The petition of residents of the constituency of Linlithgow and East Falkirk,
Declares that in a time of soaring energy costs and a crisis in the cost of living, the high standing charges imposed by utility companies represent a significant burden on household finances; further that Scottish households bear some of the highest electricity standing charges in the UK, with households in Linlithgow and East Falkirk currently paying 62.1p per day on direct debit, and 69.2p per day on standard credit; and notes that the result of high standing charges is that lower energy users can save proportionally less money by reducing usage, thus disempowering these households and offering no incentive to reduce energy usage at a time when energy efficiency and environmental sustainability is so vital.
The petitioners therefore request that the House of Commons urge the Government to consider abolishing standing charges, to alleviate the financial pressure upon households in the cost of living crisis, and to encourage responsible energy use for the good of our planet.
And the petitioners remain, etc.—[Presented by Martyn Day, Official Report, 23 January 2024; Vol. 744, c. 270.]
[P002894]
Observations from the Parliamentary Under-Secretary of State for Energy Security and Net Zero (Amanda Solloway):
The Government recognise the challenges posed by cost of living pressures, including the impact of energy bills, and are already providing extensive financial support to households. This includes a package of support to assist households and individuals with rising costs of living that will total over £104 billion, or £3,700 per household on average, over 2022 to 2025. From 1 April, energy prices will drop to their lowest level since Putin’s invasion of Ukraine, with the energy price cap falling by £238 on average.
Standing charges are a commercial matter for suppliers, although Ofgem regulates standing charges for domestic customers as it does with other elements of billing. This includes setting a cap on standing charges as part of the overall default tariff cap. The cost varies by region, and it is more costly to operate networks in less densely populated and remote areas.
Removing standing charges completely would move the costs currently recovered through them to another part of people’s energy bills, likely via unit costs. Any risk of under-recovery of costs to suppliers could potentially drive costs up overall.
Standing charges recover the cost of installing and maintaining Great Britain’s electricity transmission, distribution and offshore networks, and some fixed supplier operating costs such as billing and metering. A small proportion of the standing charge also goes towards Government initiatives that help vulnerable households and reduce carbon emissions. This has led to consumers benefiting from lower energy usage and greater energy security whilst ensuring protections for vulnerable consumers. Funding these initiatives is important to ensuring there is a well-functioning energy system in Great Britain.
Recognising the significant public interest in the issue of standing charges, Ofgem launched a call for input in November 2023, looking at how standing charges are applied to energy bills, and what alternatives could be considered.
Ofgem’s call for input illustrated the complexity of moving costs currently recovered through standing charges on to the unit cost. Ofgem found that shifting some or all standing charges to volumetric unit rates would reflect how much energy customers use and would benefit some low-income households overall, but that a significant number of customers could be made worse off. This would include some vulnerable consumers who are reliant on medical equipment, or those with poorly insulted homes—often private renters or those in rural areas. Therefore, careful consideration should be given to analysis of the distributional impacts when considering reforming standing charges.
Following the call for input, the Secretary of State and I recently wrote to the chief executive officer of Ofgem to underline the importance of this issue and reiterate the need to ensure protection for vulnerable consumers while minimising bills for customers. The Government will continue to work closely with Ofgem on the issue.
The Government are helping energy consumers improve energy efficiency and reduce their energy use through a range of measures including:
the Great British insulation scheme, which enables eligible consumers to get free or cheaper insulation to reduce their home’s energy bills;
the boiler upgrade scheme, which enables eligible consumers to get a grant to cover part of the cost of replacing fossil fuel heating systems with a heat pump or biomass boiler—this grant was recently increased to up to £7,500; and,
the “Welcome Home” campaign, which encourages consumers to identify energy-efficient upgrades, such as heat pumps and insulation measures, that will make their home warmer and help save money over the long term.