There’s been lots of publicity over the last couple of years about the impact of energy price cap charges on people’s fuel bills but not so much of it has delved into standing charges – the fixed costs we all pay regardless of how much energy we use.
In fact energy suppliers aren’t obliged to impose standing charges but they’ve shot up over the last two years; direct debit electricity customers saw theirs more than double between 2021 and 2023. Some of these increases are due to the addition of costs associated with reallocating the customers of failed suppliers, meaning – yet again – consumers pick up the bill for commercial companies’ failures.
Ofgem consultation
That aside, a recent Ofgem consultation sought views on whether and how some elements of standing charges might instead be recovered as part of the unit costs of energy – so the more energy you use, the more you’d pay.
On the face of it this seems a good idea. Right now, however hard you try to reduce your energy consumption – even if you don’t use any – you’re still stuck with a standing charge; they disproportionately impact low consumers many of whom will be on low incomes.
We need to tread carefully… many vulnerable people could see their energy bills double.
But we need to tread carefully. Ofgem’s own analysis in the consultation paper identified a serious risk that the most vulnerable customers would be adversely affected by such a move. While the proposed change would benefit five million households with the lowest incomes, one million would lose out. This isn’t a million householders who reckless leave the heat on and the windows open; they include people who have chronic health conditions and have to crank up the thermostat to stay well, or depend on running electrical medical equipment 24/7 at home. People who live in poorly insulated homes – of which shamefully the UK has many – would also lose out, alongside rural customers particularly in homes that aren’t on mains gas. Many of these vulnerable people could see their energy bills double.
Protecting vulnerable consumers
Severn Wye works with exactly this type of energy customer every day and we know that a straightforward shift to volumetric charging would have serious negative effects. It could see more people spiraling deeper into debt and living in cold homes, with all the mental and physical health impacts that would have. Not to mention the long-term societal and economic costs of increases in hospital admissions, and the disillusion of people who can’t afford to fix their leaky homes and end up struggling even more than they already are.
It’s a tricky problem to solve but it’s not impossible. Subsidised medical and social tariffs could protect those with health conditions or in low-EPC homes. And more joined up and long-term subsidies and funding schemes to pay for energy efficiency measures are sorely needed and long overdue.
It’s great that the regulator is questioning the status quo and acknowledging that one size won’t fit all. We just hope that policymakers will take on board ours and others’ suggestions for mitigating the negative effects on the country’s vulnerable energy consumers – and will work hard to make sure they reach them.
Hannah Persaud is Director of Energy Advice at Severn Wye.
