John Healey will abolish standing charges on gas bills for 23m homes to help almost two-thirds of households save an average of £45 a year, and will also reportedly consider steps to remove standing charges on electricity bills.
The chancellor set out plans to end the “unfair and outdated practice” of applying daily standing charges to gas bills on the morning of his first budget, alongside a series of measures to help ease wider cost of living pressures.
Healey said he would ask Ofgem, the energy regulator for Great Britain, to cut the gas standing charges by next year, or as soon as possible after then, as households brace for a forecast surge in the typical annual energy bill to about £2,000 a year from January.
The chancellor is also looking into getting standing charges on electricity bills removed, according to the consumer campaigner Martin Lewis, who met him at No 11 on Wednesday morning.
“The chancellor also said he will be talking to Ofgem about how they get rid of the charge on electricity as well, but that is ‘trickier’ apparently, and will take longer,” the moneysavingexpert.com founder said.
Andy Burnham, who told the Commons a week ago that he was asking the Treasury to look into the gas standing charge, said abolishing it was “about basic fairness and giving people more control over their bills”, adding: “I am determined to reform our broken energy market, so it better serves the public interest.”
A standing charge is a fixed daily fee paid through all household gas bills, regardless of how much is used, similar to a telephone line rental. This means a household that uses no gas at all still shoulders the same cost as a high-income home to pay for gas metering services and other government levies.
Healey said: “Gas standing charges are unfair and outdated … My budget will draw a line in the sand on an energy policy that has failed British billpayers for years, letting extra costs on bills pile high and leaving households even more exposed to global shocks.”
Removing the standing charge means more costs will be included in the unit rate of gas, so households with low gas use will save money on their bills while those using a lot of gas will likely pay slightly more overall.
For most, the change will bring savings. About 60% of bill payers are expected to save an average of £45 off their annual bill after the change, at no cost to the public purse, according to the Treasury.
It follows the government’s six-month suspension of VAT on electricity bills which removed £45 a year from the typical household electricity bill from October.
Healey is also expected to use the budget to add about £100 to the government’s existing £150 a year rebate offered to means-tested households through the warm homes discount scheme.
The chancellor’s efforts to cushion households from the impact of the global energy crisis this winter in his budget are expected to come alongside new government plans to reform the UK’s energy market to bring down costs over the longer term.
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The government is expected to consider ways to weaken the influence of gas market prices on electricity costs and energy bills, and an overhaul of how subsidies for renewable power are paid, among other measures.
The short-term steps were welcomed by energy consumer experts who believe the change could bring “real relief” to struggling households. Andrew Sissons, a director at the research charity Nesta, said cutting the standing charge would “provide relief to the poorest households who ration their gas” and also encourage high gas users to swap their gas boiler for electric heating.
Thousands of households will also get access to government-backed loans for heat pumps, solar panels and batteries – ranging from £7,500 to £35,000 – through the new Warm Home Loans scheme, which launched on Tuesday to encourage the record appetite for low-carbon home energy upgrades.
The budget is also expected to include plans to scale back heat pump grants made through the government’s boiler upgrade scheme, which offers a basic grant of £7,500 to help meet the £13,600 cost of installation.
Simon Francis, the coordinator of the End Fuel Poverty Coalition, said: “Removing the gas standing charge will bring real relief to many low-income households who use very little energy, and for prepayment customers it could stop debt building up in the summer months.”
