Energy Rebates: Highlands and Islands

Amanda Solloway Excerpts

Wednesday 6th March 2024 Westminster Hall

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Amanda Solloway)]

It is a great pleasure to serve under your chairmanship, Mr Paisley. I thank the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) for securing this incredibly important debate, and I thank other hon. Members for attending. Although we are a small group, they have made their cases very powerfully.

I will go through the main issues one by one. Standing charges have been the thread running through the debate. The hon. Member made a powerful point about how standing charges for residents of the highlands and islands are too high. As hon. Members will probably know, the setting of standing charges associated with each tariff is a commercial matter for suppliers, which have flexibility to structure tariffs. However, Ofgem has launched a call for input on standing charges, which closed in January and has so far received more than 40,000 responses. We are looking at how standing charges are applied to energy bills and at what alternatives should be considered. Ofgem is currently analysing the responses and will publish in due course.

It should be noted that suppliers can offer low or no standing charges. As wholesale energy prices are coming down, competition is coming back to the market and consumers are able to access different tariffs.

Once the findings have all been put together, I am very happy to get together to further discuss how we can use them. I recognise that the price of standing charges for highland and island households is an important issue for all hon. Members, and it would be useful to discuss that in more depth on an ongoing basis. The importance of discussing these matters with Ofgem was mentioned earlier; I assure all hon. Members that I have been putting pressure on Ofgem to address all these important issues.

[Drew Hendry]

The Minister is always very thoughtful and considerate about these issues, and she wants feedback, but people in the highlands and islands need action. I think I am hearing from her that she agrees with the principle that it is fundamentally wrong that people in the highlands and islands are paying more in this way. Is that indeed what she is saying? Is she determined to address that injustice and to get something done about it with Ofgem?

[Amanda Solloway]

The point I am making is that we are looking at the standing charges, which are the one thread that has run through everybody’s speeches and comments today. We need to ensure that the standing charges are fair. We do not know what the findings will be, but I suspect that among the 40,000 responses— I think it is probably nearer to 44,000—there will be a lot to take into account, including looking at how we adjust the standing charges.

[Ian Blackford]

I say respectfully to the Minister that this is about fairness, and it is about what should be a universal market. We cannot have people being penalised to this extent. It is simply a matter of the Government saying to Ofgem that this is not right. There should be a universal market; people should not be penalised on the basis of where they live. It is a simple question, and the Government ought to provide leadership.

[Amanda Solloway]

To give assurance again, that is exactly what I am saying: I have been tasking Ofgem with looking at the issue. We are waiting for the consultation results to come through.

[Ian Blackford]

Change it. Change it!

[Ian Paisley (in the Chair)]

Order.

[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.

[Drew Hendry]

The Minister knows what I am going to say: with the bills that we are talking about, the £60 that she is talking about does not touch the sides for the people affected. I know she knows that, because I have said it to her before. What we need is an overhaul. We need a rebate that actually makes sense to people and has an impact on their bills. That is exactly what this debate is about: getting a highland energy rebate. If the Government want to use the scheme as a basis for doing so, that may be workable. I hope that the Minister will take that point away. Every little helps in a way, but the scheme really does not touch the sides for the people who are suffering this injustice.

[Amanda Solloway]

The hon. Gentleman is right. He has made that point clearly on several occasions, and I am prepared to discuss more fully the highland energy rebate paper that I have been sent.

I turn to energy prices and support. Despite the rise in standing charges, energy prices have fallen significantly since the winter of 2022-23. The 2024 quarter 2 price cap of £1,690 is 60% lower than the 2023 quarter 1 price cap peak. It is important to note that the Government reacted quickly to support households last winter. About £40 billion was delivered to support households and businesses, an average of £1,500 per household between October 2022 and June 2023. We delivered £40 billion to support households and businesses last winter, with a typical household receiving £1,500 in support between October 2022 and June 2023. Many highlands and islands households off the gas grid also benefited from the £200 alternative fuel payment schemes.

Despite the fall in energy prices since the winter of 2022-23, the Government have continued to support households. We are delivering a package of support worth £104 billion—an average of £3,700 per household—between 2022 and 2025.

Debt is an incredibly important challenge at the moment. Although we are doing a lot to help households, we know that some have fallen into energy debt. We want to support them to ensure that consumers do not fall into further debt. Last year, Energy UK announced a voluntary debt commitment: 14 energy suppliers announced their collective commitment to go above and beyond the current licensing conditions to help households with their energy bill debt. Those energy suppliers will aim to provide immediate assistance to those in debt and will arm people with knowledge and resources to empower them to manage their bills more effectively. For assurance, I regularly meet stakeholders such as Citizens Advice to discuss what can be done to address consumer debt. I welcome further input from hon. Members on the issue.

[Kerry McCarthy]

This week, I met some academics who are doing some research into debt levels. As I understand it, the average is about £1,000 per household, but I do not know the extent to which some people are in only £100 or £200 of debt and others are in five-figure debt. Do the Government have analysis of that? Does the Minister have figures she could share with me or put in the House of Commons Library?

[Amanda Solloway]

It is important that we consider the different levels of debt. It is quite complicated to get those figures because the suppliers have them, but I have pushed to see whether we can get a flavour of them. One of the things that I would advise households struggling with their bills to do is to speak to their supplier before going into debt, to receive help and support as soon as possible.

We have talked about prepayment metres, which can be a useful tool for consumers to manage their budgets and for energy suppliers to manage debt. However, it is important that the rules around their use are sufficient to protect consumers and are properly enforced. Involuntary installations should be used only as a last resort. Ofgem has strengthened its licence conditions for suppliers to conduct involuntary prepayment metre installations with exemptions in place for households with vulnerable individuals, such as those with people over 75 or children under the age of two.

The Government have already committed to supporting households past April 2024. Though I obviously cannot comment on today’s Budget, in the autumn statement we announced the biggest increase to the living wage and an increase to benefits of 6.7%. Earlier this year, we also cut national insurance for 27 million people, worth £450 for the average worker. As hon. Members have noted, in the autumn statement we also committed to giving communities living nearest to electricity transmission infrastructure up to £1,000 off their electricity bills for the next 10 years. That will apply across England, Wales and Scotland, including the highlands and islands, and they may be able to benefit from the scheme. We will also publish guidance this year on the wider benefits for local projects and provide an update on the electricity bill discount scheme.

As hon. Members have mentioned, many households in the highlands and islands are off the gas grid, which means they rely more on electricity. I also understand that many highlands and islands residents will use more energy and subsequently pay more for their energy bills due to the inclement weather, colder temperatures and poor insulation, but also due to having older and larger properties, which are harder to heat. To address that, the Government have already introduced several domestic energy efficiency schemes for all households in Great Britain to help lower bills and reach net zero targets. As an example, the Great British insulation scheme is delivering low-cost and free insulation to the least efficient homes in lower council tax bands, including many vulnerable households. The scheme will run until March 2026 with a value of £1 billion.

Since it was launched in January 2013, the energy company obligation has delivered around 3.8 million measures in approximately 2.5 million homes. Across ECO schemes, around 31,600 measures have been delivered to 23,100 households in local authority areas in the Scottish highlands and islands since 2013. As hon. Members will know, fuel poverty is devolved, with the Scottish Government responsible for the matter in Scotland. However, the ECO and the Great British insulation scheme are delivering energy-efficient measures to the least efficient low-income homes in Scotland. We are currently reviewing the fuel poverty strategy for England and will engage with the devolved Administrations as part of the process.

I understand this is a complex matter and one that is important to all hon. Members here. I thank them for bringing it to the debate. I would be happy to meet people further to today’s discussion. Finally, I want to touch on lived experiences and the impact on health. Having been brought up in a household that was fuel-poor, I know what it is like. I know the impact that that can have on someone’s health, especially as my mum suffered with chronic obstructive pulmonary disease and we found it incredibly difficult to manage all those challenges. My commitment is therefore to do the very best I can to support all those energy-poor households.