John Healey has said he will scrap “outdated and unfair” standing charges from gas bills, in a move which could save households £45 per year.

The Chancellor said these fees – which are charged on top of the daily rate to cover the cost of connecting to a supply – are part of “an energy policy that has failed British taxpayers”. 

The measure, which was announced hours before Healey’s maiden Budget, comes as part of the Chancellor’s efforts to deliver “breathing space” to British families feeling the pinch, even as his shrinking fiscal headroom leaves him with little room for manoeuvre. 

Healey will ask Ofgem, the energy regulator, to remove standing charges in 2027 or as soon as possible afterwards. These fees add £108 per year onto the gas bill of a typical household. 

Standing charges will now be absorbed into the unit rate. The Treasury expects that 60 per cent of households will pay about £45 less each year following the change. 

After Andy Burnham ordered his cabinet to look at scrapping standing charges, energy secretary Miatta Fahnbulleh had acknowledged fears that this change could negatively impact low-income households who are high users of gas. 

But the Treasury said on Wednesday that it will set out “targeted mitigation for a small number of households” in a bid to avoid leaving these billpayers worse off. 

Healey said: “Gas standing charges are unfair and outdated so I am scrapping them to give millions of households a bit of breathing space.

“My Budget will draw a line in the sand on an energy policy that has failed British billpayers for years, letting extra costs on bills pile high and leaving households even more exposed to global shocks.”

Octopus Energy founder Greg Jackson welcomed the move, which he said represents “real joined-up thinking” and will deliver a “more efficient energy system”. 

“Most customers would see a cut in their gas bills which is crucial, but would also enjoy even higher savings if they can move to heat pumps when it suits them,” he said.

In one of his first acts as Prime Minister, Andy Burnham announced a cut to VAT on electricity bills. This came into effect this month and meant Ofcom’s energy price cap is £45 lower than it would otherwise have been. 

Fahnbulleh, who has pledged to take a “pragmatic” approach to energy, said the move to cut standing charges will tackle “one of the nation’s bugbears”. 

She said: “Tackling affordability is my number one priority, and I will keep doing everything I can to protect people from unaffordable bills.”

Last week, the government greenlit oil production in the Jackdaw North Sea oil field, in a move which Fahnbulleh said would boost the UK’s energy security. Labour is yet to make a decision on the larger Rosebank oil field.