Government scraps standing charges on gas bills - what will it mean for your energy bills?

Chancellor John Healey has confirmed he will axe standing charges on gas bills, in a move that will help millions of households.The Treasury said Healey will today ask the energy regulator Ofgem to remove standing charges 'in 2027 or as soon as possible after'.Healey will deliver his first Budget in the Commons this afternoon and said the change will give families 'breathing space' and make the energy system fairer.This is Money examines what standing charges are, how much they cost households and how the scrapping of them on gas bills will affect you. What are standing charges? Standing charges are daily fixed charges added to energy bills that people must pay irrespective of how much energy they use. Even if no energy is used, the standing charge will still apply. The money from standing charges is meant to be used to cover network upgrades and other additional costs energy firms incur. Axed: John Healey has confirmed that standing charges on gas bills are being scrappedUnder the current energy price cap, average standing charges for bills paid via direct debit are 55.83p per day for electricity and 29.68p per day for gas. It means it costs households around £200 a year for electricity and approximately £108 a year for gas. What has Healey announced?John Healey has confirmed that he will scrap gas standing charges in the Budget later today, as households battle even higher energy bills. The decision to scrap standing charges on gas bills will affect tens of millions of people. Households will see the cost of the standing charge added to the unit rate instead, which is the price paid for every kilowatt hour (kWh) of gas used. The government has estimated that 60 per cent of households will save an average of £45 per year once standing charges on gas bills are scrapped.The axing of standing charges on gas bills will take place by 2027 at the earliest, the Chancellor said. It is expected that the standing charges on gas bills will be scrapped on either October 1, 2027, or January 1, 2028. Both of these dates will be when a new energy price cap is announced. Standing charges on electricity bills will remain unchanged. How will household gas bills be affected?Households using only a small amount of gas or people living in smaller homes should be better off once standing charges on gas bills are scrapped. Richard Neudegg, director of regulation at Uswitch.com, said: 'Moving gas standing charges onto the unit rate is a sensible idea for the longer term.'Paying a daily gas standing charge can grate for households that use very little gas, and can feel illogical over the summer or when homes have the heating off.'The change should also help people who have switched to electric heating but kept a gas connection and find themselves paying a standing charge for a service they do not use for heating. According to Uswitch.com, based on current rates, a household using 7,000 kWh of gas a year could be around £40 better off under these changes. Andrew Sissons, a director at Nesta, said: 'This measure will provide relief to the poorest households who ration their gas use but it will also mean that switching to electric heating such as heat pumps is a better deal for some households that use more gas.' Dr Craig Lowrey, principal consultant at Cornwall Insight, said: 'Given the timeline, it is unlikely to ease the high costs this winter, and the savings will be small compared with recent bill rises, but with the cost of living still hitting budgets, any reduction will be welcome when it comes. 'Shifting more of the cost onto each unit of gas could also give the energy transition a boost, making heat pumps a more attractive option against a gas boiler for higher-use households.'How will larger families be affected? Richard Neudegg, director of regulation at Uswitch.com, told This is Money: 'Large families are the group to watch. 'More people in a home usually means more hot water, more washing and cooking, and more heating, so they tend to use more gas. 'When gas standing charges move onto unit rates, they’ll pay more towards these costs.'A home using 14,000 kWh of gas a year, which is Ofgem’s level for a high user, could be around £25 worse off based on current price cap rates.'Larger or less efficient homes using more than that would be hit harder.'Lowrey said: 'Higher unit rates mean people in badly insulated homes, larger families or those who need to keep the heating on to manage a health condition, could end up paying more. 'Some of them are the same vulnerable households this policy is meant to help, so making sure that they see the intended benefits of this change will be essential.' What is happening to energy bills?Energy bills are still rising and the financial strain on households will ramp up further next year. Typical energy bills, which were £1,663 a year, increased by 3.6 per cent on October 1, meaning households that pay by direct debit can expect to pay about £1,723 a year. Ofgem sets a cap on the amount suppliers can charge customers who are on variable rate tariffs. The energy price cap is designed to protect households from being overcharged. But energy prices are volatile and beholden to geopolitical events. War in the Middle East has been disrupting supply, which pushes up wholesale prices.And further pain is expected for households next year. Consultancy firm Cornwall Insight said it expected the January 2027 energy price cap to rise by 16 per cent – or £1,999 – piling pressure on Labour to intervene. Healey has already signalled that more energy bill help for the poorest, including those on benefits, will be announced in today's Budget. Can you save money on energy bills? Check the best fixed deals When energy prices spiked most households shifted to variable–rate tariffs, but it's now possible again to switch to fixed–rate energy deals that can save you money.This is Money's recommended partner Uswitch lets you compare the best energy deals for you, based on your home and gas and electricity costs.> Compare the best energy deals with Uswitch*By entering your address and energy usage, you can search for energy deals that can cut your costs and suit how you live.Switching energy provider can also help the planet, if you move to one of the green deals offering electricity from renewable sources and more environmentally–friendly gas.*Affiliate links: If you take out a product This is Money may earn a commission. This does not affect our editorial independence.