Dr Jaydeep Bhadra, domestic sector technical manager at CIBSE, examines the potential implications of revisiting gas standing charges, exploring how changes to the way households pay for energy could affect the transition to low-carbon heating
On 21 October the prime minister asked the chancellor and the energy secretary to look at whether standing charges can be removed from gas bills. It was a line at Prime Minister’s Questions, not a policy. Nothing has been decided about how it would work, and that is exactly why the building services sector should engage now. The design will decide whether this helps or hinders the move away from gas boilers.
There are two very different ways to “remove” a standing charge.
Route one: Rebalance
The gas standing charge – a daily charge paid by consumers irrespective of how much gas is actually used – is 29.68p a day under the current price cap, about £108 a year. The proposal is that this cost moves to the gas unit rate.
Nesta, which proposed the idea, estimates the typical dual fuel household would save £27 a year, with poorer households gaining most as people that live in smaller homes will typically use less gas.
It also rewards efficiency. A fixed charge is the same, however well insulated (or not) a home is. Whereas energy bill (based on unit-rate charge) falls as consumption falls, so efficient homes pay less and improving efficiency become better value.
Households using more than about 12,400 kWh a year, typically larger or less efficient homes, would pay more. Consequently, people that live in larger homes would end up paying more. The impact of this is that the gas unit rate rises by about 9%, and the electricity-to-gas price ratio falls from 3.10 to 2.84 on forecasted January 2027 prices. It costs the Treasury nothing. This is a defensible, progressive reform that moves the price signal in the right direction.
Route two: Absorb
The charge disappears and the cost is met elsewhere, most plausibly by taxpayers. Headlines promising households £108 a year imply this route.
Across roughly 24.7m dual fuel homes, that is about £2.7bn a year.
It would make gas cheaper overall, leave the price ratio untouched and spend public money keeping households connected to gas. That would work against electrification ambitions.
Even rebalancing has a blind spot
Today, the standing charge is the clearest financial reward for leaving the gas grid. A household that installs a heat pump and caps its meter saves £108 a year in fixed charges on top of the gas it no longer burns. Abolish the charge and that reward disappears. For a median home using 9,500 kWh, the higher unit rate offsets most of the loss: the total gas cost avoided by switching falls by about 5%.
The larger effect is at the margin of disconnection. Keeping a connection for a gas hob would cost almost nothing, so fewer heat pump households may bother to cap.
Ofgem itself regards the ability to disconnect and electrify as integral to consumers’ interests and to net zero. Yet the process is already costly: Energy UK has cited a £1,950 disconnection fee, which could grow to £2,300 by 2030.
Every low-use connection kept alive keeps network assets in service. With fixed costs now recovered per kWh over a shrinking volume, unit rates rise for those left on gas, often the households least able to move.
The ratio shift is real but modest
Even after rebalancing, electricity at 26.32p/kWh still costs about three times gas at roughly 8.7p. What matters for heat pumps is the ratio relative to efficiency. Assuming a boiler at 85% seasonal efficiency, heat from gas would cost about 10.2p/kWh.
A heat pump at a seasonal coefficient of performance (SCOP) of 3.0 delivers heat at about 8.8p/kWh; at SCOP 2.5, about 10.5p (excluding the electricity standing charge).
Tariff reform narrows the gap, but a poorly designed or commissioned system can erase the advantage entirely. Design quality matters as much as pricing.
Electricity is where the weight sits
The electricity standing charge is 54.83p a day, almost double the gas charge. It is capped only for default tariffs and varies by region. Asked why electricity was excluded, the Government pointed to the removal of VAT from electricity bills, a measure that runs only to March 2027.
The answer is not symmetrical abolition. Moving the electricity standing charge onto unit rates would raise the price ratio and shift network costs towards homes without solar PV. The better lever is taking legacy policy costs off electricity bills altogether.
If government proceeds, five conditions should apply:
- Rebalance, don’t absorb. Exchequer money is better spent cutting electricity costs. Moving the remaining Renewables Obligation and Feed-in Tariff levies to taxation would cost about £1.7bn a year. Combined with gas rebalancing, Nesta estimates it would bring the ratio to 2.59.
- Set out the electricity plan beyond March 2027, so the VAT cut is not quietly reversed while the gas change stays.
- Protect the exit. Introduce standardised, low-cost meter capping for households that install heat pumps, so the incentive to leave gas is not lost.
- Adopt a price ratio target and report against it, so tariff changes are judged by their effect on heat decarbonisation, not only on headline bills.
- Pair tariff reform with design and installation quality. A price signal is only as good as the SCOP the installed system achieves.
Removing the gas standing charge could be a sensible first move. On its own, and especially if paid for by taxpayers, it is bill relief that happens to touch heating, not a heat decarbonisation policy.
As we await the Budget, the chancellor and the energy secretary should report back with the electricity side of the ledger as part of the same policy objective.
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