Backlash over energy standing charges shake-up

Charities and energy providers have criticised plans to change the way standing charges on bills are paid.

All households pay the fixed daily charges covering the costs of connecting to a gas and electricity supply.

Many billpayers consider them to be unfair as they have no control over how much is charged, prompting the review by the energy regulator Ofgem.

But the regulator’s plans to offer a choice of tariffs that shift these fees elsewhere on people’s bills have been described as complicated and misplaced.

When Ofgem asked for the public’s views on standing charges it received an unprecedented response of 30,000 submissions.

The majority were against standing charges – fixed fees, typically totalling more than £300 a year, that are paid irrespective of how much energy households use.

Under Ofgem’s price cap, standing charges have risen by 43% since 2019.

The regulator said these fees still needed to be paid, but in December announced plans to offer a no standing charge solution.

Ofgem’s proposal is to force energy firms to make a dual pricing offer – with, or without, a standing charge. The tariff without a standing charge would have a higher price for each unit of energy. Both would fall under the existing price cap system.

Now, as it launches a month-long consultation on its proposals, it has explained the no standing charge option could work by:

• Increasing the price of each unit of energy
• Charging in blocks – so customers pay a higher unit rate until a certain amount of energy is used, then a lower price thereafter
• A block system in which customers pay a lower unit rate until a certain amount of energy is used, and a higher price thereafter

The options would give customers “choice and more control” over how they choose to pay for their gas and electricity, according to Charlotte Friel, from Ofgem.

“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,” she said.

But a string of charities, and the energy suppliers’ trade body, have criticised the plans as failing to address the basic cost of standing charges and creating a much more complicated picture for billpayers.

Concerns about the proposals include:

• A failure to reduce standing charges to make them more affordable – the plans simply shift them to another part of the bill
• Concern that vulnerable customers will unwittingly make the wrong choice, meaning they will pay more for their gas and electricity
• No changes to the postcode lottery element of standing charges, where customers pay different standing charges based on where they live in the country
• Added complexity to the system of billing, when the price cap was supposed to act as a backstop to avoid customers who do not switch tariffs being ripped off

“What Ofgem is proposing is more to hide standing charges within the unit rates, even allowing energy firms to charge more for the first units of energy which is completely the opposite from what we actually need,” said Jonathan Bean, from campaign group Fuel Poverty Action.

Peter Smith, from charity National Energy Action, said the system would still be unfair and impact on the most vulnerable.

“We are particularly worried pre-payment meter customers may be left racking up increasingly unaffordable charges, which will continue to need to be repaid in full before they can turn on the lights or run a warm bath for their children,” he said.

Billpayers, charities and suppliers say the proposals also fail to tackle the high cost of energy.

Seventy-six-year-old Betty, who attends a knitting group at a community centre in Islington, said: “It’s just too much. You turn off your heating and you’re cold but the standing charge is still there.

“When I got my bill recently, it was £300 and we’re just two pensioners. It’s too high. You just worry about it. It’s depressing.”

And suppliers’ trade body, Energy UK, agrees that the overall cost should be central to the regulator’s focus.

Customers are collectively £3.8bn in debt to suppliers.

“Right now we’re in record levels of debt. We’ve got huge concerns about affordability and I don’t think the standing charges proposal and new price cap is the way to tackle those big concerns,” said Dhara Vyas, chief executive of Energy UK.