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Martin Lewis slams energy bill standing charge changes

Jade Wright Profile Image
By Jade Wright Personal Finance Writer
Martin Lewis has branded Ofgem proposals as 'disappointing' <i>(Image: PA)</i>
Martin Lewis has branded Ofgem proposals as 'disappointing' (Image: PA)
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Martin Lewis has given his verdict on changes to energy bills which could see lower standing charges as 'disappointing' and 'watered down'.

In a Tweet, he said today: "How disappointing! There was a chance to see a proper mandated low Standing Charge option to benefit many, and while I hope I’m wrong, it looks like Ofgem may be about to somewhat smother it with the pillow of bureaucracy.

"I get more complaints about Standing Charges than anything else in energy bills. It’s like a poll tax where people must pay £300+ a year just for the facility of having gas & electricity even if they don’t use it.

"This moral hazard disincentivises people from cutting their usage, and punishes especially older people who only use their gas during the winter. Having campaigned for years to get the Price Cap’s Standing Charges lowered, once it became obvious that had failed, I proposed a dual Price Cap.

"One as it is, and another option with no or a low Standing Charge, and proposed that vulnerable users should be defaulted to whichever was best for them (lower users are the ones who benefit from no Standing Charges). Ofgem was warm to this at first, and agreed to ask for wide input on the basis of this idea.

"Now, at the next stage of consultation, it seems to have substantially watered that down. While a low or no Standing Charge tariff option is an improvement, and will benefit some users, the core problem is it doesn’t look like it’ll be under the Price Cap mechanism."

What is the issue with standing charges?

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.

Martin adds: "That leads to two big possible problems: 1) There is no limit to what firms can charge, so they could wipe the Standing Charge, but increase the unit rate far above what is needed to compensate for it.

"2) Those most in need of this option - vulnerable low users - tend not to switch tariffs. While the Price Cap has unfortunately become a default price for many, the reason it was set up was as a backstop tariff for those who don’t or can’t engage in the market. Mandating a low Standing Charge switchers tariff outside the Cap won’t help them.

"Add to that the fact it is proposing a minimum usage level to try and cut out second home owners, which could wrongly capture many very low users and overall I worry Ofgem has picked an easy route to appease suppliers’ concerns, that doesn’t help the most vulnerable.

"I suspect if it goes ahead like this, not enough people will switch and they’ll say ‘it wasn’t worth it’. We will robustly be pushing back in response in the consultation."

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.

But, campaigners have said it is only a "small step" and more must be done.

Simon Francis, coordinator of the End Fuel Poverty Coalition , says: “Requiring suppliers to offer a lower standing charge tariff is a small step forward, but it is not a cure for people struggling with high energy bills and fuel poverty. 

"Prepayment meter customers in particular face the greatest detriment from high standing charges, which build up as debt even while people are not using any energy at all. To make a difference, these tariffs must be available to everyone and they must be easy to compare with existing deals.

"The energy industry must make sure that households properly understand the deals they are signing up for - and if a lower standing charge option will benefit them or not. 

"And this development doesn't negate the need for long term reform to make the system fairer, provide support for households struggling with high energy costs, improve the energy efficiency of people's homes and increase our energy security through more homegrown renewable power.”

When will the standing charge get lower?

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.

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.”

Millions are struggling to pay their energy bills(Image: Getty Images)

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.

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Martin McCluskey, minister for energy consumers, says: “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.

“It is an important step towards building an energy market that puts families first and we will continue to look at how we can go further.”

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.

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