Standing Charges: Understanding Price Rises, Rates & Impact on Families

Energy bills are a significant expense for households across the UK, and understanding the components of these bills, such as standing charges, is crucial for consumers. The April 2024 energy price cap slightly dropped from £1,928 to £1,690, effective from April 1, 2024. However, this decrease is not the same for standing charges which are rising. We love proactive suppliers like Octopus Energy who are noted as pricing significantly below the cap and actively encouraging policymakers to move archaic standing charges into the unit rate. This, if it happens, will allow customers more transparency and control over their bills, usage and tariffs.

After all, those struggling with costs (particularly those on a low income) can in theory turn down the heating, but they can’t switch off standing charges. Standing charges are a fixed daily cost included in energy bills, regardless of energy consumption. This article will explore standing charges, why they are increasing, and the impact on consumers, particularly those with low incomes.

What are Standing Charges?

Standing charges are simply fixed daily amounts included in energy bills. These cover the costs of looking after the energy supply network, processing meter readings, and supporting government schemes. These charges apply to both gas and electricity and vary by supplier, location, payment method, and meter type. A typical standing charge structure is likely to include a daily fee plus a unit rate for the actual energy consumed.

Do smart meters include standing charges?

Yes, smart meters include standing charges in their displays. They are also “usually” cheaper in standing charge rates than pre-payment and standard non-smart manual meters. The standing charge is added to the smart meter’s display, in most cases showing up on the smart energy monitor or In-Home Display (IHD) regardless of energy usage. For most, this means that even on days when no energy is consumed, the display will still indicate a small charge due to the standing charge.

Why are standing charges rising or going up and down?

Several factors contribute to variations in standing charges:

1. Infrastructure Maintenance and Investment Costs – Upgrades and expansions of the energy infrastructure associated with each provider, as well as rising costs according to the suppliers, necessitate higher standing charges to cover these expenses.
2. Regulatory Requirements and Industry Standards – Reforms in network charging and policies like the Warm Home Discount scheme are funded through energy bills, influencing standing charges.
3. Market Dynamics and Competition – A staggering 29 suppliers exited the market during the energy crisis which led to the remaining suppliers sharing the total costs, impacting standing charges.

Some energy providers may avoid increasing standing charges by optimising costs and maintaining a commitment to consumer affordability, balancing ethical considerations with market competitiveness. However, as you’ll likely have seen from many news reports, energy companies in the UK turned over a sizeable £1 billion profit while 13% of families were living in a fuel affordability crisis.

Why is there a controversy surrounding standing charge rises and low-income families?

The recent increase in standing charges has sparked controversy due to its disproportionate impact on low-income households. A report by National Energy Action revealed that standing charges can account for a significant portion of energy costs for the poorest households, exacerbating fuel poverty. Low-income families have little or no control over these charges, and the end of the Energy Bills Support Scheme payments has led to a 40% annual increase in energy bills for many. Much of the current discussion surrounding standing charges focuses on the benefits of moving standing charges into the unit rates to allow budgeting and control for families to be more feasible.

What are the legalities of changes to standing charges in the UK and what customer protections are in place?

In the UK, energy suppliers hold the legal authority to modify standing charge rates. They can do this so long as they operate within clearly defined guidelines established by Ofgem, the energy market regulator. These standing charges, as mentioned earlier, cover the infrastructure and service costs associated with energy supply. Ofgem oversees standing charges through the energy price cap, which sets maximum limits to safeguard consumers from excessive rates. The cap undergoes periodic reviews to reflect shifts in wholesale energy costs, network charges, and policy costs.

Pre-payment meters have proven an area lacking transparency in recent years, so Ofgem has implemented measures to standardise standing charges between prepayment meter (PPM) and direct debit (DD) customers, aiming for equitable pricing across payment methods. Encouraging transparency, Ofgem is seeking input on standing charges from various stakeholders, including charities, consumer groups, and the public.

Despite these efforts, Ofgem’s decisions regarding standing charges have encountered criticism and potential legal challenges, particularly concerning their impact on low-use and vulnerable customers. Consumer advocacy organizations, like Citizen’s Advice, voice concerns that standing charge adjustments may lead to unjust outcomes without addressing the underlying cost drivers.

The Importance of Choosing a Responsible, Ethical Energy Provider

Energy providers play a crucial role in ensuring affordability and fairness in energy pricing. Transparency and consumer engagement in standing charge policies are vital for maintaining trust and it’s something I actively look for when considering switching providers. Ethical energy providers, such as Octopus Energy, demonstrate responsible practices by offering fair pricing and supporting vulnerable customers with several caring initiatives.

Whilst all readers should research providers and rates themselves, we have been blown away by the quality of customer service and transparency on offer from Octopus Energy in particular. This is why I continue to be such an avid fan of Octopus Energy and CEO Greg Jackson. They’re taking a firm stance on standing charges, and are aiming to reduce the financial burden on families using their services wherever possible. Octopus Energy has been actively reducing standing charges for those on its variable tariff and even offers “standing charge holidays” of up to six months for up to 100,000 households in need. This allows those struggling to benefit from energy savings without the fear that switching to a smart meter was a non-“smart” option.

This proactive approach reflects Octopus Energy’s commitment to addressing the impact of high-standing charges on consumers, particularly those with lower incomes. CEO Greg Jackson has spoken recently of the need for regulatory changes to lower standing charges and make energy bills more affordable for all customers. This, alongside other customer-focussed money-saving energy initiatives like their EV powerpack tariff offering effectively free charging, is yet another reason making use of the £50 switch incentive to move to Octopus makes sense to many right now (including ourselves in the Savvy Dad house)

*Disclosure: This article is for entertainment and educational purposes only. Nothing on this site constitutes financial advice. I am not a financial advisor. You should always do your own research and consult a qualified financial advisor before making big decisions with your money as capital is at risk with any investment. This post may contain links to external sites and affiliates, Savvy Dad accepts no responsibility for how you use these external sites and services (see Site Terms and Privacy Policy).