Chancellor abolishes standing charges on gas bills to make payments fairer

Credit: HM Treasury

Tens of millions of households will no longer pay standing charges on their gas bills as the Government gives families more control over what they pay and some more breathing space.

A standing charge is a fixed daily fee added on top of a household gas bill, regardless of how much gas has been used. A household could use no gas at all but still must pay the standing charge.

The Chancellor will announce today an end to this unfair and outdated practice. He will ask Ofgem to deliver removal of these charges – which are £108 a year for the typical household on average – in 2027 or as soon as possible after.

Instead, these fixed costs will be paid on the unit rate, which could save 60% of account-holding households around an average of £45 off their annual bill.

Households not seeing an automatic saving will still have better control over their bills without the worry of affording the standing charge, and the government will set out in due course targeted mitigation for a small number of households.

This comes ahead of today’s Budget that will “draw a line in the sand” on a UK energy policy that has seen wrong turns taken for over four decades. The Prime Minister has previously spoken about reforming a broken energy market, so it better serves the public interest, rather than piling costs to bills and leaving British households even more exposed in an uncertain world.

Prime Minister Andy Burnham said: “Abolishing gas standing charges is about basic fairness and giving people more control over their bills. I am determined to reform our broken energy market, so it better serves the public interest.”

Chancellor of the Exchequer John Healey said: “Gas standing charges are unfair and outdated so I am scrapping them to give millions of households a bit of breathing space.

“My Budget will draw a line in the sand on an energy policy that has failed British billpayers for years, letting extra costs on bills pile high and leaving households even more exposed to global shocks.”

Energy Secretary Miatta Fahnbulleh said: “Too many families face unfair charges, so we’re making it easier for people to take control of their energy bills.

“By removing one of the nation’s bugbears – taking standing charges off gas bills, with extra support for those who need it – we’ll give millions of people breathing space.

“Tackling affordability is my number one priority, and I will keep doing everything I can to protect people from unaffordable bills.”

Greg Jackson, Founder and CEO of Octopus Energy Group, said: “This represents real joined-up thinking to make a fairer, more efficient energy system, delivering what customers want – lower standing charges and further improving the ratio of electricity to gas prices. Most customers would see a cut in their gas bills which is crucial, but would also enjoy even higher savings if they can move to heat pumps when it suits them.”

This follows the Government’s VAT cut on electricity bills that came into effect at the beginning of this month which is already supporting households.

It means the Energy Price Cap from October was £45 a year less than it would have been. Around a third of households on fixed tariffs are not affected by the price cap, meaning their electricity prices will have fallen when the VAT cut took effect.

While the government is giving people short term relief on their energy bills, it is also taking action to fix Britain’s energy problems for the long term.

Last week, the Government announced a new Energy Wealth Fund which will support investment in cheap, clean power.