Ofgem announced last week that, while the energy price cap is coming down by 7%, standing charges will be going up from 1 October.
This rise in standing charges is not good news, particularly for low-income households. But with some fixed tariffs coming back onto the market, now is a good time to check to see if switching your energy could save you money. Signing up for a fixed deal will also give you price certainty, protecting you from further price rises during the course of your contract.
But how much have standing charges increased? What does this mean for you? And is there anything you can do to minimise your bills? We explain everything you need to know about standing charges and why they are going up.
What are standing charges?
Standing charges are a fixed cost you pay daily on your energy bill for simply having the facility of gas and electricity.
The charge applies to gas and electricity, and your energy usage doesn’t affect how much you pay.
You pay the standing charge on top of the unit rate you pay to your energy supplier, which is the cost of energy agreed for every kilowatt per hour (kWh).
According to Ofgem, standing charges cover the structural costs that energy providers bear, such as infrastructure, employing staff and running call centres.
The standing charge changes every quarterly based on Ofgem’s energy price cap.
Why are standing charges going up?
Energy prices have gone up to record levels in the last year since the economy started to recover from the pandemic.
The price cap last October reached £2,500 for the typical household. Russia’s invasion of Ukraine also pushed wholesale prices up, which got passed on to households in increases to unit price and standing charge. Currently, standing charges add £300 to an average annual energy bill.
Standing charges have gone up in the last couple of years, which is partly because a significant number of energy providers have gone bust. According to MoneySavingExpert, around 6% of the standing change covers this.
The good news is, the current price cap is lower than October 2021- from 1 July to 31 September, the price cap is £2,074 annually for the typical household. This will drop by £151 from 1 October this year. But standing charges (also set by Ofgem) are going up slightly to offset the fall in unit price.
According to Ofgem, the electricity standing charge will remain the same (when rounded to the nearest whole number)- 0.53p per day. For gas, the standing charge will go up 1p per day to 0.30p, from 0.29p.
Although the rise doesn’t look substantial, standing charges have already risen by 60% in the last two years. And yet another increase is more likely to impact low-income households.
|Energy Price Cap rates from 1 October to 31 December 2023
|Current Energy Price Cap rates from 1 July to 30 September 2023
|Standing charge: 29.62p per day
|Standing charge: 29.11p per day
|Standing charge: 53.37p per day
|Standing charge: 52.97p per day
A small hike in standing charges is beneficial for households that have high energy usage and those who pay by direct debit. But those who consume less energy could see higher bills this winter compared to last year.
Low-income households on a prepayment meter will be hit hardest by the rise, as Cornwall Insights confirms that those customers are charged slightly more. Ofgem is currently looking into this in their levelling standing charges consultation.
The loss of the £400 energy rebate that millions of households took advantage of from October 2022 has now ended, also leaving vulnerable households worse off.
Despite no rebate, low-income households can get additional help from other government initiatives, especially in the winter.
For example, if you were born before 25 September 1957, you could be eligible for the Winter Fuel Payment which could knock between £250 and £600 off your heating bills.
There’s also the Cold Weather payment which can give you up to £25 per day for a week if temperatures drop below zero degrees celsius for seven consecutive days.
No government energy support that households had last year with the £400 rebate.
Do all energy providers have a standing charge?
Most energy suppliers do have a standing charge except for one.
An Ofgem spokesperson said energy provider Utilita doesn’t impose a specific standing charge. Instead, it recovers those fixed costs by charging its customers a higher unit rate for the energy they use- but this is rare.
Is there a way to avoid paying standing charges?
An Ofgem spokesperson said: “Standing charges cannot just be cancelled, they form part of the overall price cap rate so can only be shifted onto unit rates which would impact bills in other ways.”
What to do if you can’t afford your energy bill
If you’re struggling to pay your energy bill, you should contact your energy provider and let them know. They can help by making a payment plan consisting of smaller payments to help manage your money.
If you’re ready to switch to a fixed energy tariff, take a look at deals at our sister site, Go.Compare.