Question: Standing Charge Abolish & Fixed Term Energy Contracts

Section62

https://forums.moneysavingexpert.com/discussion/comment/82183844#Comment_82183844

The problem has been policy costs added to both in varying ways, but the premise itself of a standing charge is entirely rational.

The point is that applying a standing charge is only one rational way of charging for an energy supply. Having the 'fixed' costs paid for within a unit rate is also entirely rational, in part because some of the so-called 'fixed' costs are also demand dependent.

The local heating oil supplier charges per litre, with no standing charge. They have fixed costs of employing people, running a fleet of lorries, owning and operating depots, and all the other costs associated with running a business. They could argue that their fixed costs should be covered by charging customers on a 'standing charge' basis, but in terms of rationality there is no fundamental reason why their system of charging only on a per-litre basis is wrong.

The argument (if made) that standing charges are the only rational way of covering fixed costs simply isn't true. It then comes down to a debate about which method is 'fairer', and which better meets any policy objectives of the government.

dunstonh

The local heating oil supplier charges per litre, with no standing charge. They have fixed costs of employing people, running a fleet of lorries, owning and operating depots, and all the other costs associated with running a business. They could argue that their fixed costs should be covered by charging customers on a 'standing charge' basis, but in terms of rationality there is no fundamental reason why their system of charging only on a per-litre basis is wrong.

Although the homeowner pays for the oil delivery from the depot to their home. The homeowners pay for the tank and pipework, etc and the maintenance that goes with it. Gas and electric only pay personally after the meter.

The real problem with the standing charge is that it has moved on from being an infrastructure charge to being a catch-all for all sorts of things.

QrizB

For people wondering who the winners and losers will be, the Guardian had this chart:

Along the bottom is household income, on the left is saving. The box is the central 50% of households (ie. from 25% to 75%) and the range lines cover 10% to 90%.

Almost all households with an income of under £10k pa will be better off. Maybe 70% of households in the £10-20k and £20-30k bands will be better off (meaning 30% will be worse off).

Perhaps 60% of £30-40k households will benefit. Above £40k it's almost a 50/50 split, getting slightly worse as incomes increase. There are a significant proportion of over-£80k households who will benefit from this.

debitcardmayhem

@QrizB shows how the Grauniad is a rag. Two pension household 22000kWh gas £220 / year less £105 = £115 they must be earning c£200k +

QrizB

https://forums.moneysavingexpert.com/discussion/comment/82184253#Comment_82184253

I'm sorry I'm not following you at all there. Have you misunderstood the chart?

A two-state-pension household will generally have an income in the £20-30k range. While the £20-30k bar tops out at about +£60, you need to remember that the top of the bar is only the 90% point; 10% of households will be higher than the top of bar. Similarly the bottom of the bar is the 10% point, so 10% of households are lower than the bottom of the bar.

K_S

Congrats MSE, great first step in helping get the gas standing charge merged into the unit rate. I'm sure the electricity standing charge will follow in the coming year or two.

As a family of 4 living in a relatively leaky house, we'll probably pay a bit more that we do now (assuming no behavioural change) but I appreciate any move that makes energy charges simpler and strengthens the link between usage and bills.

Keep up the good work Martin! ❤️

StevieP21

No doubt this will end up costing the most vulnerable of user more

Scot_39

The timing being suggested for the new deal is 2027 (or as soon after as possible) - on the BBC today summary post the release of both the Treasury Red and OBR books for the budget and budget forecast resports.

Suspect there is not very much chance of it impacting a trial 1 yr low SC fix iirc - certainly not in this winters high consumption months

Its a future undated hope announcement - when the mitigations are costed - it might not even happen - rather than the somewhat underwhelming here's a £100 hard promise with a real date.

tfhnota

Unfortunately, Ofgem has been given the task of implementing the gas s/c cut so expect some eye-watering rises in the unit cost just to keep their mates in the industry happy rather than the consumer = best hope is it coincides with the end of the wars and crash in gas price, when the rise will be barely noticed in the context of the fall in gas prices.

EssexHebridean

And now we have confirmation in the budget that the expectation is that they will be following suit with the Electricity SC in due course.