The Treasury is looking at ways to reduce standing charges on gas and electricity bills that are charged at a flat rate
Energy bills could be cut for poorer households under government plans to ease the cost of living, The i Paper has learnt.
The Treasury is looking at ways to reduce standing charges on gas and electricity bills, which disproportionately hit people on lower incomes because they are imposed at a flat rate for everyone.
Ofgem launched a review of standing charges two years ago and is expected to require suppliers to offer low or no standing charge tariffs from early next year.
There has been speculation that Rachel Reeves is considering scrapping VAT on domestic energy bills as part of her Budget in November, with reports that one option on the table is to lower the 5 per cent VAT rate to zero.
But Labour MPs and campaigners including Money Saving Expert founder Martin Lewis have urged the government to look at scrapping or reducing standing charges instead, as a VAT cut would benefit higher earners.
Standing charges vary by supplier and region but are currently around £188 for electricity and £109 for gas per year. This will increase next month to £196 and £124 respectively.
A government spokesperson said: “We know that, for many consumers, too much of the burden of the bill is placed on standing charges, and we are working with Ofgem to reduce them.
“In July, Ofgem also announced proposals to require suppliers to offer their customers low or no standing charge tariffs from early 2026”.
Energy UK has argued that reducing or cutting standing charges could result in higher unit rates of energy, as suppliers would otherwise risk not being able to recoup the true cost of providing energy. They have also warned against a confusing system which could see vulnerable households ending up on the wrong tariffs.
The Treasury said it could not comment on changes to tax policy outside of fiscal events, including the Budget.
It said wholesale gas prices remained 75 per cent above the levels before Russia invaded Ukraine, which was being paid for by families, businesses and the British economy.
Reeves is understood to be looking at a range of options to cut the cost of household bills as inflation remains high.
Last week figures revealed that overall inflation remained at 3.8 per cent, but food inflation was 5.1 per cent, driven by higher employment costs due to the national insurance rise on employers, and poor harvests from this year’s drought.
But the Chancellor is also expected to raise taxes further in November, as borrowing rose to its highest figure in five years.
What are standing charges on energy bills?
Standing charges are fixed daily charges added to energy bills that remain the same regardless of consumption.
These charges cover the costs of supplying energy, such as maintenance and operation of the gas and electricity networks.
A low energy use household pays the same standing charge as one that uses more energy.
Labour MPs in the Living Standards Coalition, which is chaired by Loughborough MP Jeevun Sandher, has campaigned for Energy Secretary Ed Miliband to reduce standing charges on bills.
A poll for moneysavingexpert.com last week found that most people want the government to use the money generated by VAT to cut standing charges.
Lewis wrote on X: “Interesting to read there are rumours of getting rid of the 5 per cent VAT on domestic energy bills. This would of course cut people’s costs. Yet it would, in cash terms, benefit higher users more, they are often (though not always) higher earners.
“I wonder if other methods, for example, the Government using the funds from energy VAT to reduce standing charges (which, disproportionately impacts lower uses) may be more efficient?”