Lower standing charge tariffs set to be available by end of January, says Ofgem

Energy suppliers will be made to offer at least one tariff with lower standing charges as soon as January under plans confirmed by the industry regulator, but it ditched proposals to remove the fixed costs entirely for some deals.

Ofgem said it wants to give consumers more choice on how they pay standing charges, with the plans set to allow households to pay the costs as part of their unit rate by lowering the daily fixed amount.

If given the go-ahead, the new tariffs could be available by the end of January.

Standing charges are applied daily, regardless of how much energy the customer uses, and are used to cover the cost of supplying energy to homes and businesses.

They also cover the costs of building new network infrastructure and keeping the power on when energy suppliers go bust.

Campaigners say they are unfair because everybody pays the same rate, meaning they make up a far higher proportion of bills for people using less energy.

Ofgem stressed these charges cannot be removed entirely and that they can only be moved from one part of the bill to another, which means they are unlikely to mean lower energy costs.

It said it dropped earlier plans for tariffs with zero standing charges and much higher unit rates, as this could have unfairly impacted consumers with high energy needs, such as those who rely on power for medical reasons.

It is also looking to introduce a minimum usage on to the new tariffs so that those with second homes or properties left vacant for long periods do not disproportionately benefit.

Ofgem is now launching one final consultation on the plans, with aims to make a decision by the end of the year, paving the way for the new tariffs to be available to everyone across Britain by the end of January.

Tim Jarvis, director general of markets at Ofgem, said: “We’ve listened to thousands of consumers that wanted to see changes to the standing charge and taken action.

“We have carefully considered how we can offer more choice on how they pay these fixed costs, however we have taken care to ensure we don’t make some customers worse off.

“After examining all the options available to us, we believe that the right way forward is to require all major suppliers to offer at least one tariff with a lower standing charge.

“This will deliver the choice we know customers want, without having a detrimental impact on customers that have high energy needs.”

But he added: “We cannot remove these charges, we can only move costs around.

“These changes would give households the choice they have asked for, but it’s important that everyone carefully considers what’s right for them as these tariffs are unlikely to reduce bills on their own.”

It comes ahead of a 2% rise in energy costs when the next price cap change takes effect on October 1, which will see the bill for a typical household rise from £1,720 to £1,755 a year.

Martin McCluskey, minister for energy consumers, said: “Consumers should have freedom and choice when choosing an energy tariff that works for them.

“This proposal will make more tariffs available on the market, giving people more options to pay lower standing charges if that suits their needs.”

Ofgem said the new lower standing charge tariff mandate would be likely to only be a short-term measure while it moots permanent changes to allocate costs within the system, as the UK shifts towards renewable energy.

Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said it was a “small step forward” and called on the industry to make sure that households “properly understand the deals they are signing up for”.

“This development doesn’t negate the need for long-term reform to make the system fairer,” he added.