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Chancellor John Healey has scrapped the “unfair and outdated” standing gas charge in his first Budget as part of a raft of measures to help people save money on their energy bills.
The change will affect around 23 million homes, helping nearly two-thirds of households to save an average of £45 a year.
The Chancellor said the abolition of the daily standing charge to gas bills will come into effect in 2027 at the earliest, meaning British consumers must get through a tough winter first.
MoneySavingExpert founder Martin Lewis welcomed the decision after meeting Mr Healey in Number 11 shortly before the Budget.
“The gas Standing Charge will be scrapped in 2027 (my guess, either for 1 October Price Cap or the 1 January 2028 Price Cap),” he said.
“It’s currently £108 a year. That cost will be shifted onto unit rates. We don’t know how much yet, but I suspect just under 1p per kwH.The Chancellor also said he will be talking to [energy regulator] Ofgem about how they get rid of the Charge on electricity as well, but that is “trickier” apparently and will take longer.”
The financial expert added: “This is primarily about the Price Cap Standing Charges. There will still be an open market, so other firms can offer other forms of prices with or without the Standing Charge. My suspicion is that once it goes on the Price Cap, it will tend to be reduced on other tariffs as well.”
It comes as part of a package announced by Mr Healey to help Brits during the ongoing cost of living crisis.
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He also unveiled a £100 ‘household energy payment’ that will be offered to 20 million households in council tax bands A-D to help meet energy costs this winter.
In addition, the VAT cut on electricity will be extended throughout the winter and spring to July 2027.
The removal of standing charges from gas bills has been welcomed as a “broadly progressive” move but is unlikely to ease high costs this winter, experts have warned.
Cornwall Insight, which provides widely respected energy price forecasts, warned the savings would be “small” in relation to recent bill rises, but said it could also give the transition to heat pumps a boost.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Scrapping the gas standing charge from as early as 2027 is a broadly progressive move that may help lower-income households who tend to use less energy.
“Given the timeline, it is unlikely to ease the high costs this winter, and the savings will be small compared with recent bill rises, but with the cost of living still hitting budgets, any reduction will be welcome when it comes.
“Shifting more of the cost onto each unit of gas could also give the energy transition a boost, making heat pumps a more attractive option against a gas boiler for higher-use households.”
He added: “There are trade-offs, however, as the money still has to be recovered. Higher unit rates mean people in badly insulated homes, larger families or those who need to keep the heating on to manage a health condition, could end up paying more.
“Some of them are the same vulnerable households this policy is meant to help, so making sure that they see the intended benefits of this change will be essential.”
Dhara Vyas, the chief executive of Energy UK, which represents firms, also welcomed the move as “good news” for many customers, but warned it would be important to support those low-income households who could otherwise lose out.
She said: “Our latest report with Mitsubishi Electric on reducing the price of electricity relative to gas – also known as the spark gap – to accelerate electrification recommended moving the gas standing charge onto the unit rate from April 2028, and stressed that the change needed to be accompanied by a social discount scheme to protect low-income households who have no choice but to use a lot of gas.
“Standing charges cover the fixed infrastructure and operational costs required to keep homes connected to the energy system, regardless of how much gas or electricity is consumed.
“These costs need to be recovered elsewhere and as any change will create winners and losers, it needs to be introduced carefully. So it is critical the Government and Ofgem work closely with industry and consumer groups on implementation to avoid negative consequences.”
Richard Neudegg, director of regulation at Uswitch.com, said: “Moving gas standing charges onto the unit rate is a sensible idea for the longer term.
“Paying a daily gas standing charge can grate for households that use very little gas, and can feel illogical over the summer or when homes have the heating off.
“Households that use less gas, such as those living in smaller homes, should benefit when this comes in. It will also give relief to those who have switched to electric heating but kept a gas connection and find themselves paying a standing charge for a service they don’t use for heating.
“But these costs won’t disappear. They’ll move into the price of each unit of gas, meaning that those using a lot of gas could be worse off.
“Based on current rates, a household using 7,000 kWh of gas a year could be about £40 better off under these changes, while a home using 14,000 kWh could be £25 worse off. A household using the typical 11,500 kWh shouldn’t see any change in what they pay.
“The Treasury says these changes will happen ‘in 2027 or as soon as possible after’. In the meantime, consumers face a difficult winter with further price cap increases on the horizon.”
