Britain’s energy regulator, Ofgem, has proposed a potential overhaul of how energy bills are calculated, raising the possibility of wealth- or income-based pricing as part of broader reforms to ensure fairness in the country’s transition to a greener energy system.
In a newly launched review of energy system costs, Ofgem outlined its intention to explore a more “progressive approach” to the standing charge—the fixed daily amount customers pay regardless of their energy usage. The regulator suggested that this charge could be adjusted based on a household’s income or wealth, drawing parallels with systems like council tax, which already considers property value as a proxy for financial capability.
“We think now is the right time to review how the transition to a greener and more secure energy system should be paid for by consumers,” Ofgem said in its official “call for input,” emphasizing the need to fairly distribute the cost of major infrastructure investments, including the expansion of power grids to support renewable energy.
Rationale Behind the Proposal
Jonathan Brearley, Ofgem’s chief executive, highlighted in April that although the variable portion of energy bills is expected to decrease, the share of fixed costs—such as maintaining infrastructure and investing in greener energy—will increase. Without intervention, this shift could “exacerbate inequalities,” he warned.
The standing charge, in its current form, has been widely criticized for being regressive, as it is a flat fee regardless of a household’s electricity usage or income level. Ofgem’s review is exploring alternative models such as:
- Income-based standing charges
- Wealth-based standing charges
- Charges based on time-of-use or peak-hour consumption
The review remains in an early, consultative phase, and no decisions have been finalized.
Context: High Bills and Energy Transition
Although wholesale energy prices have declined since the 2021–22 global energy crisis—sparked by gas supply disruptions—UK household energy bills remain significantly higher than pre-crisis levels. Contributing factors include rising network costs and record-high household energy debt.
The Labour government, which came to power in mid-2024, pledged during its campaign to reduce household bills by £300 by 2030. However, sceptics question the feasibility of this target, especially as the government maintains a price cap that remains around 10% higher than it was in July 2023.
The proposed reforms also take into account changing energy consumption patterns. With growing adoption of rooftop solar panels and smart meters, more households are now exposed to time-of-use tariffs, which vary depending on wholesale market rates throughout the day.
Conclusion
While Ofgem’s suggestions are still under consultation, the idea of linking energy costs to wealth or income marks a potential shift in the way essential services are billed in the UK. If implemented, the changes could have far-reaching implications for how households experience and pay for energy, particularly during a period of rapid transition to low-carbon sources.
