Ofgem proposes introducing zero standing charge tariffs

Mandating energy suppliers to offer low or no standing charges and better support for households struggling with debt are among planned improvements to the energy market announced by Ofgem today [Thursday 12 December].  

The regulator will consult on introducing an option under the price cap to include zero standing charge tariffs alongside existing tariffs, offering consumers the ability to choose what is right for them.  

Some suppliers already offer low- or no-standing charge tariffs, but it is not universal, and Ofgem believes more choice is needed for all consumers, including those in debt.  

Tens of thousands of consumers responded to Ofgem's call for input on standing charges, with many asking for standing charges to be removed altogether, saying that reducing or removing standing charges would make it easier for them to manage their bills or pay back debt.  

However, there was also evidence of the risk of harm to some very vulnerable consumers who are high users of energy, often for medical and health needs if the fixed costs currently covered by standing charges were moved to unit rates, which would see their bills rise significantly. So it is important that consumers have the ability to make the right choice for their own circumstances. 

The regulator has also today set out its debt strategy, which aims to tackle the growing impacts of rising debt in the energy system, and to create lasting change in the way debt is managed and customers in debt are supported.  

Ofgem has followed best practice guidance from the finance sector to propose new supplier standards that will make it easier for the customers struggling to pay their bills to get support. This includes ensuring a consistent approach is taken when assessing a customer's ability to pay, with the help of charities and debt support agencies. Consumers would also have greater clarity on how their supplier can help with debts which will help limit the risk of consumers getting into debt in the first place, and of unsustainable levels of debt building up in the future. 

Alongside this, Ofgem has also announced proposals to address debt that was built up during the energy crisis, when energy bills reached unprecedented levels. The level of debt built up during that period has become unsustainable, and requires a bespoke, one-off solution to tackle it that will drive down the costs of debt in the long term for the benefit of all consumers.  

Ultimately any scheme would be cost neutral, in that it would lead to lower overall bills against the counterfactual of not intervening, and contribute to lowering the overall cost of debt and therefore bills over time.  

Currently, all consumers pay through their energy bills for the cost of debt to suppliers – but the customers' debts themselves are not always forgiven. And the extreme levels of debt remaining from the energy crisis are unlikely to be fully recovered without intervention.  

Tim Jarvis, director general of markets at Ofgem, said: “We know that many households continue to struggle with bills after the events of the energy crisis, which is why earlier this year, we took steps to consider all the issues around affordability and debt – including the impact of the standing charge. 

“Today we're setting out the next steps in what Ofgem can do to meet these challenges, as part of our work to make sure the energy market is working in consumers' interests. 

“Many people feel very strongly that standing charges are unfair and prevent them from being able to manage their bills effectively.  

“We want to give consumers the ability to make the choice that's right for them without putting any one group of consumers at a disadvantage. And by having a zero standing charge tariff, we would create that choice for everyone. 

“We have also set out plans to increase and standardise the support people struggling with energy debt will receive, as well as options for practical help for those households who are in real difficulty with debt built up during the energy crisis. 

“We will continue to use all the tools at our disposal to support customers but know there is more to do, so it is important that all of us – Government, the sector and charities – do everything we can to help those who need it."

The proposals put forward by the regulator today follow a paper published in August which set out a number of short-term options to reduce the standing charge, which covers the fixed costs for the provision of energy that everyone has to pay. 

Earlier this year Ofgem also published a Call for input on Affordability and debt in the domestic retail market , which explored the wider challenge in the energy market, and what more could be done to protect and support consumers struggling with their bills.  Since the call for input, debt and arrears have continued to grow, reaching £3.82 billion in September 2024, a 91% (£1.82 billion) increase in two years. 

The proposals announced today aim to reset the debt that has built up in the energy system following the energy crisis, and reform the way debt is managed in the long-term to limit the risk of unsustainable levels of debt continuing to build up in the future.  

The regulator is also proposing to introduce a clear Debt Guarantee as part of its drive to improve the standard of service offered by suppliers supporting people in debt. This will mean customers can expect consistent, compassionate and tailored support that helps them to manage their debt or arrears. 

The changes could also include:  

• Introducing new rules to make the ability to pay assessments more consistent across suppliers, ensuring that consumers are able repay their debts in an affordable and sustainable way.   

• Requiring suppliers to accept debt repayment offers from reputable third parties, such as debt advice agencies or consumer organisations. This would make it easier for households struggling with their bills to get help and improve collaboration between suppliers and third parties.  

• Making our rules tougher on suppliers' processes for working with third parties acting on behalf of consumers and developing best practice guidelines with the sector on how this works on the ground.  

•  Improving how suppliers can help consumers struggling with their bills access additional support they may need from a different organisation. 

These proposed changes sit under Ofgem's Consumer Confidence and Consumer Vulnerability Strategy work programmes. These aim to reform the market to deliver five-star customer service fit for an increasingly complex market transitioning at pace towards net zero and ensure good outcomes for consumers in vulnerable situations. It also builds on the Consumer Standards work, such as changes introduced last year to support customers struggling with their bills. 

Notes to editors

• The proposals outlined are the focus of two consultations, ‘Resetting the energy debt landscape: the case for a debt relief support scheme' and ‘Improving debt standards in the domestic retail market'. Both consultations will close on Thursday 6 February 2025, and the regulator will accept joint responses covering both documents.   

• Full details on Ofgem's Consumer Confidence programme can be found here: Consumer confidence: a step up in standards | Ofgem 

• Ofgem will publish a consultation on the standing charges proposals in the new year. This will include mandating a zero standing charge tariffs alongside existing tariffs, offering consumers the ability to choose what is right for them. 

• The latest debt and arrears data can be found here: Debt and arrears indicators | Ofgem