No Standing Charge Electricity and Gas Tariffs: OFGEM says they’re coming, but will they save us money ?

 Why are No-SC tariffs important, and when are we likely to see them ?

Our Electricity prices in UK are acknowledged to be the highest in Europe. 

Despite this rather serious indictment of our pricing structure, as discussed in a previous blog, our Electricity and Gas suppliers have continued to penalise low users by first re-introducing, then continually hiking up their standing charges (SCs) to hitherto unprecedented levels. This has not so far been challenged by the regulator, but has caused much resentment and complaints amongst consumers, who object to 'paying through the nose for not using any energy' as they see it. 

Figure 1 shows the true injustice of the policy by comparing the effective per unit price paid by consumers at different levels of annual consumption. A very low user (e.g. someone living on their own and only using electricity for lighting and low wattage appliances) with an annual consumption of only 200 KwH would pay a whopping £1.31 per KwH, whereas someone on the UK 'average' of 3000 KwH would pay only ca 31p per unit. This cannot be regarded as 'fair' in any sense of the word.

The policy has for many years disadvantaged the low-user community, mainly made up of singles living on their own.  Particularly hard hit have been some pensioners who do not qualify for pension credit or have not been able to apply for it. The rapid increases in their fuel costs in recent years and only the meagre state pension to exist on, has severely challenged their finances, in some cases even leading to a stark choice between 'heating and eating' over the winter months. An additional blow to 10 million pensioners this autumn was Reeves’ cruel and indefinite withholding of their winter fuel payment. It was also a relatively cold winter by recent standards, with some significant rises in the excess death rate statistics already emerging as a result. This should (but apparently hasn't so far) challenge the consciences of our policy makers...... 

Consumers generally have now wakened up to the fact that our energy charges are the highest in Europe, and have started to question the inefficiency and profiteering of the supply industry which appears to be responsible for this. The latest above-inflationary price cap rise from April already announced (Feb 25th) certainly won't help dispel the widespread impression that OFGEM is effectively 'in the cartel's pockets'.

The marketing policy adopted by the UK’s suppliers is undoubtedly aimed at maximising standing charges across the board, as you might expect. This policy actively singles out low users by forcing them to pay an effective per unit rate that is much higher than is paid by higher rate users. At a time when our focus is on reducing consumption of fossil fuels and indeed energy generally, which is necessary to eke out increasingly scarce fossil fuel supplies and help mitigate climate change,  the morality of this behaviour is at best questionable..... 

‘Net Zero by 2050’ is now enshrined in UK law, thus any behaviour which positively encourages those who over-consume and penalises 'energy savers' in the name of profit could well also prove to have legal consequences for suppliers in the future.

‘…"Twas ever thus" the pragmatists among us would say, “..in a capitalist world, market forces will always prevail”. 

We cannot, however, afford to go on turning a blind eye to our suppliers being given 'carte blanche' to promote wasteful use of the scarce resources they are privileged to supply us with, in the name of profit.  Apart from encouraging yet more  consumer debt, they are effectively polluting the one and only atmosphere that supports life on this planet with fossil fuel emissions...and driving even more rapid climate change. A new model which encourages more restraint clearly must be introduced….and soon.

OFGEM, whose ‘light touch’ approach has allowed suppliers to get away with their profit-focused excesses for many years, finally took note of adverse public opinion on the matter in 2024, and published their plans to introduce a requirement on all suppliers to offer at least one No-Standing Charge (SC) tariff as an alternative to their existing portfolio, since virtually all of their current offerings have some form of SC element. 

We don't yet know whether the tariff structure will be a simple replacement of the standing charge by a single higher unit rate, or a tiered structure with a higher rate for the first x units used over a set period of time. 

“…Great..and high time too….” I hear many of you say, but what type of pricing structure will they allow companies to introduce for the new tariffs…and when will it actually happen ?  Believe it or not, there is still some doubt as to whether the 'can will be kicked down the road' on this issue yet again - the present government have already shown themselves to be rather adept at doing this with anything remotely beneficial to the consumer/taxpayer.

Whatever happens (or doesn’t !), you can be sure of one thing…the industry will need to be ‘dragged kicking and screaming’ back into the No-SC tariff arena if any progress is to be made.  The idea of not being able to continue charging all of us just for having a supply and not using any gas or electricity is way out of their marketing ‘comfort zone’. OFGEM will need to be far more robust with them than it has in the past to make it happen, and must also mandate a cap on the maximum No-SC unit rate they can charge.

This cap on unit rates needs to be no more than 50% above the unit rate of their standard variable rate (SVR) tariff. If OFGEM don’t impose this, energy suppliers will simply set the unit rate so high that switching will always be more expensive for the majority of users, and few consumers, if any, will then decide to bother doing so. If we want to be fairer to low users and encourage lower energy use across the board, we have to provide suitable incentives in the form of more favourable pricing.

What is the timetable for the changes ? Firstly, we should be cautious about assuming it will happen at all. As discussed, this government (and indeed its predecessors!) have shown themselves adept at kicking important projects which are perceived to be 'too difficult' into the long grass...witness their latest effort in deferring the readout of yet another Adult Social Care report until 2028. Assuming things do eventually change, significant reform could still be years in the making on this critical aspect of our healthcare system. (I note that Streeting recently announced a preference for any new money to go towards Social Care rather than hospitals - perhaps the message is getting through at last).

That said, OGFEM actually published consultation documents in December, with a closing date for comments of 6^th February and I quote “..will publish a consultation on the standing charges proposals in the New Year..”, which does suggest they at least may mean business...this time.

How long it will actually take them to produce any recommendations, let alone mandate new No-SC tariffs, is anyone’s guess, although there is strong pressure from consumer lobbies to make at least some No-SC tariffs available before the start of winter 2025-6. In common with all so-called 'Qwangos' just now, OFGEM will be keen to justify their existence in an attempt to avoid being swallowed up by Starmer's voracious government 'maw' and going the way of NHS England.  Let's hope this spurs them into decisive action at last.

In this context, it is interesting to note that a plethora of fixed term tariff-switching offers have appeared recently - the suppliers involved claim to be doing this to "....beat the April price cap increase...". The real reason, I suspect, is that they want to tie as many of their customers as possible into conventional SC tariffs with exit penalties before the No-SC tariffs are mandated by OFGEM and start to become available this autumn. If they don't do this, they risk losing significant numbers of their existing customers if their unofficial cartel agreement breaks down and a 'switching price war' develops.

Apart from anything else, there is an immediate need to prevent further increases in the consumer energy debt burden, which has mushroomed since energy companies were allowed to continue ‘ripping off’ consumers with ever increasing SC charges and escalating unit rates. The energy companies themselves are concerned about this particular consequence of their actions; the consequent developing consumer debt default problem has even started to worry the Treasury.

Is the new No-SC tariff I’ve been offered worth switching to ?

Assuming we are ever offered No-SC tariffs by our suppliers, how do we, as consumers, work out whether a new No-SC tariff our current supplier is forced to offer us is likely to save us money ?

The calculations involved in answering this question may not be straightforward for everyone, since the answer will depend on personal usage and circumstances. It will also depend on the complexity of the tariff structures suppliers come up with in an attempt to deter uptake and thus maintain their profit margins. 

Help is available , however....

I compiled a simple app some years ago for my own use in the balmy days before the cost of living crisis hit, at a time when No-SC tariffs were still widely available from competitive smaller suppliers. As a relatively low user myself, I did this to help me assess the viability of No-SC offers which were on the market at the time. I’ve revised it and made it available for general use with a step by step guide on how to use it.

I hope it may be a help to those who would prefer to avoid poring over their fuel bills with calculator trying to figure it all out for themselves from scratch. 

The app requires MS Excel 2010 or later, and you can download it (No-SC Tariff Calculator.xlsx)  from my website’s download page. (It was originally written for pc, but as a simple macro-free workbook, it should also run on Android or Apple smartphone Office emulator apps such as WPS Office)

The Excel app requires values for your average Gas and Electricity consumption over a full year (you can get this by looking at your past bills or just estimating based on your current monthly consumption). You will also need to enter the Standing Charges included in your current tariff in pence per day, and the per unit rate in pence per kilowatt hour (KwH) for each fuel. 

Once you’ve entered these values, the app will tell you the No-SC unit rate that would cost you the same as your current tariff does at your current level of consumption. You can then see immediately whether the new No-SC unit rate offered would be more favourable. 

If you also enter the unit rate for any new No-SC tariff you’ve been offered or are considering, the app will tell you how much you would be likely to save (or lose!) if your consumption levels stay the same. There is a user guide attached on a separate sheet and on-screen help in the form of comments (red triangles attached to the relevant cells). 

If you wish to model a 2-tier monthly threshold structure for your usage level, I've included modelling for the two alternative types of No-SC tariff that have been mooted so far - one of these is already offered by Utilita. Their tariff waives the standing charge in return for charging at a substantially higher unit rate for the first 2 KwH used on each day. All subsequent units are charged at a rate marginally above their SVR rate. For very low users, this can still work our cheaper for electricity than SVR even though all their units are charged at the higher rate. It does of course require a smart meter, since it would not be practicable for consumers to submit daily readings themselves. Please follow the instructions in the guide if you wish to model these options.

One word of warning concerning switching - you’ll note I’ve highlighted the phrase dealing with consumption level; it’s important to note that a No-SC tariff will always have a significantly higher rate to cover costs normally included in the standing charge element. 

Switching may well leave you worse off financially if your consumption rises unexpectedly after you’ve switched, particularly if you opt for a fixed rate tariff with an exit penalty, as any new No-SC tariffs are likely to be for deterrence purposes. This is because a No-SC tariff favours low usage, and the more power or gas you use, the sooner the cost will overtake that of your current SC tariff. You might perhaps need to use more energy because of illness, or changes in personal circumstances – please do consider this possibility before making the decision to switch.

Final Thoughts

I hope this blog, and the calculator that comes with it, will be useful - once OFGEM’s consultation is complete (scheduled for late March 2025) and suppliers are obliged to offer No-SC tariffs again. 

The recognition that standing charges are unfair to a lot of consumers in the energy industry leads logically to the question "who's next ?"...the water industry, perhaps ?

If I were in charge of OFWAT, I would already be 'girding my loins for the fray'. Given the recent furore over Thames Water, who appear to have just escaped nationalisation by the skin of their teeth this week, more detailed scrutiny of charging practices in the  water industry is inevitable...and will probably come probably sooner rather than later.

More on this in a future blog, I suspect....

Update 15.3.25: This month's announcement of OFGEM's new price cap has finally filtered through to suppliers' revised tariff charges. It looks from an email from one (British Gas) just received that there has been some slight movement in the electricity standing charge for the SVT tariff (down ca 13% from April 1st), although all other elements (including the gas standing charge) have risen again by around 10%. This may reflect a decision based on the current OFGEM consultation on SCs,  which was introduced in recognition of marked customer dissatisfaction with suppliers' habit of disproportionately increasing standing charges. The consultation phase is due to complete on March 20th. As yet there is no word on how (or by how much) fixed costs will be transferred from the SC to the unit rate. I still suspect a 'fudge' will be made to ensure suppliers' profits don't suffer....

Further updates to follow…..

First published 20.1.25

Revised 22.3.25

 Figure 1: Electricity: Effective Cost per Unit vs Annual Consumption (SC=56.1p; UR=24.1p)