Ofgem confirms major update on ‘unfair’ charges which add £300 to energy bills

Energy suppliers will need to offer tariffs without standing charges to struggling households under plans put forward by Ofgem today.

The energy regulator's plan is one of many proposals to better support households struggling with energy debt. The plan would see all suppliers have to offer zero standing charge tariffs alongside their existing ones.

The standing charge is a mandatory payment on energy bills, and it is paid no matter how much gas and electricity a household uses. It is used to pay for things such as the upkeep of the energy grids, and the amount varies depending on where you live in the UK.

Currently, some suppliers already offer low or no-standing charge tariffs, but they are not universal. Ofgem will consult on the idea over the coming few months, with the changes potentially set to be in place "next winter."

Last year, Ofgem started a review of standing charges, which began with an online consultation that received more than 30,000 responses from customers, consumer groups, charities and others. This includes journalist Martin Lewis who has described the charges as "unfair" and a "moral hazard". Martin says that standing charges add around £300 to most people's yearly energy bill.

The regulator said that overall, an overwhelming number of respondents struggling with energy arrears said reducing or removing standing charges would make it easier for them to manage their bills or pay back debt.

However, it also noted that there was evidence of the risk of harm to some very vulnerable consumers who are high energy users – often for medical and health needs – if the fixed costs currently covered by standing charges were moved to unit rates, which would see their bills rise significantly.

The regulator also set out its debt strategy, which aims to tackle the growing impacts of rising debt in the energy system. This includes ensuring a "consistent approach" is taken when assessing a customer's ability to pay with these decisions made with the help of UK debt charities.

Ofgem has said that energy suppliers will also need to give their customers "greater clarity" on what support they can offer when it comes to energy debt. This would help "limit the risk of consumers getting into debt in the first place, and of "unsustainable levels of debt building up in the future."

Alongside this, Ofgem has also announced proposals to address debt built up during the energy crisis, when bills reached unprecedented levels. The regulator says the level of debt built up during that period has become "unsustainable" and requires a "bespoke, one-off solution to tackle it."

Other proposed changes put forward last year include:

• Introducing new rules to make the ability to pay assessments more consistent across suppliers, ensuring that consumers are able to repay their debts in an affordable and sustainable way
• Requiring suppliers to accept debt repayment offers from reputable third parties, such as debt advice agencies or consumer organisations
• Making rules tougher on suppliers' processes for working with third parties acting on behalf of consumers
• Improving how suppliers can help consumers struggling with their bills access additional support they may need from a different organisation.

Tim Jarvis, director general of markets at Ofgem, said: “Lots of people feel this charge is unfair, especially in areas where the standing charge is higher. Our proposed changes will offer customer the chance to transfer that cost over to the unit price they pay for gas and electricity – meaning they’ll have more control over their bills than ever before.

“We don’t want to impose a one size fits all approach and move standing charges to unit rates for everyone – we know that doing so would be harmful for lots of vulnerable high use consumers, including people with medical equipment in the home.

“By ensuring suppliers have to provide the option of a no-standing charge tariff, however, we’re giving people the option – and more choice and control over their energy bills than ever before. It’s really important to remember though that moving the costs covered by standing charges to unit rates will mean you will pay more for each unit of energy.

“If you can keep your costs down that will help but if you use a high amount of energy, it may not, so households should think carefully about what works for them. If you don’t want to pay a standing charge, you shouldn’t have to. But if keeping it leads to lower bills, you can.”

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