How your gas bill could fall if Burnham removes standing charges

Prime Minister Andy Burnham has instructed senior cabinet members to investigate the feasibility of eliminating standing charges from residential gas bills. Speaking during Prime Minister’s Questions on Wednesday, Burnham stated that he requested Chancellor John Healey and Energy Security and Net Zero Secretary Miatta Fahnbulleh to examine the proposal and report back to Parliament at the earliest opportunity. The Prime Minister described the decision as pragmatic, linking it to the approval of the Jackdaw gas field in the North Sea, which he argued would facilitate greater renewable energy investment and provide additional assistance to consumers managing their utility costs. Standing charges represent fixed daily fees that cover the infrastructure required to connect homes to energy supplies, including the maintenance of pipes and wires. These costs remain payable even when no energy is consumed. Current data indicates that the average gas standing charge stands at 29.7 pence per day, while the equivalent fee for electricity is 54.8 pence per day. Under the current regulatory framework managed by Ofgem, an average household spends approximately £108.33 annually on gas standing charges alone. Although specific operational details regarding the implementation of this reform have not yet been released, research firm Nesta suggests that these fixed costs could be redistributed into the variable unit rate. This structural shift would mean consumers pay strictly for the volume of energy they utilize. Proponents argue that this adjustment would disproportionately benefit lower-income groups. According to Nesta, abolishing the gas standing charge and shifting the expense to the unit rate would reduce a typical annual bill by £27. The organization estimates that 84 percent of the poorest households would experience financial improvement, compared to just 23 percent of the wealthiest demographic. The median household within the lowest income bracket could save £46 per year, whereas the next poorest tier might save £33. Andrew Sissons, director of sustainable futures at Nesta, noted that lower-income residents often limit their energy consumption to manage expenses, resulting in a larger portion of their total bill being comprised of fixed charges. Conversely, heavy users of gas may face higher overall costs if the fixed fees are absorbed into the price per unit. The industry body Energy UK cautioned that the actual impact on consumer wallets depends entirely on how and where the charges are reallocated. While the policy aims to assist those struggling with rising costs, Citizens Advice has raised concerns regarding vulnerable customers who possess low incomes but require high levels of energy usage. Such individuals risk being penalized if the cost structure shifts significantly toward consumption-based pricing. Additionally, the standing charges currently fund support schemes for low-income households, meaning these funds must be recovered through alternative mechanisms if the direct charge is removed. The timing of this announcement coincides with a period of escalating energy prices. Typical household energy bills rose to £1,723 this month, with forecasts predicting increases beyond £2,000 in the coming months. Energy prices are projected to climb by 16 percent in January, reaching a four-year high. Pressure persists on the Chancellor to introduce more fundamental, targeted energy support measures in the upcoming Budget scheduled for next week. Burnham also emphasized that investing in renewable energy sources would substantially lower household bills by decoupling electricity prices from gas markets within the current parliamentary term. In the United Kingdom, electricity prices are primarily determined by gas prices, a dynamic frequently cited as a factor keeping domestic rates higher than in many other nations. Regarding the exclusion of electricity from this specific proposal, the Prime Minister’s official spokesperson explained that Value Added Tax had already been reduced on electricity bills. Regulator Ofgem has conducted a series of consultations on standing charges over the past two years, receiving substantial public feedback that included strong opposition from low-energy users. A pilot scheme testing low standing charge tariffs is currently underway, though regulators have not yet drawn definitive conclusions, indicating that technical solutions are complex. For households considering transitioning away from gas boilers, experts suggest the removal of standing charges could enhance the economic appeal of heat pumps. Since heat pumps consume roughly four times less energy than gas boilers, and the gas-to-electricity price ratio would drop from 3.3 to 2.97, switching technologies could yield significant savings despite electricity typically costing more per unit than gas.