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.
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.
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.
“In July, Ofgem also announced proposals to require suppliers to offer their customers low or no standing charge tariffs from early 2026”.
The Treasury said it could not comment on changes to tax policy outside of fiscal events, including the Budget.
Reeves is understood to be looking at a range of options to cut the cost of household bills as inflation remains high.
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.
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.
“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?”
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