"How disappointing!" Martin Lewis reacts to Ofgem plan for low standing charge tariffs

The energy regulator Ofgem has announced plans that will require energy suppliers to offer tariffs with lower standing charges to consumers.

Reacting to the announcement, Martin Lewis, founder of MoneySavingExpert.com, said: “How disappointing! There was a chance to see a proper mandated low Standing Charge option to benefit many, and while I hope I’m wrong, it looks like Ofgem may be about to somewhat smother it with the pillow of bureaucracy.

"I get more complaints about Standing Charges than anything else in energy bills. It’s like a poll tax where people must pay £300+ a year just for the facility of having gas & electricity even if they don’t use it. This moral hazard disincentivises people from cutting their usage, and punishes especially older people who only use their gas during the winter.

“Having campaigned for years to get the Price Cap’s Standing Charges lowered, once it became obvious that had failed, I proposed a dual Price Cap. One as it is, and another option with no or a low Standing Charge, and proposed that vulnerable users should be defaulted to whichever was best for them (lower users are the ones who benefit from no Standing Charges). Ofgem was warm to this at first, and agreed to ask for wide input on the basis of this idea.

“Now, at the next stage of consultation, it seems to have substantially watered that down. While a low or no Standing Charge tariff option is an improvement, and will benefit some users, the core problem is it doesn’t look like it’ll be under the Price Cap mechanism. That leads to two big possible problems:

1) There is no limit to what firms can charge, so they could wipe the Standing Charge, but increase the unit rate far above what is needed to compensate for it.
2) Those most in need of this option - vulnerable low users - tend not to switch tariffs. While the Price Cap has unfortunately become a default price for many, the reason it was set up was as a backstop tariff for those who don’t or can’t engage in the market. Mandating a low Standing Charge switchers tariff outside the Cap won’t help them.

"I worry Ofgem has picked an easy route to appease suppliers’ concerns, that doesn’t help the most vulnerable. I suspect if it goes ahead like this, not enough people will switch and they’ll say ‘it wasn’t worth it’. We will robustly be pushing back in response in the consultation."

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