E.On customers can make savings of up to £676 on their energy bills thanks to a daily charge being waved.
Energy regulator Ofgem has said that energy suppliers must offer UK households “zero standing charge” tariffs alongside existing ones as part of new plans to tackle ballooning household energy debt.
Standing charges are a fixed daily amount that is added to your energy bill by suppliers, regardless of how much energy you use and from January will cost dual fuel households £338 per year on average.
The charges disproportionately affect households that use less energy as the fixed cost accounts for a higher proportion of their overall bill.
However, households will soon be able to make big savings as Ofgem’s plans mean suppliers are obligated to offer zero standing charge tariffs to customers.
It means that E.On customers on a two-year fix can make a £676 saving if the charges were scrapped today.
For lower energy users, the new tariffs would see the costs move to unit rates instead. So higher energy users would be unlikely to save anything if they switched, but for those who don’t use much electricity or gas, the higher price per unit would be offset by the loss of the standing charge, meaning those users would save up to £338 a year (or £676 over two years) against a standard tariff.
Since October 1, households on standard variable tariffs that pay for electricity by direct debit have paid 24.5p per unit on average with a standing charge of 60.99p per day, while for gas the average has been 6.24p per unit with a standing charge of 31.66p per day.
From January 1, average standing charges will reduce slightly to 60.7p per day for electricity and 31.65p per day for gas.
Some suppliers already offer low or no standing charge tariffs at all. But while these tariffs are at least 10% below the price cap they have a higher unit rate so they are more likely to benefit customers who use less energy.
Tens of thousands of consumers have called on Ofgem to axe standing charges altogether, but those who use a lot of energy – often for medical and health reasons – would see their bills rise significantly, so the regulator decided it was important for households to retain a choice of tariff.
Tim Jarvis, director general of markets at Ofgem, said: “We know that many households continue to struggle with bills after the events of the energy crisis, which is why earlier this year, we took steps to consider all the issues around affordability and debt – including the impact of the standing charge.
“Many people feel very strongly that standing charges are unfair and prevent them from being able to manage their bills effectively. We want to give consumers the ability to make the choice that’s right for them without putting any one group of consumers at a disadvantage. And by having a zero standing charge tariff, we would create that choice for everyone.”
Ofgem has also set out plans for a “debt guarantee” to improve the standard of service offered by suppliers supporting customers in debt, which it says would give households “consistent, compassionate and tailored support”.
Suppliers could also be required to accept debt repayment offers from reputable third parties, such as debt advice agencies or consumer organisations.
