UK Government to Scrap Standing Charges on Gas Bills

Chancellor John Healey has announced plans to eliminate standing charges on gas bills, a move expected to offer financial relief to millions of households across the United Kingdom. The Treasury confirmed that Healey will request the energy regulator Ofgem to remove these charges in 2027, or as soon as possible thereafter. Healey stated that this change aims to provide families with "breathing space" and make the energy system more equitable.

Standing charges are fixed daily fees added to energy bills, regardless of energy consumption. These charges are intended to cover network upgrades and other operational costs incurred by energy companies. Under the current energy price cap, the average daily standing charge is approximately 55.83 pence for electricity and 29.68 pence for gas. Annually, this amounts to about £200 for electricity and £108 for gas.

The decision to scrap gas standing charges will impact tens of millions of people. Instead of a daily charge, the cost will be incorporated into the unit rate, which is the price paid per kilowatt hour (kWh) of gas consumed. The government estimates that 60% of households will save an average of £45 per year as a result.

The elimination of gas standing charges is slated to occur by October 1, 2027, or January 1, 2028, coinciding with new energy price cap announcements. Standing charges for electricity bills will remain unaffected.

Impact on Household Gas Bills

Households that consume minimal gas, such as those in smaller homes or with lower heating needs, are expected to benefit most from this change. Experts suggest that shifting gas standing charges to the unit rate is a sensible long-term adjustment, particularly for those who use very little gas or turn off their heating during warmer months. This change could also assist individuals who have transitioned to electric heating but maintained a gas connection, as they will no longer pay a standing charge for a service they do not actively use.

Analysis from Uswitch.com indicates that a household using 7,000 kWh of gas annually could save around £40 under the new structure, based on current rates. Andrew Sissons, a director at Nesta, noted that the measure would provide relief to lower-income households that may ration their gas use. However, he also cautioned that for some households using more gas, switching to electric heating like heat pumps might become a more financially attractive option.

Dr. Craig Lowrey, a principal consultant at Cornwall Insight, commented that the timeline means the change is unlikely to alleviate immediate high costs this winter, and the savings will be modest compared to recent bill increases. Nevertheless, any reduction is anticipated to be welcomed by households struggling with the cost of living. He also suggested that increasing the unit rate for gas could incentivize the energy transition, making alternatives like heat pumps more appealing for high-usage households.

Potential Impact on Larger Households

Larger families or households with higher gas consumption may experience different outcomes. Richard Neudegg, director of regulation at Uswitch.com, highlighted that homes with more occupants typically use more hot water, electricity for appliances, and heating, leading to higher gas usage. When gas standing charges are moved to unit rates, these households will bear a greater portion of these costs. A home using 14,000 kWh of gas annually, considered a high-usage level by Ofgem, could be approximately £25 worse off based on current rates. Less efficient or larger homes consuming more than this could face greater financial impact.

Lowrey added that increased unit rates could lead to higher bills for individuals in poorly insulated homes, larger families, or those who require continuous heating due to health conditions. He stressed the importance of ensuring that vulnerable households, who are intended beneficiaries of this policy, actually experience the expected benefits.

Current Energy Bill Landscape

Energy bills continue to rise, with further increases anticipated next year. The typical annual energy bill, which stood at £1,663, increased by 3.6% on October 1, bringing the average direct debit payment to approximately £1,723 per year. The energy price cap, set by Ofgem for variable rate tariffs, is designed to protect consumers from excessive charges. However, energy prices remain volatile, influenced by geopolitical events such as conflicts in the Middle East, which disrupt supply and increase wholesale costs.

Cornwall Insight projects that the energy price cap could rise by 16%, reaching £1,999, in January 2027, potentially increasing pressure on the government to intervene further. Healey has already indicated that additional energy bill relief measures for low-income households and those on benefits will be announced in the upcoming Budget.