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Wealthier households could be made to shoulder higher costs for running and upgrading the UK’s network of energy cables and pipes to help low-income bill payers under new plans to be considered this summer.
The proposals could mean that high-income households will pay more via the standing charge on their energy bills, while those who are not in work or are on low pay are charged a discounted rate.
The energy regulator, Ofgem, is expected to consult the industry on the proposals as part of a root-and-branch review into how the costs of upgrading Britain’s energy networks can be recovered through home energy bills in a way that is fairer.
Jonathan Brearley, the chief executive of Ofgem, told an industry briefing the “wide-ranging examination” of how to allocate the energy industry’s costs would “raise the question of whether there is a more progressive way to pay”.
He told reporters this would include investigating whether there were ways to attach the final cost that households pay to their household income.
“It’s a question that we need to answer as we go through this transition and as we think hard about getting to a place we want to get to,” he said.
Under the current system, the cost of maintaining the wires and cables that deliver the gas and electricity to homes and businesses is recouped through standing charges on home energy bills. These fixed daily charges, which also include the cost of fitting smart meters and other policy costs, are applied to energy bills whether you use any energy or not.
This means cash-strapped households who are unable to heat their homes still bear the full brunt of covering energy network costs. Vulnerable consumers who are often high users of energy – for medical or health needs – also end up paying above the odds to maintain the grid.
The standing charge has ballooned in recent years, and the cost could climb further as the UK prepares to invest heavily in upgrading its electricity grids to meet the government’s goal of creating a clean energy system by 2030. The charge averaged £182.27 a year five years ago and has climbed to an average of £334.07 a year – or nearly a fifth of the average annual energy bill.
The consumer champion Martin Lewis has described the charges as “a moral hazard, disincentivising lower users from cutting their bills”, saying they are “by far the biggest single subject of complaint I get from the public about energy bills”.
The network costs were initially moved into the standing charges in 2022 and 2023 so that affluent households who could afford to fit their own solar panels, and thus use less energy from the grid, would still pay their share of its maintenance.
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The regulator’s previous analysis has shown that if the electricity standing charge was included in the overall unit rates that apply to how much energy is used, then about 5.5 million low-income households who are able to use less energy could benefit by £44 a year.
But the same analysis found that another 1.2 million low-income households who are unable to rein in their energy use – due to a draughty home or the need to run medical equipment – would pay £88 a year more by switching to a higher unit rate that includes the network costs.
“Inevitably there are big pros and cons and big operational challenges before any final decision could be made,” Brearley said.
