Source · Select Committees · Energy Security and Net Zero Committee
Recommendation 12
12
Deferred
Paragraph: 46
Require Government to revise unfair standing charge structure with a consumption-based tariff model.
Recommendation
The current standing charge structure is unfair and regressive and penalises those on lower incomes or who are actively reducing their energy usage. The Government should engage with Ofgem to: • revise the standing charge model and replace it with a rising block tariff (also known as a consumption-based tariff) based on per unit cost, which would correlate costs with how much energy a household uses; • make clear to consumers the breakdown of the standing charge between network costs, operational costs and policy costs; and • remove operational costs from the standing charge, as these should be borne solely in consumer bills. Suitable mitigations should be adopted to ensure that high-need vulnerable groups are not penalised by the removal of a standing charge.
Government Response Summary
The government stated it had already acted to level prepayment and direct debit standing charges until March 2024, and welcomed Ofgem's commitment to find a permanent solution. It largely deflected the core recommendations on revising the standing charge structure to Ofgem, noting Ofgem's ongoing call for input and highlighting potential distributional impacts of removing standing charges.
Paragraph Reference:
46
Government Response
Deferred
HM Government
Deferred
The Government has already acted on some aspects of the cost of standing charges. In the Spring Budget the Chancellor announced that the Government would levelise standing charge costs between prepayment meter and direct debit customers, using the Energy Price Guarantee. This measure will be in place until the end of March 2024, and we welcome Ofgem’s commitment to find an enduring solution to this, following a request from Government, so that the ‘prepayment premium’ is ended on a permanent basis. The Government understands that when households are trying to cut their energy usage to save costs, having a fixed daily element of their bill can reduce their ability to do this. Standing charges are a key component of an overall energy bill and a matter for Ofgem, as the energy regulator. They are designed to recover the fixed costs of providing a live supply to a household. The overall charge is made up of the cost to the supplier of the maintenance of the electricity and gas networks, certain policy costs, metering energy, and some supplier operational costs. On 16 November, Ofgem published a wider call for input on the standing charge, how it is applied to energy bills and what alternatives could be considered. The energy regulator is now asking charities, consumer groups, businesses, bill-payers, and suppliers for their views on the standing charge, and for proposals on alternatives that could replace it. However, removing the standing charge and transferring all costs to unit rates would create distributional impacts and potentially a new inequality – consumers with higher usage (such as those with medical equipment needs) would subsidise consumers with lower usage. The Government will work closely with Ofgem as this work progresses.