Tariff mandate mooted to replace standing charges

The Committee on Fuel Poverty has urged Ofgem to consider mandating “a variety of tariffs” to make energy billing fairer for low-income households.

The government advisory body has suggested the tariff mandate to replace standing charges, which are applied at a flat rate across all billpayers.

The recommendation is made within the committee’s submission to Ofgem’s call for input on standing charges.

The recommendation would also oblige suppliers “to use data on energy use to put their customers on the best combination of unit rate and standing charge for their energy usage patterns”.

It adds: “One suggestion is two standing tariffs, one with a low standing charge and one with a higher, with guidance to help consumers use the tariff most appropriate for them and their energy use.”

While acknowledging that standing charges “have a disproportionate negative impact on many low-income households”, Ofgem has previously warned that a “significant number of customers” could be made worse off if standing charges are amended to reflect usage.

The regulator estimates that there are around 1.2 million low-income households with electric heating who use a large amount of electricity and so would be worse off by roughly twice as much as those who benefit.

Its modelling shows that by removing standing charges, 5.5 million low-income consumers gain minimal benefit, paying on average £21.90 a year less while 1.2 million low-income customers will typically pay £44.52 more a year.

However, the Committee on Fuel Poverty has called for “further modelling” on this, suggesting that “the switch from standing charges may have more than the minimal impact that Ofgem have modelled”.

It adds: “Something to consider is whether, for the 1.2 million low-income customers who would lose out from standing charges being reduced, there are other targeted solutions to tackle their additional needs and offset the negative impact.”

Earlier this month, Citizens Advice warned that short-term “tinkering” with standing charges could have unintended consequences for some vulnerable consumers and risks being a distraction from the “very real problems” they face.