Healey moves to scrap gas standing charges, with Ofgem asked to deliver

Chancellor John Healey announced on Wednesday plans to scrap gas standing charges for around 23 million homes, and will ask Ofgem to deliver the change in 2027 or as soon as possible after.

The charges have not gone yet: the regulator must put the change into effect, and no firm start date has been set.

A standing charge is a fixed daily fee added to a gas bill, whatever the amount of gas used. HM Treasury put the typical household cost at £108 a year.

Under the plan, those fixed costs would be recovered through the unit rate instead, meaning the price paid for each unit of gas used.

According to HM Treasury, that could save 60% of account-holding households an average of around £45 a year off their annual bill.

The £45 figure comes from the department’s own modelling, using Office for National Statistics Living Costs and Food Survey data and the Office for Budget Responsibility’s 2026 Spring Forecast assumptions.

The modelling is static, so it does not allow for households changing how much gas they use in response.

That leaves around four in ten account-holding households without a guaranteed saving. The Treasury said they would still have better control over their bills without the worry of affording the standing charge.

It also said the government would set out targeted mitigation for a small number of households in due course, without giving details.

Healey described standing charges as "unfair and outdated", and said scrapping them would give millions of households "a bit of breathing space".

Ofgem has long said the costs behind standing charges do not disappear when the charge is removed. In an earlier consultation on zero standing charge tariffs, it said they can only be moved to another part of the bill.

The regulator said tariffs without a standing charge would therefore carry a higher unit rate, and would not automatically save money for every customer.

Ofgem also warned of a risk of harm to some customers in very vulnerable circumstances who use a lot of energy, often for medical reasons, if fixed costs moved to unit rates.

Charlotte Friel, Ofgem’s director for retail pricing and systems, said at the time: "The costs included in the standing charge ultimately have to be paid."

That earlier consultation closed on 20 March 2025 and proposed that such tariffs be available for winter 2025/2026, as an option for customers rather than a universal change.

The new plan goes further, because it would remove gas standing charges for all households rather than offer a choice of tariff.

Greg Jackson, founder and chief executive of Octopus Energy Group, said most customers would see a cut in their gas bills, which he called "crucial".

He added that households able to move to heat pumps when it suits them would enjoy even higher savings, and that the change would improve the ratio of electricity to gas prices.

Standing charges are built into the price cap. Ofgem’s figures show the cap at £1,723 a year from 1 October to 31 December 2026, up 4% on the previous period.

Ofgem said that comparison is not like for like, because there is no VAT on electricity from 1 October 2026 to 31 March 2027.

The Treasury said that VAT cut left the October cap £45 a year lower than it would otherwise have been.

Ofgem says standing charges differ by region, reflecting the number of people, average energy use, the energy suppliers must buy and the cost of building and improving networks.

The Treasury said the change was announced ahead of the Budget, which it said would draw a line under energy policy that has left billpayers exposed.