What does the abolition of the gas standing charge mean for households?

This blog was originally published on the Resolution Foundation’s Substack.

While the £100 Household Energy Payment grabbed most of the headlines, another energy bill change announced on Wednesday has got less attention. But John Healey’s request for Ofgem to abolish the standing charge on household gas bills by the end of 2027 will also affect future bills. And because it’s a regulatory change, the Treasury leaves it out of its distributional analysis. So here we’ve tried to fill that gap and understand who will win – and lose – from this switch.

The standing charge, £108 a year for the typical billpayer, is paid by every gas-connected household however little gas it uses. Suppliers will recover it through higher unit rates instead, so the change costs the Exchequer nothing, and efforts to reduce the disparity between gas and electricity costs will – in a small way – help to make the case for more heat pumps in homes.

But it is not free: it moves around £600 million a year from households that use more gas to those that use less, with no regard to their incomes. In effect, it adds to what we at RF have dubbed the “shadow tax and benefit system hidden within energy bills”, with the transfer set by a regulator rather than in a Budget.

Still, upfront, there is a lot to like about it. Standing charges make up a much bigger share of low energy users’ bills than higher users: at today’s prices the charge is an eighth of a typical gas bill, but more for those who use less gas. Prepayment customers who self-disconnect also keep building up standing charges as debt, which abolition would end. The catch is that gas unit rates would rise by around 10 per cent – at a time when they are at record highs with little chance of falling back to earth.

Not all households will benefit. We estimate that 13.3 million (48 per cent) of households in Britain would be better off, by £46 a year on average, and 9.9 million (36 per cent) would be worse off, by £61 – the losses are larger because the same sum falls on fewer households. The other 4.5 million (16 per cent) are not on the gas grid so will be unaffected. But for the typical household the change is small: the median gas-connected household would gain just £13 a year, less than 1 per cent of a typical energy bill in 2026-27.^[1]

There are winners and losers in every income group: which side a household lands on depends on how much gas it uses, not on how much it earns. The pattern by income is very mildly progressive (Figure 1). Half (50 per cent) of households in the poorer half of the income distribution would be better off, compared with 46 per cent in the richer half. The picture is similar at the ends of the distribution – 47 per cent of the poorest fifth would gain, against 44 per cent of the richest fifth.

Figure 1: The spread of winners and losers from abolishing the gas standing charge is relatively flat across the income distribution

The bigger divide is by household size, which we show in Figure 2. Larger households use more gas, so would lose out more: 54 per cent of households with two children and 58 per cent of those with three or more would be worse off, paying £20 and £35 a year more on average, respectively. By contrast, nearly two-thirds (65 per cent) of single pensioners would be better off, saving £28 a year on average.

Figure 2: Most households with two or more children would be worse off from abolishing the gas standing charge

The timing of payments changes too. January to March accounts for 43 per cent of a year’s household gas use. Turning a flat daily charge into a higher unit rate pushes more of the bill into winter, by moving a daily charge into one concentrated in times when consumption is high.

For a household using Ofgem’s typical 9,500 kWh a year, payments between October and March would rise by around £20, and those between April and September would fall by around £30. Prepayment customers, who pay as they go, would see more of their bill land in the months when money is tightest – and all would become more exposed to the cost of a cold winter.

The Government has promised “targeted mitigation” for households that lose out but has not said what it will be. Our analysis has shown that it should focus on lower-income families with higher energy use, such as those with children. The difficulty is that the Government still has no tool to find them – even four years into an energy bill squeeze. The benefit system, through which help like the Warm Home Discount is passported, reaches only around a quarter of households and misses most of those in the poorer half of the income distribution.

A social tariff, on the other hand, could shield those for whom higher gas prices pose a welfare risk, allowing the benefits of abolishing the standing charge to be banked while mitigating the risks at the sharp end – as well as helping families struggling with the high cost of energy today. Without it, every reform of this kind – including the overhaul of electricity standing charges promised for next year – will be yet another untargeted transfer between billpayers.

Jonathan Marshall is a Principal Economist at the Resolution Foundation. You can follow him on Bluesky here.

^[1] Based on a typical consumption level of 9,500 kWh of gas per year.