Martin Lewis points out 'problem' with new 'zero standing charge' energy tariffs

Martin Lewis has pointed out a 'problem' with plans for a new Ofgem price cap set to have 'zero standing charges'.

Standing charges are fixed daily charges added to a household's energy bills which pay for the fixed costs of supplying energy to homes.

Ofgem, the energy regulator, has announced plans that would require suppliers to offer household tariffs that are free of standing charges alongside the standard price cap. The regulator said it wants energy firms to start offering the new tariffs by next winter as part of its plans to address ballooning household energy debt.

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Under Ofgem’s price cap, standing charges have risen by 43 per cent since 2019, and from January will cost dual fuel households an average of £338 a year. The charges disproportionately affect those who use less energy as the fixed costs make up a higher proportion of their overall bill.

Money saving expert Mr Lewis has welcomed the news after campaigning for Ofgem to introduce a dual price cap to address the issue of high standing charges. He said the "best outcome" would be lowering standing charges for everyone, but that would require the government to intervene to ensure vulnerable people were not left worse off.

However, Mr Lewis did point out a 'problem' with the new 'dual cap' system and urged Ofgem to ensure vulnerable people are placed on the correct tariff.

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 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.

"Yet the Price Cap was designed to be a safety-net tariff for customers who don't or can't engage in switching. 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."

Since October 1, households on a standard variable tariff that pay for their electricity by direct debit have paid on average 24.5p per unit, with a standing charge of 60.99p per day. For gas, the average has been 6.24p per unit with a standing charge of 31.66p per day. From January 1, average standing charges will decrease slightly to 60.97p per day for electricity and 31.65p per day for gas.

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.

“Today we’re setting out the next steps in what Ofgem can do to meet these challenges, as part of our work to make sure the energy market is working in consumers’ interests.

“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.”