Energy firm Ovo has joined calls for energy standing charges to be abolished for vulnerable customers as it confirmed it will not be passing on the latest increase from October 1.
Ovo chief executive Raman Bhatia warned that households were facing a prolonged period of high prices compounded by wider cost-of-living pressures that would leave millions struggling unless urgent action was taken.
The firm is calling for a social tariff to be in place by next winter, targeted at those customers who are the most financially vulnerable, and for the standing charge to be scrapped this winter for consumers who need support in the meantime.
The energy #PriceCap will change on 1 Oct 2023
If you pay by direct debit it's £1,923 – pre-pay is £1,949
It's based on typical use of an average home on a supplier’s standard default tariff
— Ofgem (@ofgem) August 25, 2023
The standing charge is a fixed amount of around £303 a year that people pay on their energy bill which does not change based on usage.
Ofgem’s recent announcement that it was lowering the energy price cap by around £150 from October 1 also included the detail that it was allowing standing charges to rise from 82p a day to 83p.
Ovo said it would not be passing on the increase to customers.
The standing charge, which has risen from 74p a year ago, is used to pay for many things, including the upkeep of the electricity and gas grids.
However, its critics say it is an unfair system which gives people less control over their energy bills.
It could mean a household which only uses gas for heating their home, and not for hot water or cooking, will still be charged during the summer months when their heating is off.
Although such homes are rare, it could leave people with charges they do not understand and can do nothing about.
Earlier this year, the boss of British Gas owner Centrica said that the system penalises those who try to keep their energy bills under control by reducing how much gas and electricity they use.
Centrica chief executive Chris O’Shea said the charge hit those were careful about their energy use hardest, and those on prepayment meters could unknowingly build up debts over the warmer summer months.
Octopus Energy chief executive Greg Jackson has also criticised the charge, arguing the cost should be moved on to unit rates with extra support for low income or disabled customers, giving people more control over their bills.
Mr Bhatia said: “Energy bills are set to stay high despite the recent price cap reduction. This leaves many households with stretched finances struggling to pay. We are calling for a reform of the unpopular standing charge and a social tariff for the most financially vulnerable.
“Our own customer support package will provide immediate support to our customers who need it most right now. By working with partners like StepChange we can continue to directly help people facing hardship this winter and beyond.”
StepChange chief executive Vikki Brownridge said: “This winter will continue to be challenging for households across the UK.
“Government must look at all options to deliver more to support consumers – particularly those on prepayment meters – ahead of another bleak winter. StepChange has long called for the implementation of a social tariff, which will help to shield the most vulnerable in our society from continued high energy costs.”