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Energy bill payers could save £152 under new plans to cut 'unfair' tax

24 June 2024 , 04:38
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A young woman looking at her laptop (Image: Getty)
A young woman looking at her laptop (Image: Getty)

It's a charge none of us want to pay - and with the cost of living still squeezing many to the pips, it's one many of us simply can't afford. Now proposals have emerged to cut so-called standing charges that could see your energy bills slashed.

Under the plans, every home with electricity and gas connections could see bills plunge by £152 a year. And it would partly be paid for by skimming excess shareholder profits.

The proposals could see standing charges - the fixed amounts you have to pay no matter how much you use - drop for both electricity and gas by just over £152. The cost would fall from £334.08 a year to just £183.02 - a near half (46%) reduction.

That would deliver a huge saving to hard-pressed families and householders. And senior figures are demanding that the charges - dubbed an 'unfair tax' by critics - are scrapped.

It's important to stress that this is just a plan for now. But with a General Election on the horizon, all those scrambling for votes are likely to be mulling over the recommendations.

So what exactly is being proposed? Well, campaigners have published a new discussion paper that is attracting a lot of attention - and those behind it want the new Government, whoever it is, to run with it.

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Future Energy Associates have outlined how standing charges for every household with electricity and gas connections could be slashed. They say the standing charge for electricity would see a 32 per cent decrease, from £219.42 to £149.17 per year, while gas would plummet from £114.66 to a mere £33.85 per year (71%).

Many people will wonder how that could become a reality. They say that to achieve these reductions, changes to Ofgem regulations would be necessary.

On top of that, there would need to be UK Government funding as well as protective measures for low income and high usage households, such as those dependent on energy for medical needs. It would need a significant shift in current policy - but could make a huge difference to ordinary householders.

So how would it happen? They say it might involve the introduction of a social tariff. That would be supported by well over half the population according to recent Opinium polling, and it could be funded through contributions from energy industry profits, including producers, networks and suppliers.

The analysts identified that up to £5 billion a year of costs on energy bills could be shifted to general taxation. Policy makers could remove these costs from all bills, which would also reduce electricity unit rates, or (for a lower cost to the Treasury of around £200m a year) remove the costs solely from vulnerable low income households with high energy needs.

There's more. The Warm This Winter campaign has commissioned an options paper that includes various strategies that could cut bills. They include transferring five elements of standing charges (the adjustment allowance, headroom allowance, profit allowance, payment uplift and levelling costs) entirely to the unit rates.

In addition, they propose shifting somer policy costs to general taxation. They also suggest revising the ratio of operating costs paid through standing charges versus unit rates to increase the amount on unit costs.

They say this would deliver an incentive to the energy market to drive down excess costs such as marketing. And they want to see a reduction in the standing charge elements of network costs by 10 per cent, to be funded by excess shareholder profits.

If all of these options - changes to standing charges and unit costs - were implemented together, campaigners argue that the average annual household energy bill could be reduced by as much as £214.22.

Dylan Johnson, one of the analysts involved in the report, said: "The comprehensive changes we have suggested would bring down standing charges and could also mitigate negative distributional impacts of standing charge reform previously identified by Ofgem. We would urge new ministers to meet with industry, consumer groups and experts to analyse how we can change standing charges in a way that is fair to all households."

Simon Francis, coordinator of the End Fuel Poverty Coalition, added: "Standing charges are an unfair flat tax on every energy consumer. Every household pays through the nose just to be connected to the grid, even if they use no energy.

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"In the past there has been caution about reform due to the potential impact of change on households with a high dependency on energy for medical needs, we still need further detailed analysis of these options by Ofgem to ensure that this group is not penalised.

"However, this report does indicate that reform of standing charges may actually be possible in a fair way. It will need Ofgem, the next Government, energy industry and consumer groups to work together to make it happen. The prize of cutting standing charges in half before this winter should be one which new Ministers seize upon."

Warm This Winter campaign spokesperson Fiona Waters said: "The energy crisis has already left bill payers £2,500 out of pocket since it started three years ago and we know energy bills will go up again in October.

"People up and down the country are literally at breaking point, are still paying 50 per cent more for energy and at the heart of these unfair bills are the standing charges. The public are crying out for action now.

"The next UK Government will need to act quickly, bring down bills for good, end energy debt, improve housing standards through insulation and ventilation and also make Britain a clean energy superpower so we are not at the mercy of profiteering global oil and gas giants."

Campaigners have also urged for a universal, consistent, nationwide, debt matching programme funded by the £1.3bn customers are paying through bills for energy debt costs this year, to support customers in energy debt.

Linda Howard

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