Ofgem issues update on 'unfair' standing energy charges which add £300 to bills

Ofgem has proposed that energy suppliers must offer tariffs with no standing charges for households in financial hardship. This initiative is among several measures suggested to improve support for those battling with energy debt.

All energy companies would be required to provide these zero standing charge options alongside their current tariffs. The standing charge, a fixed cost on energy bills, is applicable regardless of gas and electricity usage, covering expenses like maintenance of energy grids.

The charge varies across the UK regions. At present, a few suppliers have low or no-standing charge tariffs, but they are not widely available.

This proposal by Ofgem will undergo consultation in the next few months and could become effective "next winter." The review of standing charges started last year with an online consultation that witnessed input from over 30,000 participants, including customers, consumer groups, charities, and figures such as the journalist Martin Lewis. Lewis has criticized the standing charges as "unfair" and a "moral hazard", stating they contribute about £300 to most people's annual energy bills, reports the Mirror.

According to Ofgem, a significant majority of respondents facing arrears mentioned that reducing or removing standing charges would aid in managing their bills and repaying debts.

However, the report also highlighted that there is evidence of potential harm to some extremely vulnerable consumers who are high energy users - often due to medical and health needs - if the fixed costs currently covered by standing charges were shifted to unit rates. This could result in a significant increase in their bills.

The regulator also outlined its debt strategy, aiming to address the escalating impacts of rising debt in the energy system. This includes ensuring a "consistent approach" when evaluating a customer's ability to pay, with these decisions made in collaboration with UK debt charities.

Ofgem stated that energy suppliers will also need to provide their customers with "greater clarity" on the support available regarding energy debt. This would help "limit the risk of consumers falling into debt initially, and prevent "unsustainable levels of debt accumulating in the future."

In addition, Ofgem has proposed measures to tackle debt accrued during the energy crisis, when bills soared to unprecedented levels. The regulator says the level of debt accumulated during that period has become "unsustainable" and necessitates a "bespoke, one-off solution to tackle it."

Other proposed changes put forward last year include: Tim Jarvis, director general of markets at Ofgem, commented on the proposed changes to energy billing: "Lots of people feel this charge is unfair, especially in areas where the standing charge is higher.

"Our proposed changes will offer customers the chance to transfer that cost over to the unit price they pay for gas and electricity – meaning they'll have more control over their bills than ever before. We don't want to impose a one size fits all approach and move standing charges to unit rates for everyone – we know that doing so would be harmful for lots of vulnerable high use consumers, including people with medical equipment in the home.

"By ensuring suppliers have to provide the option of a no-standing charge tariff, however, we're giving people the option – and more choice and control over their energy bills than ever before. It's really important to remember though that moving the costs covered by standing charges to unit rates will mean you will pay more for each unit of energy.

"If you can keep your costs down that will help but if you use a high amount of energy, it may not, so households should think carefully about what works for them. If you don't want to pay a standing charge, you shouldn't have to.

"But if keeping it leads to lower bills, you can. "