British Gas, E.ON, EDF and OVO customers will save £388 per year after a daily fee has been axed.
New plans by energy regulator Ofgem mean that energy suppliers will have to offer household tariffs free of standing charges.
Ofgem says firms will have to offer “zero standing charge” tariffs alongside existing ones by next winter as part of a move to address growing household energy debt.
Under Ofgem’s price cap, standing charges have gone up 43% since 2019 and from January next year will cost dual fuel households an average of £338 per year.
Standing charges are a fixed daily amount that is added to your energy bill by suppliers, regardless of how much energy you use.
Currently, households on a standard variable tariff pay 24.5p per unit on average with a standing charge of 60.99p per day, while for gas the average is 6.24p per unit with a standing charge of 31.66p per day.
As such, if standing charges were scrapped today it would mean households would save £388 on average per year.
Standing charges will decrease slightly to 60.7p per day for electricity and 31.65p per day for gas from January 1, but some suppliers already offer low or no standing charge tariffs at all. These are at least 10% below the price cap but they do have a higher unit rate, which means they are more likely to benefit customers who use less energy.
Ofgem said tens of thousands of consumers had called for standing charges to be axed altogether, but those who use a lot of energy – often for medical and health reasons – would see their bills rise significantly, so it decided it was important for households to retain a choice of tariff.
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.
“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.”
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 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 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.”
