In the Budget on 15 March 2023, the UK Government announced that from July 2023 to March 2024 it will compensate prepayment customers for the additional cost they face relative to those who pay by direct debit, meaning the higher standing charges on prepayment and pay as you go energy tariffs1. The measure will cost the taxpayer £200 million1.
The announcement came against a background of rising standing charges. National Energy Action, the fuel poverty charity, reported on 30 March 2023 that the Ofgem price cap level coming into force on 1 April would produce the highest standing charge since the cap was introduced in 2019, an increase of 64 per cent1. For a dual fuel prepayment household the charge was set to reach £350 a year, and prepayment charges had risen by 48 per cent since October 2020, when a separate cap initiated by the Competition and Markets Authority ended1. Electricity standing charges vary by region: the dual fuel prepayment charge was to average £350 a year across Great Britain, ranging from £296 in London to £382 in Southern Scotland and in North Wales and Mersey1.
NEA said the increase resulted from decisions by Ofgem under its Targeted Charging Review to move costs from the unit rate to the standing charge1. It added that the Energy Price Guarantee reduces unit rates but gives no discount on the standing charge1. The charity also said the number of UK households in fuel poverty would rise from 6.7 million to 7.5 million from 1 April, and that the end of the Energy Bills Support Scheme rebate of £67 a month would leave bills up by 40 per cent a year for typical households1.
"In the Budget on 15 March 2023, the UK Government announced that from July 2023 to March 2024 it will compensate prepayment customers for the additional cost (i.e. the higher standing charges) they face relative to those who pay by direct debit."
NEA set out the regional spread of the dual fuel prepayment standing charge from April 2023:
| Nation or region | Dual fuel prepayment standing charge |
|---|---|
| Great Britain average | £350 a year |
| London | £296 a year |
| Southern Scotland | £382 a year |
| North Wales and Mersey | £382 a year |
Why it matters for households
A standing charge is paid before any energy is used, so it is unavoidable for a connected home. NEA calculated that a £350 annual standing charge accounts for 41 per cent of what the poorest 10 per cent of households have available to spend on energy, leaving £508 a year for gas and electricity, and that 13 per cent of the typical dual fuel bill is unavoidable1. For a prepayment household, the compensation narrows the gap with direct debit customers but does not remove the charge itself, and it does not apply to the three months before July 20231. The charge is also a fixed cost that no reduction in usage can remove, which bears on a household's control over its own energy bills and energy independence.
What happens next
The compensation is stated to run from July 2023 to March 20241. NEA said it was unclear what would happen from April next year, and that prepayment customers would still pay the extra for the three months until July1. The charity's report was produced by Ideal Economics and commissioned by National Energy Action1.