UK Considers Axing Gas Standing Charges Ahead of Budget
Chancellor asked to explore feasibility of removing daily fees from energy bills, a move that could benefit lower-income households.
Scrapping standing charges on gas bills may be considered for millions of Britons in the upcoming Budget, as requested by Andy Burnham, the Mayor of Greater Manchester. Burnham has urged Chancellor John Healey and Energy Secretary Miatta Fahnbulleh to investigate the feasibility of eliminating these charges "at the earliest opportunity."
Standing charges are fixed daily fees applied to energy bills, regardless of energy consumption. These charges are intended to cover costs such as network upgrades and other operational expenses incurred by energy companies.
Under the current energy price cap, the average standing charge for direct debit payments is approximately 55.83 pence per day for electricity and 29.68 pence per day for gas. Annually, this amounts to around £200 for electricity and £108 for gas.
Experts suggest that the revenue generated from gas standing charges could potentially be recovered through the unit rate of gas consumption. This adjustment would likely result in higher bills for households that use more gas, while benefiting those who consume less.
Research by the foundation Nesta indicates that shifting these costs to the unit rate could save households approximately £27 per year on average. The analysis further suggests that 86% of lower-income households would see financial benefits from abolishing the gas standing charge, compared to only 24% of the wealthiest households.
Madeleine Gabriel, director of sustainable future at Nesta, stated that removing the gas standing charge and reallocating its costs to the unit rate would particularly aid those most affected by rising energy prices, as the standing charge disproportionately impacts lower-income households.
Ofgem, the energy regulator, has previously explained that standing charges are necessary to cover the costs of maintaining the energy supply infrastructure, including wires, pipes, and the operational aspects of energy businesses.
Chancellor Healey has previously indicated that the forthcoming Budget will include additional support measures for low-income individuals and those on benefits. It is anticipated that the Warm Home Discount Scheme, which currently provides £150 to eligible individuals, could be increased to £250, at an estimated cost of £600 million. This change would benefit approximately six million people.
Earlier, the Labour party had implemented a six-month suspension of VAT on electricity bills, leading to an average saving of £45 per household.
Typical annual energy bills, which were around £1,663, saw a 3.6% increase on October 1, bringing the average direct debit payment to approximately £1,723 per year. The energy price cap, set by Ofgem, is designed to protect consumers on variable rate tariffs from excessive charges.
However, energy prices remain susceptible to market volatility and geopolitical events, such as conflicts in the Middle East that have impacted wholesale prices. Projections from consultancy firm Cornwall Insight suggest a potential 16% rise in the energy price cap by January 2027, which could further strain household budgets and increase pressure on the government for intervention.
In a separate development, the government approved the new Jackdaw gas field in the North Sea, though it has been acknowledged that this project will not directly reduce current energy bills.
Standing charges for electricity are notably higher than those for gas. A decade ago, electricity standing charges were between 15p-20p daily, significantly lower than the current price cap of 55.83p per day.