New Ofgem plans for energy firms to offer ‘zero standing charge’ tariffs later this year

Energy firms will have to offer household tariffs free of standing charges as an alternative to existing ones under plans by regulator Ofgem. The regulator wants to see suppliers offer ‘zero standing charge’ tariffs alongside other tariffs later this year as part of plans to address ballooning household energy debt.

It is also proposing new standards for suppliers to make it easier for customers who are struggling to pay their bills to get support. Under Ofgem’s price cap, standing charges have risen by 43 per cent since 2019 and over 2025 will cost dual fuel households an average of £338, although they disproportionately affect those who use less energy as the fixed costs make up a higher proportion of their overall bill.

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Since January 1, households on a standard variable tariff that pay for their electricity by direct debit pay on average 24.8p per unit, with a standing charge of 60.97p per day. For gas, the average has been 6.34p per unit with a standing charge of 31.65p per day.

It's important to be aware this varies by region and could be higher or lower depending where you live, you can find out how much it costs where you live on the Ofgem website here.

Standing charges pay for the fixed costs to suppliers of providing energy to homes. Some suppliers already offer low or no standing charge tariffs, which are at least 10 per cent below the price cap, but they are not universal.

However, while these tariffs come with a lower standing charge, they do have a higher unit rate, and are therefore more likely to benefit customers who use less energy.

Ofgem recently said tens of thousands of consumers responded to its call for input on standing charges, with many asking for them to be removed altogether, saying that this would make it easier for them to manage their bills or pay back debt.

But those who were high users of energy, often for medical and health reasons, would see their bills rise significantly, meaning it was important for households to retain a choice of tariff.

Ofgem also set out plans for a “debt guarantee” to improve the standard of service offered by suppliers supporting customers in debt, which it said would give households “consistent, compassionate and tailored support”.

Suppliers could also be required to accept debt repayment offers from reputable third parties such as debt advice agencies or consumer organisations.

It also warned that the level of debt built up during the energy crisis had become “unsustainable”, saying it required a “bespoke, one-off solution to tackle it that will drive down the costs of debt in the long term for the benefit of all consumers”.

Energy debt and arrears have continued to grow, reaching £3.82 billion in September - a 91 per cent or £1.82 billion increase in two years.

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 we took steps to consider all the issues around affordability and debt - including the impact of the standing charge.

“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.”

Commenting last month on the proposals, Martin Lewis, founder of MoneySavingExpert.com, said the best option would be to slash standing charges within the price cap but this would require Government support for vulnerable high energy users.

He said: “Standing charges are a £338-a-year poll tax on energy bills, a moral hazard disincentivizing 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 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.”