Martin Lewis: Will energy standing charges be cut?

1. 80% of homes are on the Price Cap. The Price Cap effectively dictates the amount most people pay, as it is in reality regulated pricing for the 80% of homes in England, Scotland and Wales who are on their firm's standard tariff. It’s called a Cap, but the vast majority of tariffs are at the full capped rate. That means it is Ofgem, the regulator, that is setting the standing charges people pay rather than firms.

2. Standing charges are a moral hazard. I've long campaigned for standing charges – the daily charge you pay just for having the facility of gas and electricity, even if you don't use it – to be cut.

This £300+/year energy poll tax is a moral hazard as it disincentives lower users to reduce use. It also means many elderly people who have gas only for winter heating pay every day in summer when they don't use it.

3. Ofgem has consulted on reducing them. Ofgem put out a consultation where it would shift a chunk of the standing charge onto the unit rate. Yet understandably, charities for ill or disabled people on low incomes objected, as those who need to use lots of energy (charging electric wheelchairs, or dialysis machines come to mind) would find the new higher unit rates difficult to cover.

4. I am pessimistic that Ofgem will change things without government action. This is not something that wasn’t thought of. I've written many times that the only way to make a standing charge cut really work is by Ofgem and the government working in concert so that standing charges are cut at the same time the government puts in specific support for vulnerable high users.

I have not seen any government plans for that to happen yet. Without it, I can't see Ofgem cutting standing charges, as it has to be a zero-sum game; the unit rates would be increased. While that would benefit many people, in its remit, it has to protect the vulnerable.

This really sits with the government to do something (I will make representations with @Ed_Miliband as I am due to meet him soon).

5. There is one possible route. There is one possible route that could help things. In our (my and MSE's) submission to the consultation, we argued for a dual Price Cap, so there are two:

• A low standing charges, higher unit rate one
• And a higher standing charges, lower unit rate one.
  

Do that, and then ensure people who don't switch (especially vulnerable people) are automatically defaulted by firms to the right one, and it would improve the situation.

I think the current mood music is there is much more chance of this happening than of a generalised cut in standing charges, and it would certainly be an improvement.