Chancellor to Scrap Gas Standing Charges Amid Concerns Over Squeezed Middle

Chancellor John Healey is set to eliminate standing charges on gas bills for approximately 23 million households as part of an upcoming budget, a move intended to provide relief on energy costs. These charges, which are a fixed daily fee independent of energy usage, typically cost households around £108 annually.

The Treasury announced that Healey will direct regulator Ofgem to remove these charges by 2027, or sooner if possible. This change is anticipated to save about 60% of families up to £45 per year.

However, Martin Lewis, founder of MoneySavingExpert, expressed concerns following a meeting with the Chancellor, suggesting that while the standing charge is being addressed, four in ten households might still see an increase in their overall bills due to a corresponding rise in unit rates. Lewis indicated that the support measures in the budget are likely to be directed towards the poorest in society, potentially including an increase in the Warm Home Discount, a £150 payment for those on benefits.

Other experts have also noted that this adjustment could disproportionately affect pensioners and larger families who tend to consume more heating energy. Richard Neudegg, director of regulation at Uswitch.com, stated that based on current rates, households with lower gas consumption could see savings, while those with higher usage might be worse off. A household with typical consumption is not expected to see a significant change.

Consumers are facing a challenging winter as energy bills have already risen, with Ofgem's price cap increasing by 4% in October. Forecasters predict a further jump of nearly £300 from January, with Cornwall Insight forecasting a 16% rise to £1,999 per year.

As a temporary measure, the government has removed the 5% VAT from electricity bills until March 31 of next year, offering a saving of around £45. However, a 5% VAT rate remains on gas bills.

Concerns exist that the cost of standing charges, which cover the delivery and maintenance of gas and electricity infrastructure, could be shifted to the unit rate, potentially leaving low-income consumers who use substantial energy at a disadvantage. The Treasury has stated that targeted mitigation will be provided for a small number of households negatively impacted.

Healey is also reportedly planning to move green levies from energy bills to general taxation. In a video message, the Chancellor stated the budget aims to provide households with breathing room on everyday costs, offer targeted support for businesses, and initiate long-term solutions for energy expenses. He acknowledged the current economic difficulties but pledged responsible changes within Labour's fiscal rules, which include balancing day-to-day spending with taxes and reducing public debt as a share of the economy by 2029-30.