Energy Rebates: Highlands and Islands

Alistair Carmichael Excerpts

Wednesday 6th March 2024 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

It is a pleasure to serve with you in the Chair, Mr Paisley. I warmly congratulate the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) on acquiring this time for a debate on a subject that matters to his constituents, my constituents and the constituents of my hon. Friend the Member for Caithness, Sutherland and Easter Ross (Jamie Stone) and the right hon. Member for Ross, Skye and Lochaber (Ian Blackford).

As the hon. Member for Inverness, Nairn, Badenoch and Strathspey said, this issue goes right across the highlands and islands, where we have longer, darker and colder winters. We have more houses that are older and therefore more difficult to insulate and heat, and we have virtually no access to the gas grid. Those things all contribute to the perfect storm that he rightly outlined, which is the exceptionally high incidence of fuel poverty. I know that because one of the less laudable claims to fame that the northern isles have, along with the Western Isles—Na h-Eileanan an Iar—is higher rates of fuel poverty than anywhere else in the country.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

Much is often said about the colder temperatures and dark winters that we have in the highlands. However, we also need to give consideration to the fact that it is about not just temperature, but about the driving wind and rain that make it feel colder. There are times when the rain is horizontal, certainly in places such as the Isle of Skye and others. Let us remember that these communities are often very isolated. We are talking about single homes. Little protection is provided, so the impact of bad, cold, windy or wet weather on these communities is enormous, which just increases the need to have the heating on to give some protection from the climate.

[Mr Carmichael]

The right hon. Gentleman is absolutely right. We have to be a little careful about how we describe that to people in other parts of the world: doubtless, in a week or two, we will all be back here telling everybody they should come and have their holidays in the highlands and islands. However, we are by no means unfamiliar with the phenomenon of the rain that comes straight at you. Certainly, it is always the surest sign of somebody who has just recently moved to Orkney or Shetland, or who is visiting, that on a rainy day they go out with an umbrella, which is a spectacularly useless piece of equipment in the communities that we are blessed to call home.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey brings us the interesting and constructive proposal of a standing charge rebate. When it comes to the question of energy costs, I have long taken the view that every little helps. Frankly, it does not really matter whether it is a silver bullet: when families are facing the choice not of heating or eating but of starving or freezing, which might be a better characterisation of the situation in the highlands and islands, if there is some benefit to be had, we should take it. That was the view I took on the alternative fuel payment brought forward by the Government last year: it helped a bit, and a bit of help is better than nothing.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey would probably agree that standing charges are a small part of the equation when it comes to the question of energy costs and the actual cost involved in heating people’s homes. The unit price is where the real action is to be found, and it is there that I would like to focus some attention, not least because I understand that Ofgem is carrying out a consultation on a social tariff. That is an interesting idea, and one that I think would command a fair degree of support across the whole House. I therefore hope Ofgem gets on with it—and quickly. Within that social tariff, there surely has to be some mechanism for geographical variation, because social is not just on the basis of income. It has to bring in other factors as well, such as the fact that we live in places that have longer, darker and colder winters.

[Drew Hendry]

The right hon. Gentleman is right to talk about this as being part of a wider package. I secured the debate today to be specific about the need for a highland energy rebate, but that does not negate the sense of what he says about the collective impact. With the social tariff, the highland energy rebate scheme might give an opportunity to put that geographical difference into the mix, in order to achieve the right hon. Gentleman’s aim.

[Mr Carmichael]

The Shetland Islands Council has promoted the idea of a Shetland tariff for years. I understand what the hon. Member says about seeing the energy development; that is something we have lived with in Shetland and Orkney for the past 50 years, as we have kept the rest of the country supplied with hydrocarbons. We have had some significant benefit, but nothing compared with what we could have had. Yes, there are opportunities here. The real fight comes with the energy unit cost, but in the meantime, if we can do something with standing charges, we should.

I am a wee bit disappointed that we do not have a better turnout for this debate. It seems to me that the hon. Member for Inverness, Nairn, Badenoch and Strathspey has drawn our attention to something that is really severe for the highlands and islands, but not only there. The hon. Gentleman referred to the disparities between a standing charge in London and in the highlands and islands, or in northern Scotland, which is probably the same thing. For somebody in London paying their bill by direct debit, the current standing charge is 38.5p per day, against the northern Scotland figure, which is 59.38p per day, and the southern Scotland figure, which is 62.08p per day. That is utterly random. I am sure that very clever and complicated sums were done to get those figures, but they have produced what we in the highlands and islands, and elsewhere in Scotland, would probably call mince. If ever there was an illustration that the regulation of the energy market has gone fundamentally wrong and requires root-and-branch reform, that is surely it. In north Wales and Mersey, the rate per day is 62.21p, which is even higher than in the highlands and islands and southern Scotland. People in north Wales and Mersey pay 29.57p per unit, compared with 28.48p in the north of Scotland and 28.16p in southern Scotland.

When we drill down into the figures and the regulation of the market, the other injustice is the rate charged to people on prepayment meters, who by definition are under the greatest financial pressure in relation to energy. The rate charged in the highlands and islands is 62.3p per day in standing charges and 27.19p per kilowatt-hour. If people in the north of Scotland pay by direct debit— I do, and I suspect everybody else in the room does—they pay 59.38p per day, whereas somebody who has to rely on a prepayment meter pays 66.23p per day. In what universe is that a sensible and fair system?

[Jamie Stone]

My right hon. Friend is making an excellent speech. He talks about an injustice. When the national health service was set up, people who lived in Lerwick, Tain, Paisley or Bristol had the same right to see a doctor and to get an antibiotic or treatment to make them well; the situation that he describes flies in the face of the notion of fairness, which is important to our democracy.

[Mr Carmichael]

My hon. Friend makes an important point. Like the hon. Member for Inverness, Nairn, Badenoch and Strathspey, my hon. Friend touched earlier on the health aspects of energy costs, which not only impact the family budget for heating the house but have a much wider application. As the hon. Member for Inverness, Nairn, Badenoch and Strathspey said, they impact mental health, and have serious impacts on those who are elderly and so more vulnerable to the cold and on those who have physical health conditions. For those people, the choice between heating and eating actually becomes less difficult, but only in a bad way: they have no choice. Their medical condition means that they have to give priority to heating.

The fact that we are now so far from the idea of a universal, standard price for energy across the whole country shows just how badly wrong the regulation of the market has gone. As the hon. Member for Inverness, Nairn, Badenoch and Strathspey said, responsibility lies at Ofgem’s door. I wish we could see more proactivity from Ofgem, which had to be taken kicking and screaming to get to the point of consulting on a social tariff. If the Minister could instruct it to look at the issue and achieve meaningful change, she would be doing some genuinely good work.

In conclusion, I congratulate the hon. Member on focusing our attention on the question of standing charges. The situation is bad for the highlands and islands, and it seems even worse for other parts of the country, although they might not be as heavily dependent on heat in the winter as we are.

Of course, I could not sit down without making brief reference to the fact that, for many in our constituencies, the real cost of heating their houses comes from the cost of using heating oil, as that is the only way that they can. There are no standing charges for that, and it is much more difficult to get money into the pockets of people who rely on it. That is baked into the system, and it will not be fixed easily.

[Drew Hendry]

I realise that the right hon. Gentleman is concluding his speech, but it is important to point out that this is an issue that I and others, and possibly even himself, have raised in the past. Ofgem has been delinquent in not regulating for those off the gas grid as well. We need to appreciate those who are reliant on LPG and fuel oil because they need protection as well. Again, when they are using fuel oil and LPG, they also tend to use more electricity, which brings us back to the main thrust of the debate. I thank the right hon. Gentleman for his patience.

[Mr Carmichael]

I am grateful to the hon. Gentleman; as one would expect, there is not a great deal of difference. The one thing I would start with, if I were in Ofgem, would be multi-rate meters, such as Economy 7 and “Total Heating with Total Control”, which many of our constituents use. The standing charges on those are 69.32p per day in northern Scotland and 69.17p in southern Scotland. Again, we see the disparity. That is one standing charge where direct action could have a direct impact on the highlands and islands.

I await with interest what the Minister has to say. I share the experience of the hon. Member for Inverness, Nairn, Badenoch and Strathspey; the Minister is thoughtful and prepared to engage. I hope that, having had this brought to her attention, she will use her offices to ensure that, going ahead, the highlands and islands, as well as those who are fuel poor in England, Wales, Northern Ireland and indeed southern Scotland, will not be given this rather shoddy treatment.

--- Later in debate ---

[Amanda Solloway]

Once we have all the responses and have looked at them, I will be very happy to welcome views on the findings.

I turn to transmission and distribution charges. Electricity network charges are the costs that users pay to connect to and use the electricity network. These are charged to suppliers and generators, so eventually the costs are passed on to consumers in their energy bills, some of which is reflected in their standing charges.

As an independent regulator, Ofgem is responsible for setting the electricity network charging methodology. Government officials are working closely with the regulator to understand these charges. Electricity network charges must be cost-reflective, so that those who pay them are charged in a way that reflects the cost that they are placing on the network.

Transmission charges are based on the costs that different users impose on transmission by connecting in different locations. That means that there are higher charges for those whose use of the network results in longer distances of electricity transmission. As hon. Members will know, Scotland is a net exporter of electricity, so transmission costs for Scottish consumers are lower than those for their counterparts in England and Wales.

[Mr Carmichael]

The Minister describes locational charging. That made a degree of sense in the days of generating electricity from hydrocarbons, because there was an element of transmission loss, so we wanted to encourage transmission closer to the point of consumption. As we move to renewables, that argument simply no longer stands, because we are not wasting a non-renewable resource in order to generate and then transmit electricity. Why has the approach not been changed?

[Amanda Solloway]

I thank the right hon. Member for his intervention. These are the kinds of things that we are working through as we respond to the net zero challenge.

Hon. Members have quite rightly talked about the geographical challenges of electricity supply in northern Scotland, such as the area’s size, poor weather conditions, sparse population, mountainous terrain and the need to supply multiple islands. Inevitably, these challenges mean that the costs of distribution are much higher than for other regions in Great Britain. Hon. Members have made that point very clearly.

I also acknowledge that the highlands and islands produce high levels of renewable electricity, although that does not remove the challenges of distribution. We will be looking at that issue.

The hydro benefit replacement scheme provides annual assistance of about £112 million to reduce distribution charges for domestic and non-domestic consumers in the region. That equates to a reduction of about £60 annually per household.