Ofgem to offer lower standing charge tariffs to households – but energy bills are unlikely to fall

Households are set to be given the choice to pay lower standing charges on their energy bills under new plans set out by energy regulator Ofgem.

The planned change will mean every major energy provider will be required to offer at least one tariff with a lower standing charge. However, Ofgem has warned this change will not necessarily mean energy bills will go down.

Instead, the regulator anticipates that the costs will be moved to a different part of your bill, meaning households who pay a lower standing charge will pay a higher unit rate for their energy.

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If the proposed changes go forward, lower standing charge tariffs will be offered by all suppliers by the end of January 2025, and will be available to all consumers no matter how they pay.

Ofgem recommended households should “consider their circumstances and seek advice from their supplier or consumer groups” to see if switching to a new tariff is best for them.

Tim Jarvis, Director General, Markets, at Ofgem said: “The costs covered by the standing charge ultimately must be paid.”

“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.”

Every household receiving energy has to pay a daily standing charge, no matter if they use energy that day or not. This is then used to cover the fixed costs of delivering energy and maintaining the network.

Under the current July to September energy price cap, the standing charge for electricity is 51.37p per day, while the standing charge for gas is 29.82p per day. These figures will vary geographically, with some consumers paying more than others.

Jarvis said: “We have carefully considered how we can offer more choice on how they pay [standing charges], however we have taken care to ensure we don’t make some customers worse off.”

Jarvis continued: “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.”

Trade body Energy UK has criticised the regulator’s efforts, warning that the change could obfuscate an already-complicated system.

Dhara Vyas, chief executive of Energy UK, said: “We know households have been facing high energy costs for too long now and that recovering all the different costs on the energy bill in a way that is fair to all customers is a difficult balance – which is exactly what Ofgem’s cost allocation review is examining.

“It’s hard to see how pre-empting this with a measure that Ofgem admits will only be temporary and merely move costs around on the bill – so delivering a limited benefit to customers – warrants the potential cost and disruption.”

Instead, Vyas says Ofgem could direct their efforts at examining network costs and consumer debt, adding it is also “crucial” that the government moves forward with plans to introduce targeted bill support and “takes action to bring down bills for all customers.”

How to lower your energy bills

While a tariff with lower standing charges may benefit certain households, Ofgem has said that most people’s energy bills will not go down as a result of this change.

If you want to reduce the amount of money you spend on energy each month, you will likely have to look into alternative options.

Some consumers on a variable tariff may want to explore the possibility of switching to a fixed energy tariff that may bring about some savings, though it is important to note that these are not necessarily guaranteed.

Installing a smart meter may help other consumers reduce their energy bills. While a smart meter itself does not bring about savings, it does help you monitor your own energy usage and can help identify where savings may be made.

The most effective way to lower your energy bills is, quite simply, by using less energy. While this may be difficult on paper, we have a list of 14 ways you can save energy.