'Unfair' standing charges need to go: MPs back Martin's and MSE's calls for energy bill overhaul
Energy standing charges unfairly penalise households on lower incomes and those looking to cut their usage, a cross-party group of MPs have said in a new report published today. Echoing calls from MoneySavingExpert.com (MSE) and its founder Martin Lewis, the report urges the Government to "revise and replace" the charges, which make up around £300 of most people's yearly bills.
In its report titled 'Preparing for the winter', the Energy Security and Net Zero Committee – which is appointed by the House of Commons to examine government policy – cited evidence submitted to it by MSE, in which we argued that high standing charges are a moral hazard and reiterated our call for them to be lowered. For more info, see Martin's blog on Why standing charges are so high.
We've rounded up the key points from the report below. If you're struggling to pay for energy, see our step-by-step Energy bills help guide for info on all the support available.
Martin and MSE have been campaigning for standing charges to be lowered
Standing charges are the daily cost you pay for the facility of having gas and electricity, even if you don't use any. This cost has rocketed – by October, when the new Energy Price Cap comes into effect, the daily standing charge will have increased by 65% in less than five years, according to the committee's report.
As MSE pointed out to the committee in our written submission, high standing charges discourage people from cutting back on energy as they won't save as much money from doing so – as Martin has frequently said, they're a moral hazard. We included several case studies from people who took significant steps to reduce energy usage but still struggled with high bills in part due to these fixed costs.
We also referred the committee to our recent poll, where nine in ten MoneySavers told us they think standing charges should be lowered or scrapped entirely.
MPs say the current standing charge model is "unfair" and should be replaced
The committee agreed that action is needed on standing charges, finding that the current model is "unfair" and "regressive", having a disproportionate impact on the lowest income households. As a result, the committee recommended that the Government works with industry regulator Ofgem to:
- Replace the current standing charge model with a so-called 'rising block' tariff. This is where the price you pay per unit of energy increases the more you use – this type of tariff would mean lower users aren't penalised by fixed charges that they can't control.
- Be transparent with consumers about what their standing charges are paying for. This would include a breakdown of the different types of costs the charges cover, including the costs of maintaining physical infrastructure, the costs of billing, green levies and so on.
- Reduce standing charges by removing energy firms' day-to-day costs from them. Currently, these operating costs make up around 45% of the standing charges that typical households pay.
Other key recommendations from the report
The committee set out a number of other ways that the Government and the regulator could help vulnerable people this winter, including:
- Extending the Warm Home Discount to low-income and fuel-poor households. The Warm Home Discount is a one-off payment of £150 provided between October and March. To get this grant, customers currently have to be receiving Pension Credit or receiving a qualifying benefit AND have high energy costs.
An MSE investigation previously identified sweeping issues with the new Warm Home Discount criteria which the then-Energy Secretary committed to reviewing. Now, the committee has recommended that the scheme is extended to low-income and fuel-poor households, especially those with disabilities and medical conditions. It added that suppliers should not offer the discount on a first come, first served basis.
- Introducing an energy 'social tariff' to protect vulnerable households from being cut off from their energy supplies. A social tariff, like those that already exist for water and broadband, would set the cost of energy below the Price Cap for households with low income or high energy needs.
Martin and MSE have long called for a social tariff to ensure protections for the most vulnerable consumers who can't engage in a competitive market, and we made the case for this in our submission too. In last year's Autumn Statement, the Chancellor promised to introduce a social tariff, but no further announcement has been made. Martin recently grilled then-Energy Secretary Grant Shapps about the Government's lack of progress on this front.
- Improving customer service so that customers get more time and better attention from their supplier. Customer satisfaction is generally low across the industry, the committee found. It has called on regulator Ofgem to be more proactive in challenging energy companies who are failing to deliver good customer service.
The regulator has been consulting on new measures to improve standards, with new requirements for energy companies set to be introduced from December 2023. These could include extending call times to include weekends and introducing 24-hour emergency support for those cut off from their energy due to a supplier fault.
What do the Government and Ofgem say?
A spokesperson for the Department for Energy Security and Net Zero told us that the Government would "continue to keep all options under review, including for the most vulnerable households."
An Ofgem spokesperson added: "Suppliers have always been free to structure their tariffs as they see fit and we know some suppliers do not have a standing charge. However, we continue to keep the issue and how costs are passed on to customers under review."