British Gas customers could slash up to £338 off their energy bills per year after a daily charge was axed.
Energy regulator Ofgem has unveiled plans that will mandate energy suppliers to offer tariffs with ‘low or no standing charges’, allowing customers to instead pay the costs as part of their unit rate instead.
Ofgem is currently consulting on bringing in the option under the price cap that would cover so-called zero standing charge tariffs, with the aim of making these tariffs available in time for winter this year.
Some energy suppliers already offer low or no standing charge tariffs, but these aren’t universal, so the regulator says more choice is needed to better support customers.
Standing charges are a fixed daily amount that is added to energy bills by suppliers, regardless of how much energy you use and they cost the average dual-fuel household £338 per year on average.
But under Ofgem’s plans, suppliers will be made to offer zero standing charge tariffs to households – alongside other tariffs – by this winter, meaning British Gas customers who switched could make an annual saving of up to £338.
Standing charges are used to cover the cost of supplying energy to homes and businesses, and they also cover the costs of building new network infrastructure, and keeping the power on when energy suppliers go bust.
But campaigners have branded them unfair as everybody pays the same rate, meaning they make up a far higher proportion of bills for people who use less energy.
Ofgem said tens of thousands of consumers responded to its call for input on standing charges, with many calling for them to be scrapped altogether to make it easier to manage bills or pay back debt.
But the regulator said it’s important for households to retain a choice of tariff so it says standing charges won’t be removed altogether, as those who use a lot of energy – often for medical and health reasons – would see their bills rise significantly.
Ofgem instead plans to mandate energy suppliers to offer zero standing charges tariffs alongside existing ones so that consumers have the opportunity to choose a tariff that best suits them.
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, with recent forecasts showing 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.
Martin Lewis, founder of MoneySavingExpert.com, 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 disincentives 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.”
Lewis said Ofgem should move vulnerable customers who do not use much electricity to a “low or no standing charge” tariff by default, using an opt-out mechanism, so that people do not miss out on savings.
