1 October 2025
STANDING CHARGES ARE HERE TO STAY
MAKING ENERGY BILLS EVEN MORE COMPLICATED
Summary
After nearly two years of consultation and thought, the energy regulator Ofgem has decided not to scrap standing charges for electricity and gas.
Instead it plans to make suppliers offer one tariff from January 2026 which has lower standing charges - reduced by either £150 or £200 (it is consulting on which) below the current level of £320 a year for those who have both gas and electricity.
Customers who use less than a quarter of the average use will be excluded from the lower standing charges.
Suppliers will be expected to recover the cost of reducing standing charges by raising the price of each unit of gas or electricity used. Ofgem will not cap those higher unit charges but they must be 'reasonable'.
Details
The 22,000 word consultation paper setting out Ofgem's intentions was published on 27 September. Technically it is another consultation paper. But clearly the regulator has come to a fairly settled view of what it intends. If the changes are to happen in January, as it plans, it must announce them on 25 November with the January price cap. The consultation lasts until 22 October.
Lower standing charge
The standing charge reduction will be the same amount across all payment types even though standing charges vary from region to region and are higher for those who pay quarterly.
The amount will be split between the two fuels. Ofgem tells me that will mean a reduction in electricity standing charges from the current average of £196 by between £65 (33%) and £90 (46%). And a reduction in gas standing charges from current average of £124 a year of between £85 (69%) to £100 (80%). The reduction is less for electricity than for gas because electricity standing charges contain many more additional costs for elements such as green schemes and discounts for low income customers which will remain with the electricity standing charge. I am not quite sure yet why the maximum reduction per fuel of £100 + £90 does not come to the overall cut of £200!
The electricity standing charge reduction will be the same for the 4.4 million households who are not connected to the gas grid. About half of them use electricity for their heating - the rest use oil or LPG.
Excluding low users
Ofgem plans to exclude low users from the reduction in standing charge. It calls this a minimum consumption threshold which is intended to ensure the lower standing charges will not benefit those with second homes or perhaps have a separate supply for an outhouse or garage.
However, Ofgem admits it will also exclude from the lower tariff 446,000 consumers many of whom are on low incomes. Most quarterly payers (standard credit consumers) are pensioners and many prepayment meter (PPM) customers are on low incomes.
It plans to set the threshold to get the lower standing charges at 666 kWh a year for electricity and 2836 kWh for gas. Those rather odd numbers are the equivalent of 90 days usage at the rates of 2700 kWh for electricity and 11,500 kWh for gas which it says are 'typical' of users who have both fuels and pay by direct debit. It uses those figures to turn its price cap into a typical 'annual bill'.
Currently the threshold will be a cliff-edge - at those levels you will get it, one unit below and you will not. So someone using the threshold amounts will get the standing charge discount but someone who boils one less kettle of water or takes one less shower in a year will lose it. In theory it will be possible to cut usage by just 26p worth of electricity and 7p worth of gas and lose the whole £150 or £200 reduction in the total standing charges. Ofgem told me it is "not currently proposing a sliding scale but may consider this further as we move towards a decision".
Higher unit rates
Ofgem has been at pains to stress that its proposals do not cut overall prices they just shift them around. So overall customers who take the lower standing charge tariffs will pay the same because the the rates they pay per unit will be higher.
These higher unit rates will be above the capped rates set by Ofgem and will not themselves be capped or subject to any specific restrictions. Ofgem simply says they must be 'reasonable' taking account of the cost of supplying energy to the customer and what it calls 'comparative tariffs' and 'any other relevant matter'. It says it may issue further guidance on what would be reasonable. But it is clear that the higher unit rates will vary from supplier to supplier even though the lower standing charges will not.
Ofgem did not provide an indication of how much higher the unit tariffs would need to be. However, the arithmetic is straighforward. Assuming that the typical customer who switched to the lower tariff used half the typical amount of energy then the unit tariffs would need to rise by 6.67p (25%) for electricity and 1.74p (28%) for gas for a supplier to break even on cutting the standing charge by the maximum amounts which Ofgem proposes. If the balance point was set at three quarters of typical use then the individual unit tariffs would need to be about 17% more than the capped rates.
Complexity
The addition of an extra tariff with lower standing charges but higher unit rates is clearly going to make customer choice even more difficult. Even a binary choice between a tariff with capped standing charges and capped unit rates and a tariff with the lower standing charges and higher tariffs will be impossible for individual customers to make, not least because all suppliers will be free to set the higher tariffs to match the lower standing charges.
Ofgem could cut through this complexity by mandating suppliers to work out each month which combination would be cheaper and to charge customers that lower cost each month.
Paul Lewis
1 October 2025
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