Energy suppliers will have to offer customers a “zero” standing charge tariff by next winter to address criticism of the daily fees described by the consumer champion Martin Lewis as a “poll tax” on gas and electricity bills.
Ofgem, the energy regulator for Great Britain, said the zero standing charge option will be offered by suppliers under its quarterly price cap, alongside existing tariffs, as part of an industry shake-up.
Some suppliers already offer low- or no-standing charge tariffs but the regulator said the practice was not universal. The intervention comes at a time when households are struggling to clear what they owe with the level of debt and arrears reaching £3.8bn in September, up 91% in two years.
“Many people feel very strongly that standing charges are unfair,” said Tim Jarvis, the director general of markets at Ofgem. “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.”
Standing charges are flat daily fees, often likened to phone line rentals, that are charged for a gas and electricity connection and added to consumer bills regardless of how much or little energy is used. This makes them controversial – tens of thousands of Britons responded to a call for input as part of Ofgem’s consultation – as lower-income households spend a much higher share of their income on energy.
The money raked in by the charges covers non-energy costs in the industry – including maintaining the infrastructure that gets electricity and gas to homes, billing and fitting smart meters. The charges also helped pay for cleaning up the mess after 30 suppliers went bust during 2021 and 2022.
Many of the consumers who responded to Ofgem wanted standing charges to be abolished entirely. However, the regulator said this could disadvantage vulnerable consumers who are high users of energy, often for medical and health reasons. If the fixed costs currently covered by standing charges were moved on to unit rates, their bills would rise significantly, it said.
The 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,” Lewis said. “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.”
The founder of the MoneySavingExpert website said the best outcome would be to slash standing charges within the price cap but, as that would mean increasing the cost of each unit of energy, vulnerable high energy users would require financial assistance.
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Lewis said he was “pleased” at the prospect of a dual price cap: one with a higher standing charge and lower unit rate, and a new “no standing charge, higher unit rate” version that would benefit lower energy users.
However Peter Smith, the director of policy and advocacy at the fuel poverty charity National Energy Action, was not impressed. After taking over a year to consider how to make the system fairer that lack of significant reform by Ofgem was “extremely disappointing”, he said.
“Households that use prepayment meters are particularly impacted by the continuation of high standing charges,” said Smith. “When their credit has been used up, standing charges accrue as a debt on the meter that must be cleared in full before accessing energy again.”
