Chancellor John Healey has confirmed he will axe standing charges on gas bills, in a move that will benefit millions of households – but experts warn those in larger homes could be worse off.
Healey said he would ask the energy regulator Ofgem to remove standing charges ‘in 2027 or as soon as possible after’.
The Chancellor said the change will give families ‘breathing space’ and make the energy system fairer.
He said reform on standing charges imposed on electricity bills would be announced in due course. A VAT cut on electricity bills was extended to July 2027.
In today’s Budget, Healey also announced a £100 household ‘energy payment’ being made directly to people’s banks accounts this winter living in homes spanning council tax bands A to D. The scheme will cost £2.6billion, Healey said. About 20million households will get the payment.
He added that increasing a tax surcharge on banks from three per cent to six per cent for 15 months from January 2027 would help fund immediate support on energy bills.
This is Money examines what standing charges are, how much they cost households and how the scrapping of them on gas bills will affect you. We also outline what the Chancellor announced in respect of the new energy payment for certain households.
What are standing charges?
Standing charges are daily fixed charges added to energy bills that people must pay irrespective of how much energy they use.
Even if no energy is used, the standing charge will still apply.
The money from standing charges is meant to be used to cover network upgrades and other additional costs energy firms incur.
Under the current energy price cap, average standing charges for bills paid via direct debit are 55.83p per day for electricity and 29.68p per day for gas.
It means it costs households around £200 a year for electricity and approximately £108 a year for gas.
While the electricity standing charge has rocketed in the past decade, gas standing charges – those Healey is targeting – have remained fairly steady.
Axed: John Healey has confirmed that standing charges on gas bills are being scrapped
What has Healey announced?
Healey has confirmed he will scrap gas standing charges in the Budget today, as households battle even higher energy bills – but changes will not bite in time for January, when the Ofgem set price cap is set to soar.
The decision to scrap standing charges on gas bills will affect tens of millions of people.
Households will see the cost of the standing charge added to the unit rate instead, which is the price paid for every kilowatt hour (kWh) of gas used.
The Government estimates 60 per cent of households will save an average of £45 per year once standing charges on gas bills are scrapped.
The axing of standing charges on gas bills will take place by 2027 at the earliest, the Chancellor said.
It is expected that the standing charges on gas bills will be scrapped on either October 1, 2027, or January 1, 2028. Both of these dates will be when a new energy price cap is announced.
Pricier standing charges on electricity bills will remain unchanged.
We do not yet know how long the changes will remain in place, whether they will be temporary or permanent, or what the implications could be for customers on fixed-rate tariffs, experts at GoCompare said.
How will household gas bills be affected?
Households using only a small amount of gas or people living in smaller homes should be better off once standing charges on gas bills are scrapped.
Richard Neudegg, director of regulation at Uswitch.com, said: ‘Moving gas standing charges onto the unit rate is a sensible idea for the longer term.
‘Paying a daily gas standing charge can grate for households that use very little gas, and can feel illogical over the summer or when homes have the heating off.’
The change should also help people who have switched to electric heating but kept a gas connection and find themselves paying a standing charge for a service they do not use for heating.
Based on current rates, a household using 7,000 kWh of gas a year could be around £40 better off under these changes, according to the comparison website.
Andrew Sissons, director of innovation agency Nesta, said: ‘This measure will provide relief to the poorest households who ration their gas use but it will also mean that switching to electric heating such as heat pumps is a better deal for some households that use more gas.’
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: ‘Given the timeline, it is unlikely to ease the high costs this winter, and the savings will be small compared with recent bill rises, but with the cost of living still hitting budgets, any reduction will be welcome when it comes.
‘Shifting more of the cost onto each unit of gas could also give the energy transition a boost, making heat pumps a more attractive option against a gas boiler for higher-use households.’
How will larger families be affected?
Mr Neudegg adds: ‘Large families are the group to watch.
‘More people in a home usually means more hot water, more washing and cooking, and more heating, so they tend to use more gas.
‘When gas standing charges move onto unit rates, they’ll pay more towards these costs.
‘A home using 14,000 kWh of gas a year, which is Ofgem’s level for a high user, could be around £25 worse off based on current price cap rates.
‘Larger or less efficient homes using more than that would be hit harder.’
Lowrey said: ‘Higher unit rates mean people in badly insulated homes, larger families or those who need to keep the heating on to manage a health condition, could end up paying more.
‘Some of them are the same vulnerable households this policy is meant to help, so making sure that they see the intended benefits of this change will be essential.’
What is the new ‘energy payment’ for certain households?
In the Budget, Healey announced the introduction of a new ‘energy payment’ to help households with energy bills. But there is a catch. Only certain households will get the payment.
Healey said that the £100 energy payment would be paid directly into the bank accounts of households living in properties in council tax bands A to D this winter.
The £2.6billion scheme will ‘take the pressure off in the coldest months and see people through to the Spring’, Healey said.
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Every residential property in England, Wales and Scotland is assigned a council tax band. The bands go from A to H and the band you are in dictates how much council tax you pay. H is the highest band for council tax, while A is the lowest.
Some people’s council tax bands are incorrect, so get yours reassessed if you think it is wrong.
Adam Rolfe, policy and public affairs officer at Money Wellness, said: ‘A £100 payment straight into people’s bank accounts will help, and it’s quick, which matters when bills are going up in January.
‘But using council tax bands to decide who gets it is a blunt way of working out who needs it most.
‘There are families on low incomes living in band E homes who will get nothing, while some well-off households in smaller properties will get the money whether they need it or not.
‘People also need to be careful about how this money reaches them. If your bank account is overdrawn, the payment could disappear into your overdraft before you can use it for your energy bill.
‘And the last time payments like this went out, scammers sent fake texts and emails asking for bank details. Your council will never text you asking for your card or PIN, so if you’re unsure, contact the council directly.’
What is happening to energy bills?
Energy bills are still rising and the financial strain on households will ramp up further next year.
Typical energy bills, which were £1,663 a year, increased by 3.6 per cent on October 1 meaning households that pay by direct debit can expect to pay about £1,723 a year.
Ofgem sets a cap on the amount suppliers can charge customers who are on variable rate tariffs.
The energy price cap is designed to protect households from being overcharged.
But energy prices are volatile and beholden to geopolitical events. War in the Middle East has been disrupting supply, which pushes up wholesale prices.
And further pain is expected for households next year. Consultancy firm Cornwall Insight said it expected the January 2027 energy price cap to rise by 16 per cent – or £1,999 – piling pressure on Labour to intervene.
Other energy firms have predicted even steeper rises.
Healey has already signalled that more energy bill help for the poorest, including those on benefits, will be announced in today’s Budget.
Neudegg said: ‘Breathing space is what the Budget offers households this winter, but it doesn’t change what’s coming in January. A 27 per cent increase is forecast for homes on standard energy tariffs, landing in the month they use the most gas, which could add £464 to a typical home’s annual bill.’
