Ofgem proposes new 'no standing charge' Price Cap – but Martin Lewis warns vulnerable customers need to be opted in or it won't work
Ofgem has today launched detailed proposals for a major shake up to its Energy Price Cap that dictates the price over 80% of homes in England, Scotland and Wales pay for their energy bills.
It is a more detailed explanation of its December 2024 plans to introduce a new 'low or no standing charge' Price Cap option, to sit alongside the existing Price Cap. The new tariff that anyone could opt in to would have lower daily standing charges, but that saving would be made up for by a higher cost for each unit of electricity and gas used.
Martin Lewis: 'There is one big hole in what's currently proposed'
This is progress. Standing charges are by far the most complained-about part of an energy bill. It costs in excess of £300 a year just to have the facility of gas and electricity, even if you don't use any.
They're a moral hazard that disincentivises lower users from cutting their bills, and leaves many older people, who only use gas for heating in the winter, still paying for it every day in summer.
However there is one big hole in what's currently proposed. The new 'low or no standing charge' Price Cap option should reduce costs for lower users – my guess is perhaps those paying under £120 a month – but to get it, people have to opt in.
Yet the Price Cap's primary purpose is to protect those who don't, can't or are scared to switch or change tariff – and it's many of those people for whom this option will be most suitable and needed. Thus, there's a risk many vulnerable lower users may miss out.
In our consultation response I will propose that firms must move vulnerable lower users to the 'low or no standing charge' tariff by default (using an opt-out mechanism) if their prior year's usage indicates they would be materially better off on it than the standard Price Cap.
Martin also commented when it was first announced in December 2024:
Martin Lewis, founder of MoneySavingExpert.com, said: While Ofgem's announcement on standing charges isn't the best possible outcome, it's the best outcome that Ofgem can deliver unilaterally, to do more would require government intervention – and that hasn't happened.
Standing charges are a £338 a year poll tax on energy bills, a moral hazard disincentivising lower users from cutting their bills. They also punish customers that only use gas for central heating in winter, many of whom are elderly, by making them pay for every day in summer. It's by far the biggest single subject of complaint I get from the public about energy bills.
The best outcome would be to slash standing charges within the Price Cap, yet as that'd mean the cost of each unit of energy would need to increase, it'd require the Government to put in special support for vulnerable high energy users – such as those charging electric wheelchairs, or those with illnesses that require a very warm home. That hasn't happened (yet?).
Instead, I'm pleased its alternative path follows our submission suggestion of a dual Price Cap, one as now, a 'higher standing charge, lower unit rate', and a new 'no standing charge, higher unit rate' version that'll benefit lower users.
Yet the Price Cap was designed to be a safety-net tariff for customers who don't or can't engage in switching. The problem with presenting a choice of Price Caps is many vulnerable people won't make that choice. So I will be making a representation to Ofgem to ensure firms are mandated to default lower-use Price Cap customers on to the no standing charge tariff – or at least do that for those on the Priority Services Register.
The new option is one Martin has long campaigned for – see Martin's 'Will energy standing charges be cut?' blog for more info.
What Ofgem has proposed in more detail
The new consultation lays out the options currently under consideration for how a low or no standing charge Price Capped tariff would work in practice. These will be consulted on until March 2025.
However, Ofgem says in its proposal that "it cannot remove the costs that make up the standing charge from the system, it can only [be] moved from one part of the bill to another. This means that tariffs without a standing charge will have a higher unit rate. These may be better suited to those who are low energy users but will not automatically equate to a cost saving for all consumers".
The options it sets out include the following versions of the tariff…
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Single unit rate. Here, you'd always pay the same unit rate for gas and electricity, regardless of how much energy you use, plus a zero (or low) standing charge. It's likely the unit rates would be much higher than current standard Price-Capped tariffs.
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Unit rate that falls once you've used a certain amount of energy. Known as a "falling block" tariff, this would see you pay a higher unit rate for your gas and electricity up to a certain level of usage, and then a lower unit rate for everything used after this.
This is currently how energy supplier Utilita's no standing charge tariff works, for example. With its tariff, you pay a much higher unit rate for the first two units of gas or electricity you use each day, then a lower (more normal) unit rate for everything else. -
Unit rate that rises once you've used a certain amount of energy. Known as a "rising block" tariff, this is essentially the reverse of the above option. So, you pay a lower unit rate up to a certain level of usage, then a higher rate for everything else used after that.
However, while these tariffs will be Price-Capped, meaning the rates will be regulated, the current approach is for this to be an option people will need to actively switch to. This differs from the current Price Cap, which acts as the default tariff for those who haven't switched, who've moved home or who've done nothing when their switch ends.
Ofgem has said it plans for this shake-up to be in place in time for winter 2025/2026.
How standing charges currently work
Standing charges are the daily cost you pay for the facility of having gas and electricity, even if you don't use any. The charges have increased significantly over the past two years and can vary hugely depending on where you live.
The average household currently pays 61p a day for electricity and 32p a day for gas – adding, on average, an extra £338 a year to your energy bill. And for those who pay on receipt of bills, these costs are even higher.
We've long campaigned for standing charges to be lowered. In our response to Ofgem's recent "call for input" on standing charges in 2023, we'd suggested that one alternative would be to introduce a new 'no standing charge, higher unit rate' version of the Price Cap instead.
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