Standing charges to rise from April

 

Ofgem announced last week that energy prices will fall from 1 April, with the average household set to save £238.

However, the savings were quickly offset with news that standing charges will increase from the same date, with millions set to shell out an extra £219 a year.

Currently the average standing charge for electricity is 53.35p a day, which will increase to 60.1p. While gas standing charges will rise to 31.43p from 29.6p.

The cost of standing charges has increased significantly since the summer of 2021, with electricity soaring by 219% and gas 16.4%. Electricity’s huge rise has been blamed on suppliers passing on increased costs to customers through standing charges instead of raising unit costs.

But it’s better news for households using prepayment meters. Their standing charges are set to fall, with Ofgem confirming these households will no longer pay a standing charge premium.

Prepayment meters are typically used by those on the lowest income to help manage energy costs and debt.

Historically, prepayment customers have paid more than by direct debt customers because it costs suppliers more to get electricity and gas to them.

This practice will stop from 1 April, with prepayment households - who get their electricity and gas from the same supplier - saving around £49 a year.

The saving is being offset by a £10 rise in direct debit payments.  

What are standing charges?

Every household must pay a standing charge on top of the flat daily rate they pay for gas and electricity.

The fee is essentially a service charge that covers the cost of keeping your home connected to the energy network.

Everyone pays the same standing charge regardless of how much energy they use. This is why charities and campaign groups say it penalises those on a low income because you are still charged it even if you choose to keep your consumption low.

Why have electricity standing charges increased so much?

Electricity standing charges have risen sharply because suppliers are now having to pay more fixed costs and are passing them on to customers in the form of standing charges rather than a unit base cost.

There was also a sharp rise in electricity company failures in 2021 and 2022 and the cost of administering recovery for customers was included in the rises.

Would it be fairer for standing charges to be on a consumption scale?

Standing charges are disproportionally unfair on low-income households and those who use less energy to save on bills.

Ofgem is looking at reforming the way standing charges are charged. It has analysed different scenarios and the impact that each one would have on different households. But there is no straightforward solution.

For example, if it moved standing charges on to a unit rate those with lower usage would pay less, with higher users contributing more.

However, millions of low-income households who use large amounts of energy for medical reasons, would also see their bills soar.

And if standing charges were scrapped completely, suppliers would still have to cover their costs in other ways, which would mean charging a higher price for every unit of power used.

The call for responses on standing charges closed in January and Ofgem’s findings are due later this year. It remains to be seen if and how they will make standing charges more palatable.