The new ‘low or no standing charge’ Price Cap option should “reduce costs for lower users” but to get it, people will need to opt in, consumer champion Martin Lewis warned

New plans from Ofgem will compel energy suppliers to offer tariffs with reduced or no standing charges for the winter of 2025/26, allowing customers to pay costs through their unit rate instead. The energy regulator stated it’s consulting on introducing this option under the price cap to cover so-called zero standing charge tariffs.

Founder of MoneySavingExpert.com, Martin Lewis, described the announcement as “progress” but noted “one big hole in what’s currently proposed”. He highlighted that the ‘low or no standing charge’ option under the Price Cap should “reduce costs for lower users”, but users would need to opt-in, despite the Price Cap being meant to safeguard those “who don’t, can’t or are scared to switch or change tariff”.

Lewis argued, “This is progress. Standing charges are by far the most complained-about part of an energy bill. It costs over £300 a year just for the facility of gas and electricity, even if unused. They’re a moral hazard that disincentivises lower users from reducing bills, and leaves many elderly people, who only use gas for winter heating, paying daily 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/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 tariffs – 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.”

He further stated: “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.”

Standing charges are applied daily, regardless of how much energy the customer uses, and are used to cover the cost of supplying energy to homes and businesses. They also cover the costs of building new network infrastructure and keeping the power on when energy suppliers go bust, reports the Daily Record.

Energy UK – a group which represents energy companies like British Gas, Octopus and others – raised concerns around the policy. Chief executive Dhara Vyas said the plan would “increase the challenges and risks” associated with buying energy in advance for power firms.

The introduction of new tariffs could ratchet up the “complexity” for consumers, necessitating an “an active choice” about their energy plans, potentially leaving some on less suitable tariffs, it has been suggested.

Emily Seymour, Which? Energy Editor, commented: “These proposals would give consumers more choice and control over their energy bills but the benefits will depend on your energy usage. If you’re a very low energy user, you may save money overall. However, if you use your gas and electricity every day then you’ll pay a similar amount to any other variable tariff.”

Charlotte Friel, director for retail pricing and systems at Ofgem, weighed in with: “We know from the huge response we’ve had that many feel standing charges are unfair. However, we also know that vulnerable, high-energy users – including those who rely on medical equipment at home or low-income families in poorly insulated houses – would suffer disproportionately if these costs were added to the unit rate for everyone.”

She elaborated on the regulator’s approach, saying: “That’s why we’re moving forward with plans that will give customers a choice and more control over how they choose to pay for their gas and electricity. We’re looking closely at how these tariffs will work in practice, but everyone will need to carefully consider which option best suits their needs.”

Friel further noted the resilience of certain fees, “The costs included in the standing charge ultimately have to be paid. But while they may not save everyone money, they will give people a choice, and greater control over their bills.”

The consultation follows a call from Energy Secretary Ed Miliband for Ofgem to tackle escalating costs. Recent predictions indicate that the price per unit of electricity is due to increase again in April, despite the fact that most people’s bills will decrease due to lower usage.

Ofgem is set to reveal the new Price Cap on February 25.