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Energy firms to offer ‘no standing charge’ tariffs and struggling customers to get debts wiped in huge shake-up
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MILLIONS of energy customers will get access to 'no standing charge' tariffs under new plans revealed by Ofgem today.
The energy regulator is also planning to launch new support for customers struggling with debt.
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As part of its plans, there could be a new scheme that means some customers could have their debts wiped or have repayments matched to help them clear their arrears.
The proposals are part of a huge shake-up to help tackle the "stubbornly high" debt levels that have built up despite falling energy prices.
Total energy debt is now at more than £3.8billion, a rise of more than £2billion in the last three years.
According to The Money Advice Trust, the charity behind National Debtline, the average energy arrears per customer have soared by 37% in the past year alone, now standing at £1,541.
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Analysts at Cornwall Insight warn that the changes could add up to £20 a year to millions of households bills across the UK in order to pay for the changes.
Steve Vaid, chief executive of the Money Advice Trust, the charity that runs National Debtline, which has been calling for the debt reforms, said: "It's really positive to see that Ofgem has listened to our calls and recognised the need for a dedicated scheme to help people repay unaffordable energy debts, through debt write-off and repayment matching.
"Offering people help to repay in this way could lift millions of people out of debt, and will have wider benefits for consumers and energy suppliers.
"Ofgem must now work closely with suppliers and charities to bring the scheme into effect as soon as possible next year."
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WHAT'S HAPPENING?
Ofgem had been consulting on the standing charge, it has now decided that all firms should offer zero standing charge tariffs.
The standing charge, a fixed daily fee averaging 92p, is added to your bill simply for remaining connected to the grid.
If Ofgem were to introduce a tariff without these charges today, a typical household could save £338 a year.
Since April 2020, standing charges have increased by £149, rising from £189 to their current levels.
The zero standing charge tariff option is expected to be available from next winter, following a consultation on its implementation in the new year.
However, industry experts have warned that taking up one of these tariffs will not result in savings for everyone.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: "We anticipate that zero-standing charge tariffs would come with higher unit costs, in order to cover the maintenance of the network and other expenses that would normally be included in the standing charge.
"As such, these tariffs may not be immediately ideal for vulnerable groups, especially those living in less energy-efficient homes or with higher energy needs."
A no standing charge energy tariff is a good choice for low energy users, including for those on prepayment meters or those with properties that are unoccupied for extended periods, like holiday homes or second residences.
Since you only pay for the energy consumed, it avoids fixed daily charges.
However, these tariffs won't be great for medium to high energy users.
The higher unit rates for gas and electricity on these tariffs often outweigh the savings from avoiding the standing charge for those who regularly consume more energy.
This has led campaigners, including Martin Lewis to call for energy firms to cut all standing charges - rather than force firms to offer no standing charge tariffs.
He said: "The best outcome would be to slash standing charges within the Price Cap.
"Yet as that'd mean the cost of each unit of energy needed to increase, it'd require the Government to put in special support for vulnerable high energy users – such as those charging electric wheelchairs, or those with illnesses that require a very warm home."
Standing charges are also difficult for pre-payment meter customers as they are charged the fixed fee each day despite not using energy, meaning the can build up more debt in the summer months.
This decision follows tens of thousands of responses to Ofgem's call for input on standing charges, with many consumers expressing the challenges these fees pose in managing their bills and repaying debt.
Under the proposed shake-up, struggling households could see a portion of their debt, or even all of it, written off.
Other customers could also be given extra help when paying off their debts, as Ofgem is advocating for the compulsory implementation of debt-matching schemes.
These schemes operate by ensuring that for every debt repayment a customer makes, their energy supplier matches the amount, effectively reducing what they owe by half.
To help suppliers, charities, and others identify those most in need, Ofgem has proposed a "Debt Guarantee."
This plan would standardise the support suppliers give to customers who are struggling to pay, including required cooperation with debt charities and consumer organisations.
The consultation on the debt relief scheme and Debt Guarantee is open until February 6, 2025.
The regulator said it is looking at different ways to fund the debt relief schemes, such as spreading the cost through network charges to reduce the impact on current bill payers.
It believes the scheme will be "cost neutral" in the long run, resulting in lower overall bills compared to the current system.
It's also understood that the introduction of zero standing charge tariffs will also be funded by energy suppliers.
Ofgem's boss speaks to Sun readers
Jonathan Brearley, chief executive of Ofgem, says:
I know that energy bills are still very high. My advice to anyone struggling to pay is to tell your supplier.
They are obliged to help you and direct you to available support.
Sadly many households are going deeper into energy debt than ever before.
Ofgem's job is to champion the interests of energy customers, and I know we need to address the root causes head on.
So today we are setting out our ideas to give energy customers more choice about how they pay for their energy, and better support for those struggling with debt.
First, I know that many people feel strongly that standing charges are unfair and prevent them from being able to manage their bills effectively.
We have heard loud and clear that people want more choice about how they pay the fixed costs that make up the standing charge.
However, there is no simple 'one size fits all' solution.
If we cut standing charges for everyone, then some customers in vulnerable situations who have big energy needs will be much worse off.
Citizens Advice and many disability charities have warned us of this.
What we want to do is to make sure that everyone has the chance to go on a tariff that suits them.
Even if you are on the price cap we are proposing ensure that suppliers offer you the chance to move to an alternative regulated tariff that has a lower standing charge.
Second, we want energy suppliers to do much more to prevent customers getting into debt, and support them getting out of debt.
So we are proposing tougher standards for suppliers, building on rules we introduced last year to make sure customers get fair and consistent treatment when they fall into debt, and that companies work with consumers groups to help them.
Finally, we know a significant amount of debt was built up during the energy crisis.
So we are exploring how we can help the most vulnerable households struggling with unaffordable debt.
This would be aimed at giving these customers a fresh start, and prevent bills going up further to pay for the cost of this debt.
We can't make energy affordable for all consumers overnight. The best long-term solution is to end our dependence on volatile international gas prices we can’t control.
And Ofgem will continue working closely with government to develop affordable, clean, and secure of sources of energy, made here in Britain, to do that.
But for energy customers struggling now, that will take too long.
So the plans we have set out are about helping customers today, giving consumers more choice over their bills and supporting those in energy debt.
HELP ALREADY OFFERED BY FIRMS
Several energy companies have already stepped up with their own initiatives to help households in debt.
But eligibility criteria vary depending on the supplier and the amount you can get depends on your financial circumstances.
For example, British Gas or Scottish Gas customers struggling to pay their energy bills can get grants worth up to £2,000.
British Gas also offers help via its British Gas Energy Trust and Individuals Family Fund.
You don't need to be a British Gas customer to apply for the second fund.
E.ON and Octopus Energy and Scottish Power all offer grants to struggling customers too.
Selected customers at Octopus Energy and Utilita have also been given the option to switch to tariffs without a standing charge, enabling them to pay off their debts more quickly.
British Gas also offers a "You Pay: We Pay" scheme, matching customer payments over six months to help reduce debt.
Elsewhere, fellow supplier EDF has a customer support fund which on average wipes £1,250 off struggling customer bills.
Thousands of vulnerable households are also thought to be missing out on extra help and protections by not signing up to the Priority Services Register (PSR).
The service helps support vulnerable households, such as those who are elderly or ill.
Some of the perks include being given advance warning of blackouts, free gas safety checks and extra support if you're struggling.
WHAT SHOULD I DO IF I'M IN ENERGY DEBT
You should contact your supplier as early as possible to let them know if you're struggling.
Energy debts are priority debts, which means there can be more severe consequences to not paying than with other types of debt.
Failing to engage with your supplier about your debt could also see them apply for a court warrant to forcibly install a prepayment meter in your home.
Once you've contacted your supplier about your debt problems, ask for an affordable repayment plan.
Your supplier should work with you to figure out a sensible amount you can pay towards your debts each month.
Your supplier may also allow you to apply for an energy grant.
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These could be delivered as energy credits to help cover your debt, or your supplier might agree to wipe your outstanding balance.
Ask your supplier what's on offer and how to apply.
How to get free debt help
There are several groups which can help you with your problem debts for free.
- Citizens Advice - 0800 144 8848 (England) / 0800 702 2020 (Wales)
- StepChange - 0800138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations - don't be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don't need to pay.
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