Burnham proposes plan to cut standing charges from gas bills

Prime Minister Andy Burnham has requested ministers to create a plan for eliminating standing charges from gas bills. Standing charges refer to fixed daily fees covering supply connection costs, irrespective of energy usage. They vary by region and are paid even when no energy is consumed. Industry body Energy UK suggested that the impact on bills would depend on how these charges are redistributed on the bill.

However, a prominent research foundation believes it would be a progressive move, reducing a typical annual bill by £27, primarily benefiting low-income households.

During Prime Minister's Questions, Burnham stated that approving the Jackdaw gas field in the North Sea would enable the government to boost renewable investments and assist those with higher bills. He tasked Chancellor John Healey and Energy Secretary Mia Taffa Fahnbulleh with researching the possibility of removing standing charges from gas bills and reporting back as soon as possible.

Specific details on the implementation process have not been disclosed. Nonetheless, research firm Nesta proposed moving these charges to unit rates, so customers only pay for their actual gas usage. This approach could be advantageous for low gas consumers, while heavy users might face increased expenses.

For nearly two years, regulator Ofgem has been conducting consultations on standing charges, receiving substantial public input, including strong opposition from low-energy users. Ofgem is currently piloting low standing charge tariffs, but has not yet drawn any definitive conclusions, indicating the lack of straightforward solutions.

The average standing charges are 54.8p a day for electricity and 29.7p a day for gas. When inquired about scrapping electricity standing charges as well, the PM's spokesperson mentioned that VAT had already been reduced on electricity bills. However, these charges primarily cover infrastructure maintenance and the transportation of energy to homes via pipes and wires. They also fund schemes to support low-income households.

Citizens Advice cautioned about potential consequences for vulnerable customers, warning that reform could negatively impact those with lower incomes but higher energy usage. Madeleine Gabriel, Director of Sustainable Future at Nesta, argued that abolishing the gas standing charge and transferring costs to unit rates would aid those most affected by escalating energy prices.

Pressure remains on the Chancellor to provide more substantial, targeted energy support during the upcoming Budget, as energy prices are expected to rise by 16% to a four-year high in January. Standing charges, along with Burnham's emphasis on investing in renewables, are seen as potential ways to lower household bills substantially by breaking the correlation between gas and electricity prices in the current parliament.