Martin Lewis warns of ‘loophole’ in new Ofgem plans to cut energy standing charges for all households
New plans from Ofgem will see energy suppliers made to offer tariffs with low or no standing charges for winter 2025/26, allowing customers to pay the costs as part of their unit rate instead. The energy regulator said it is consulting on bringing in the option under the price cap that would cover so-called zero standing charge tariffs.
Martin Lewis, founder of MoneySavingExpert.com said the latest announcement showed “progress” but pointed out “one big hole in what’s currently proposed”. He highlighted how the ‘low or no standing charge’ Price Cap option should “reduce costs for lower users” but to get it, people will need to opt in and the Price Cap is supposed to protect those “who don’t, can’t or are scared to switch or change tariff”.
READ MORE: Millions of household energy bills predicted to increase by £85 a year from April
The consumer champion said: “This is progress. Standing charges are by far the most complained-about part of an energy bill. It costs in excess of £300 a year just to have the facility of gas and electricity, even if you don’t use any. They’re a moral hazard that disincentivises lower users from cutting their bills, and leaves many older people, who only use gas for heating in the winter, still paying for it every day in summer.
“However there is one big hole in what’s currently proposed. The new ‘low or no standing charge’ Price Cap option should reduce costs for lower users - my guess is perhaps those paying under £120/month - but to get it people have to opt in. Yet the Price Cap’s primary purpose is to protect those who don’t, can’t or are scared to switch or change tariffs - and it’s many of those people for whom this option will be most suitable and needed. Thus, there’s a risk many vulnerable lower users may miss out.”
He added: “In our consultation response I will propose that firms must move vulnerable lower users to the ‘low or no standing charge’ tariff by default (using an opt-out mechanism) if their prior year’s usage indicates they would be materially better off on it than the standard Price Cap.”
Standing charges are applied daily, regardless of how much energy the customer uses, and are used to cover the cost of supplying energy to homes and businesses.
They also cover the costs of building new network infrastructure and keeping the power on when energy suppliers go bust.
Energy UK - a group which represents energy companies like British Gas, Octopus and others - raised concerns around the policy.
Chief executive Dhara Vyas said the plan would “increase the challenges and risks” associated with buying energy in advance for power firms.
And it could increase the “complexity” for consumers, she added, because people would have to make “an active choice” about which tariff to be on and could end up on the wrong plan.
Emily Seymour, Which? Energy Editor, said: "These proposals would give consumers more choice and control over their energy bills but the benefits will depend on your energy usage. If you're a very low energy user, you may save money overall. However, if you use your gas and electricity every day then you'll pay a similar amount to any other variable tariff."
Charlotte Friel, director for retail pricing and systems at Ofgem, said: “We know from the huge response we’ve had that many feel standing charges are unfair. However, we also know that vulnerable, high-energy users - including those who rely on medical equipment at home or low-income families in poorly insulated houses - would suffer disproportionately if these costs were added to the unit rate for everyone.
“That’s why we’re moving forward with plans that will give customers a choice and more control over how they choose to pay for their gas and electricity. We’re looking closely at how these tariffs will work in practice, but everyone will need to carefully consider which option best suits their needs.
“The costs included in the standing charge ultimately have to be paid. But while they may not save everyone money, they will give people a choice, and greater control over their bills.”
The consultation comes after Energy Secretary Ed Miliband urged Ofgem to crack down on rising costs.
Recent forecasts show that the amount people will pay per unit of electricity is set to go up again in April, even if most people’s bills will go down because of less usage.
Ofgem will announce the new Price Cap on February 25.
