New report reveals energy standing charges set to hit new high

Energy standing charges are set to reach their highest level since the Ofgem price cap was introduced in 2019, according to a report published last week. 

The new level of the Ofgem price cap for energy, which came into force on 1st April, sees standing charges for energy customers rise by 50%.

This comes as the number of UK households in fuel poverty is set to increase from 6.7m to a new high of 7.5m from 1st April, according to figures from fuel poverty charity National Energy Action (NEA).

Despite widespread assumptions, energy bills are rising on 1st April. The government is keeping the Energy Price Guarantee, which sets the annual bill for typical households at £2,500. But, as well as the standing charge increase, the government is ending the Energy Bills Support Scheme payments of £67 a month, meaning energy bills for average households will increase by 40% a year.

The new report, produced by Ideal Economics and commissioned by NEA, notes that despite the cost of failed energy suppliers largely being paid off, multiple decisions taken by the energy regulator Ofgem have led to standing charges soaring.

The new report highlights that high standing charges disproportionately affect low-income households, in particular prepayment customers. The report concludes that:

• Low-income households spend less on energy, so a higher proportion of what they pay goes on the standing charge and buys them no energy
• The lower spending of households with low incomes means that having to pay higher standing charges constitutes a significant cost increase that accentuates the effect on the amount of energy they can buy
• A standing charge of £350 per annum accounts for 41% of what those in the poorest 10% of households have available to spend on energy, leaving them with just £508 worth of gas and electricity every year

Adam Scorer, Chief Executive of NEA, said: ‘For years, the standing charge has been growing. It makes life worse for low-income households who cannot afford the cost of a warm, safe home and have no choice but to cut back on their energy consumption.

‘Despite the UK Government’s recent commitment to freeze the level of the Energy Price Guarantee from 1st April, standing charges will reach record levels. The regulator controls how costs are passed through to consumers. We know that low-income households lose out the most from its default approach to standing charges. It is high time for change.’

In the Budget on 15 March 2023, the government announced that from July 2023 to March 2024 it will compensate prepayment customers for the higher standing charges they face relative to those who pay by direct debit. This will cost the taxpayer £200 million.

However, prepayment customers still have to pay this extra for the three months until July, standing charges will remain very high for all consumers, and it is unclear what will happen from April 2024. The report’s Author David Osmon, of Ideal Economics, said the current approach leaves more than 13% of the typical dual fuel energy bill being unavoidable. Even desperate efforts to slash virtually all households use of energy aren’t enough to stop prepayment meters from racking up increasing daily charges.

Osmon added: ’Forced prepayment installations have been widely condemned but the fact that prepayment customers pay significantly more than other customers because their standing charges are so high has attracted less attention. The government is spending £200m of taxpayers’ money to take the edge off this for nine months but the sharp increase in standing charges in recent years is the result of a series of policy decisions by Ofgem, which have consistently favoured the energy companies over the interests of the most vulnerable consumers.’

Image: Mykola Makhlai