Killing gas standing charges in the UK is a bad idea: energy boss
Key Points
- The government will scrap gas standing charges for around 23 million UK homes.
- Ofgem will remove the £108 average charge in 2027 or soon after.
- Treasury says 60% of households could save an average of £45 a year.
- Fuse Energy’s Charles Orr warns suppliers will price in risk and raise bills.
- Octopus Energy’s Greg Jackson backed the plan as fairer and more efficient.
Fuse Energy COO Charles Orr has warned that Chancellor John Healey’s plan to scrap £108 gas standing charges will push UK bills up.
“The problem is that energy infrastructure will always have fixed costs, and wires and pipes don’t vanish when energy isn’t flowing through them,” said Orr.
Healey announced on Wednesday (28 October) that the government will remove standing charges from gas bills for around 23 million homes ahead of his Budget.
A standing charge is a fixed daily fee that suppliers add to a household gas bill regardless of how much gas the home uses.
The government will ask Ofgem to remove the charges in 2027 or as soon as possible after that date. Suppliers will then recover those fixed costs through the unit rate on each customer’s bill.
Treasury calculated that the change could save 60% of account-holding households an average of £45 a year. The government said it would set out targeted support in due course for a small number of households that would not see an automatic saving.
Orr argued that shifting fixed costs onto usage-based charges would make supplier income depend on how much gas customers use.
“If fixed costs are recovered with usage-based charges, you create a lottery,” said Orr.
“If usage is higher, profits are higher than they would’ve been if the charges were fixed. If usage is lower, there’s a risk variable payments don’t cover fixed costs,” he added.
“Energy companies will price this risk in as a premium, and bills will go up,” he said. The government framed the change as a fairness measure that gives households more control over what they pay.
“Gas standing charges are unfair and outdated so I am scrapping them to give millions of households a bit of breathing space,” said Healey.
“Abolishing gas standing charges is about basic fairness and giving people more control over their bills,” said Prime Minister Andy Burnham.
Octopus Energy Group backed the plan, saying most of its customers would see a cut in their gas bills.
“This represents real joined-up thinking to make a fairer, more efficient energy system, delivering what customers want – lower standing charges and further improving the ratio of electricity to gas prices,” said Greg Jackson, Founder and CEO of Octopus Energy Group.
The announcement follows the government’s VAT cut on electricity bills, which took effect at the start of October. That cut left the Energy Price Cap £45 a year lower than it would otherwise have been.
