Small firms urge Ofgem to act over spiralling energy standing charges on bills

A growing number of small businesses are complaining of vastly inflated standing charges on top of their standard energy bills, some as much as 13 times the level of three years ago.

The Federation of Small Businesses (FSB) has written to Ofgem, urging it to act over fast-growing standing charges paid by small companies, particularly those in rural areas.

One business owner got in touch with the group to report an increased standing charge, from 70.94p per day in July 2021 to 969.64p per day in September 2023, more than 13 times higher.

Standing charges are applied daily, regardless of how much energy the customer uses, and are used to cover the cost of supplying energy to homes and businesses.

They also cover the costs of building new network infrastructure and keeping the power on when energy suppliers go bust.

While consumers’ bills are limited by the energy price cap, small businesses’ are not.

Standing charges are a daily price, and are unaffected by how much energy a business uses (Steve Parsons/PA)

Tina McKenzie, FSB policy chairwoman, said: “We want Ofgem to do a thorough review of standing charges for businesses as well as consumers, for better transparency and to discern whether energy companies are behaving fairly towards their small firm clients.

“Small business energy customers behave in a way more akin to consumers than big businesses, lacking the resources, the expertise and the buying power necessary to get the best possible deal out of their energy suppliers.

“However, they do not benefit from anything like the same level of protection as that rightly available to households, leaving them caught between two stools.

“Many small businesses could be forgiven for suspecting that they have been seen as something of a soft target for price hikes in their standing charges, and they do not have a full picture of where the money they pay on a daily basis is going – something that needs to change.”

Late last year, Ofgem called for views on standing charges, which prompted more than 20,000 people to respond.

The regulator has said it wanted to open a debate about how the charges work, and welcomed opinions on how to change the system.

Standing charges are often higher in rural areas, where the cost per home to the energy supplier is higher.

The FSB said this meant the charges were disproportionately affecting businesses in rural areas.

This is exacerbating the divide between rural and urban areas, the group said, and “[undermines] efforts to level up more remote parts of the UK”.

An Ofgem spokesman said: “We’re assessing the standing charge system overall, including tackling issues faced by non-domestic consumers.

“We’re grateful for FSB for responding to our consultation and we’re looking at its ideas.

“We agree too many businesses get unexplained price hikes from suppliers or are ripped off by brokers – that’s why we’re putting tough new rules in place from July to resolve disputes and get greater clarity on fees.

“We published a detailed non-domestic market review last year – and are working with ministers, industry and businesses on the additional price protection and bill transparency they’re calling for.”