The chief executive of Octopus Energy says changes to household energy bills could leave many customers £195 better off annually. The Government plans to abolish gas standing charges for approximately 23 million homes, although households with higher gas consumption could face increased costs.
Greg Jackson said the changes would benefit most families, with the removal of standing charges expected to deliver average savings of £45 a year for those who gain. The announcement comes as households face rising energy prices and renewed concerns over winter bills.
Why Scrapping Gas Standing Charges Could Lower Household Bills
Gas standing charges are fixed daily payments added to energy bills regardless of how much gas a household consumes. They typically cost an average household around £108 annually and contribute towards maintaining and improving the infrastructure used to supply energy.
According to the Daily Mirror, Chancellor John Healey announced plans to remove these charges from next year, describing the existing system as unfair and outdated. The Treasury said the measure would benefit around three-fifths of households, with average annual savings of £45.
Speaking on BBC Breakfast, Jackson explained that the changes formed part of a wider package of reductions in household energy costs.
He said removing VAT from electricity would save approximately £50, while transferring certain taxes away from bills would account for another £100. Combined with the estimated £45 saving from standing charge reforms, the reductions could total £195 annually. Jackson acknowledged that the financial benefits would not extend to every customer.
“In fact, the vast majority of families will be better off. There’s a few sort of typically very large homes that use a lot of gas and they’ll end up paying a bit more,” he said.
The Government intends to recover the costs previously covered by standing charges through the unit price of gas. This means households consuming larger quantities could pay more, even though the fixed daily charge disappears.
According to BBC News, the Treasury expects 60% of households to save an average of £45 annually. Ministers have also promised targeted measures for a small number of households that could be disadvantaged by the reform.
Higher Gas Users Face Uncertainty as Energy Prices Continue Rising
Jackson argued that removing standing charges would give consumers greater financial benefits from reducing gas consumption.
During his BBC Breakfast interview, he pointed to a reported 17% reduction in gas consumption over the previous year or two. He attributed this partly to households adjusting thermostats and changing boiler flow temperatures. “If you turn off a radiator in a room you don’t use, you’ll get more benefit now,” Jackson said.
The announcement has nevertheless raised concerns about households with substantial heating requirements, particularly those on lower incomes. Simon Francis, co-ordinator of the End Fuel Poverty Coalition, welcomed the proposal but warned that millions of households would not necessarily benefit.
He said the changes could help low-energy users and prevent debts accumulating among prepayment customers during summer months. He also called for greater clarity about protections for vulnerable households with higher energy needs. The changes come against a difficult backdrop for household finances.
According to the Daily Mirror, Ofgem’s energy price cap increased by 4% in October. Cornwall Insight subsequently projected a further 16% rise from January, taking the annual cap to £1,999, an increase of £276 compared with the October-to-December level.
The Government has also temporarily removed the 5% VAT charge on electricity until 31 March next year, while gas remains subject to 5% VAT. For households, the financial outcome of the standing charge reform will ultimately depend on their gas consumption and the protections introduced alongside it.
