Martin Lewis: Why are energy standing charges so high? What can be done?

High standing charges are a moral hazard…

Keeping the standing charge high means lower users can save proportionately less and less by reducing usage – that disempowers them – and is a disincentive to energy reduction generally, which is not great for the environment.

It also means that prepayment users can find themselves in energy debt in the summer, because they're not using energy but the meter is still ticking over because of the standing charge – a terrible, unnecessary situation for the payment type used by many of the most vulnerable.

I have long campaigned for lower standing charges. MSE has submitted our consultation response to a new Ofgem proposal on this about shifting some of the cost of the unit rates.

Why Ofgem sets the cost of the standing charge so high

This is to cover some of the 'fixed costs' of energy, which it believes should be mostly shared equally. The fixed costs are especially loaded on to the electricity standing charge, as that is 'more universal' than the gas one.

These costs have rocketed over the last few years, for a host of reasons, including covering the costs of the energy retailers that went bust (which is about 6% of the standing charge cost), and there have been large increases in policy and networks costs.

I know some will be saying: "I thought it was more about the green levy, or the costs for firms going bust was bigger". Yet some of that is within the unit rate – and what's often quoted is the cost of those things a 'typical user' pays. This is about the standing charge, ie, what you'd pay on zero usage.

Here's a pie chart of how the cost of the standing charge is currently apportioned on a typical dual-fuel bill, according to Ofgem. Many of these are complex mixed costs, I've tried to explain roughly what most of them are, but it's not simple, I just wanted to give you an idea.

Move some of these costs to the unit rate

There is, in my view, no need to lob as much fixed cost on to the standing charge as we do, some of them can be moved to the unit rate. This is simply about where you place the burden (the discussion of how much burden there is needs to be separate from this).

MSE and I are arguing, in our submission to Ofgem, that there should be a more progressive split – with some cost moved to the unit rate. This would mean cutting usage has more impact on cutting bills – that empowers people to take action that's good for themselves and likely the environment too. I'm not alone on this, in a poll done in June, the vast majority of people favour it...

It should be noted that poll is not of a statistically representative sample, but it certainly shows there are very many people agitated about this issue.

There is only one 'no standing charge' tariff

The energy firm Utilita doesn't have a standing charge, it's currently available as a priority for new prepay customers (though it may allow those on direct debit who call to switch to it).

Instead it charges a much higher unit rate for the first 2kWh of daily use – which effectively works a bit like a standing charge, unless you have absolutely zero or very low usage.

Overall, this means for most users it works out roughly similar to the Price Cap on typical use. Yet for those who are away for very substantial periods or don't use any energy for periods, it could work out cheaper.