardest hit because they spend a vastly higher share of their income on energy.

Energy firms have been accused of profiteering during the recent energy crisis – in part caused by Russia’s unprovoked invasion of Ukraine – with bill soaring and consumer debt increasing 91%, hitting £3.8bn in the two years to September.

Some suppliers already offer lower or zero standing charges, but Ofgem said this was not universal.

'UNFAIR' CHARGES

“Many people feel very strongly that standing charges are unfair. 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,” said Tim Jarvis, Ofgem’s director general of markets.

A large proportion of respondents called for a total abolition of the charges, but the regulator said this could disadvantage vulnerable consumers who are high users of energy, often for medical and health reasons, adding that if fixed costs currently covered by standing charges were moved on to unit rates, their bills would rise significantly, it said.

Consumer champion Martin Lewis said the action on standing charges was not the dream outcome but going any further would require government action.

“Standing charges are a £338-a-year poll tax on energy bills,” he said in a statement. “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.”

Lewis, who founded the MoneySavingExpert website, said the best result would be to slash standing charges within the price cap, although he warned that vulnerable high energy users would require financial assistance as this would see the costs passed on to energy prices themselves.

However, the fuel poverty charity National Energy Action called Ofgem’s position “extremely disappointing”, given the regulator had taken more than a year to reach its conclusions.

"All major political parties made promises in their (General Election) manifestos to reduce standing charges. Households that use prepayment meters are particularly impacted by the continuation of high standing charges. While several options to better protect prepayment meter households have been identified, Ofgem has opted to do nothing, leaving vulnerable households in often dire situations," said the group’s director of policy and advocacy Peter Smith.

Reporting by Frank Prenesti for Sharecast.com