Energy Network Charges

Barry Gardiner Excerpts

Tuesday 5th July 2016 Westminster Hall

[Ian Blackford]

I hope that people in Scotland have listened to what the Minister just said. It was quite astonishing: blaming the Scottish Government for fuel poverty that is visited on households in Scotland as a direct response to things that are the responsibility of this Government and to the failure so far to deal with the matters we are discussing today, such as network charges. I have outlined to the Minister that people in the highlands and islands are paying 84% more for connection charges than people in London. That clearly demonstrates that it is the responsibility of the UK Government. How dare the Government turn around and blame the Scottish Government! The situation has arisen because of austerity and failure to take opportunities, and the responsibility for that lies fairly and squarely in the hands of Westminster.

[Barry Gardiner (Brent North) (Lab)]

The hon. Gentleman is making a very passionate case. I agree that Ofgem in its October 2015 report found that electricity distribution charges are higher than average in the north of Scotland, but in contrast it found that electricity and gas transmission charges are higher in the south of England and lower in Scotland, and that gas distribution charges are higher in London and the south of England and lower in Scotland. Does he accept that there is a real issue with regional variation, but it is not unitary that Scotland is always disadvantaged by that variation?

[Ian Blackford]

I thank the hon. Gentleman for his comments, and I accept what he says to a degree: there are differences in gas transmission charges in other parts of the UK that are not fair. What is at the heart of the matter is that there should be fairness and a universal market. Why should people in Scotland pay more for their electricity than people in London, and why should people in London pay higher prices for gas? It is not right. We live in a unitary state; the transmission charges should be the same throughout the country. Focusing specifically on gas, my constituents in the main do not have access to a gas network. We are discriminated against because we are not on the mains.

Let me return to the issue of fuel poverty and heating costs. A recent report by Highlands and Islands Enterprise said that because of heating costs and other factors:

“The budgets that households need to achieve a minimum acceptable living standard in remote rural Scotland are typically 10-40 per cent higher than elsewhere in the UK.”

The highlands and islands of Scotland experience the harshest climatic conditions in the UK and record levels of fuel poverty. There is far greater area-wide dependence on the use of electricity for heating as well as lighting, but the standard unit price charged is 2p per kWh more than many other parts of the UK and 6p more than various economy tariffs that are on offer. Two pence might not sound like much, but it is a price premium of 15%. That is what the UK Government have done to consumers in Scotland. Let us hear no more about the Scottish Government and their responsibilities, because the responsibility for this lies fairly, squarely and solely in the hands of the Minister. She could do something about it this afternoon, if she had the guts.

That is the price set by the UK Government to live in the highlands and islands. On top of that, there is far greater reliance in off-gas areas on domestic heating oil and solid fuel, which pushes up household heating costs further still. As a result, average domestic energy bills in off-gas areas are around £1,000 more per annum than the £1,369 UK average—that is £1,000 more in the highlands and islands.

Figures from Lochalsh and Skye energy advice service in my constituency suggest that average annual heating bills in Skye and Lochalsh are £2,218. It is little wonder that there are so many people in my constituency in fuel poverty. For those whose primary fuel for heating is heating oil, the annual bill is as high as £2,519. To cap it all, customers on prepayment electricity meters—often the least well-off—not only have to pay additional standing charges, but discover that their notional right to change to a cheaper electricity supplier has become impractical.

The Government must accept that having 14 regional markets in the UK, with consumers in the highlands paying that 2p premium, is detrimental to the interests of the people in the highlands and islands. We must have a universal UK market.

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[Barry Gardiner (Brent North) (Lab)]

Diolch yn fawr, Mrs Main. Yn yr wythnos lle mae Cymru wedi gwneud Prydain mor falch, ni ddylir y ddadl atal dathlu athrylith y bobol Gymraeg, yn enwedig os fyddent yn mynd ymlaen i guro’r Ffrancwyr neu’r Almaenwyr yn y ffeinal.

[Mrs Anne Main (in the Chair)]

Order. For the benefit of everyone else here—

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[Barry Gardiner]

Mrs Main, I took the precaution of speaking to the Clerk beforehand, and found out that it was in order to speak in Welsh, Norman French or English. Given that this is a regional debate, I thought it was only right to speak in Welsh at the beginning, but she did advise me that a translation was always required, which I will of course be very happy to provide to both you and Hansard. I said: “Thank you very much, Mrs Main. In a week when Wales has done the whole UK proud, no debate should fail to celebrate the genius of the Welsh people, especially if they go on to beat the French or the Germans in the final.”

Ofgem concluded last year that from a regulatory perspective, there

“does not appear to be any clear justification”

for national network charges

“in terms of the regional concentration of vulnerability.”

However, as we shift towards cleaner energy to deliver our legal climate targets—an issue on which the Minister has nailed her own colours to the mast—we must also overhaul the management of our energy networks to become smarter and more flexible.

The Energy and Climate Change Committee remarked last month:

“Networks are transforming. We recognise that this presents challenges for the Government, but it has been slow to present a clear, holistic plan for the evolution networks need”.

That Committee’s June report, “Low carbon network infrastructure”, concluded that networks

“are at the heart of the UK’s low carbon ambition”,

yet network charges

“form an increasing proportion of consumer bills.”

The Committee called out

“outdated and inflexible regulation and governance”

as potential obstacles to making our energy network fit for the 21st century. Remarking that network connection costs “remain geographically skewed,” the Committee called for Ofgem to

“assess the costs and benefits of levelling connection costs across Great Britain”

and Northern Ireland in order for the Government to consider whether geographical disparities can continue to be justified.

Ofgem also found last year that it is

“legally possible to introduce national network charges but the change from the current approach would need to be justified against various criteria in European law, particularly on cost reflectivity.”

Although I am mindful, Mrs Main, of your admonishment of the hon. Member for Ross, Skye and Lochaber (Ian Blackford) for straying into the whole debate around Brexit, it seems appropriate, given that that is the legal situation, to ask whether the Government have sought new advice on this issue in light of the vote to leave the European Union.

The “Low carbon network infrastructure” report also recommended:

“DECC should investigate the disadvantage UK generators may consequently face against other European generators as Great Britain becomes more interconnected, and the impact this may have on development of domestic renewable generation.”

Given the vote to leave the EU, I also ask the Minister to provide greater clarity on the future of the UK’s electricity interconnection with the continent.

It is also worth noting that transmission tariffs for generators are higher in Great Britain than in the rest of the EU. The UK is one of only three EU member states with locational transmission tariffs. The Minister recently wrote to the Energy and Climate Change Committee, stating that

“one of the main drivers for transmission costs is the need for new network investment to accommodate renewable generation in areas such as Scotland.”

I therefore ask a further question: how much is being invested in upgrading our networks to be able to carry clean energy? Is that spending based on projections that include meeting our 2020 clean energy target?

The debate is also important in highlighting the systemic problem of the lack of transparency in an energy market that is failing the overwhelming majority of customers. The Government’s response to the Ofgem inquiry, in answer to a written question by the hon. Member for Christchurch (Mr Chope), was to reassert their objective to keep

“overall costs down for bill payers across Great Britain.”

I note that they did not say Northern Ireland. The hon. Member for Strangford (Jim Shannon) is no longer in his place, so I will add “and Northern Ireland,” because I trust that that is what the Department meant.

Network charges on a typical dual fuel consumer bill have risen by approximately 30% in the past four years, according to British Gas—we need some sort of explanation for that from the Minister—and seven out of 10 customers are currently being overcharged for their energy. As a result, millions of households cannot afford their energy bills, as the hon. Members for Ross, Skye and Lochaber, for Strangford and for Aberdeen South (Callum McCaig) said, yet Ministers are still letting the energy companies off the hook and failing to ensure that the drop in wholesale energy prices is passed through to bill payers.

The Energy and Climate Change Committee reported on energy network charges in February 2015 and recommended that the Government and Ofgem should

“publish an evidence-based analysis of the advantages and disadvantages of introducing national tariffs for transmission and distribution network charges.”

Following that recommendation, Ofgem published its report, but it found principally that electricity distribution charges are indeed higher than average in the north of Scotland, exactly as the hon. Member for Ross, Skye and Lochaber said, but also in Merseyside, north Wales and the south-west of England. The charges are of course lower in London and eastern England. In contrast, electricity and gas transmission charges are higher in the south of England and lower in Scotland, and gas distribution charges are higher in London and the south of England and lower in Scotland and north-east England. Although this debate has largely been presented—I speak as a Scot here—in terms of the injustice that an English Parliament is doing to Scotland, the reality is very different.

[Ian Blackford]

Will the hon. Gentleman give way?

[Barry Gardiner]

I will, but I will make a little progress first. Ofgem concluded that there

“does not appear to be any clear justification”

for national network charges

“in terms of the regional concentration of vulnerability.”

That is exactly what the hon. Gentleman and I would wish to see: that evening out across the piece. So for a household with typical electricity and gas consumption there would be an increase or decrease to the network charge element of a bill, but it would be of less than £20 a year in most distribution network areas. There would be more significant changes in three electricity distribution regions, and they are: south-west England, would be down by £38; Merseyside and north Wales would be down by £26; and east Midlands would be up by £27.

Ofgem found mixed results on bills from a switch to national network charges, which would result in approximately 16 million households facing higher bills, while about 11 million would see reduced bills under such an approach. In most cases, the increase or decrease would be small—of that £20 a year margin. In Scotland, 1.8 million households would face higher bills and only 700,000 households would see reductions. It is harder to estimate the numbers for England and Wales separately because the distribution networks that serve Welsh households also operate across the border in England.

The hon. Member for Ross, Skye and Lochaber tended to speak in percentages. Of course, when one speaks in percentages, things can sound really disproportionate. Why should someone pay 80% or 100% more in distribution costs in one part of the UK than in another? That is absolutely right, and the argument for fairness he made is correct. However, when speaking in percentages, one sometimes blurs the fact that the actual amounts are relatively small. Even households in the north of Scotland who use electricity for heating would benefit from maximum reductions of about £60 a year. That is just over £1 a week. Of course that should happen, but he should acknowledge the scale of the problem we are dealing with.

[Ian Blackford]

I think in my speech I referred to the price difference between the highlands and other parts of the UK as being 2p per kWh, so I gave both the percentages and the actual cash amounts. To someone in the highlands, £60 is actually quite a significant amount. Does the hon. Gentleman agree that this is about equity, fairness and creating in effect a universal service obligation? Will the Labour party join with us in calling for fairness, or will it let highlanders down and walk away?

[Barry Gardiner]

I absolutely agree with the hon. Gentleman that it is a question of fairness. I agree that there should be a unitary basis on which this is calculated, and indeed I think the Minister is on record as having made statements that indicate that she agrees. As I have mentioned, there are issues relating to the way in which we are permitted to do that under European law that may now be freed up. They need to be investigated and, if we can do that, we should.

I simply wanted to put in perspective what I felt was the over-ebullience of the hon. Gentleman when he spoke. In the grand scheme of things, these are small injustices, not great ones, and they apply more widely throughout the regions of the United Kingdom than just in Scotland.

[Drew Hendry]

rose—

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[Barry Gardiner]

I am happy to give way to the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry).

[Drew Hendry]

I am grateful to the hon. Gentleman for giving way and for getting my constituency correct. You talk about—

[Barry Gardiner]

He!

[Drew Hendry]

I will not use the word “you”. He talks about this being a small amount, but when you are faced with the costs of paying for off-grid fuel—oil and gas—the additional costs because you live in a sparse area and low wages in a low-wage economy, this is a devastating cocktail. Do you not agree that it is not as unimportant as you are making out?

[Mrs Anne Main (in the Chair)]

Order. I am not making out anything, but I shall call Barry Gardiner, who may answer on his own behalf.

[Barry Gardiner]

I agree that many factors come together to push people into fuel poverty and into poverty. They have been ably outlined by the hon. Gentleman and his colleagues. The point I am making is that here we have something that affects not just one part of the United Kingdom but many parts of England and Wales, as the Ofgem report clearly shows.

[Callum McCaig]

Will the hon. Gentleman give way?

[Barry Gardiner]

I felt that the debate had been unbalanced in how the facts were presented, which implied that this was an injustice being done by the Westminster Government to poor Scotland.

[Mrs Anne Main (in the Chair)]

Order. May I point out that I shall be calling the Minister at 4 o’clock? Mr Gardiner, I accept that you may wish to take interventions, but I say that just in case the new timings have eluded people.

[Barry Gardiner]

Mrs Main, I am mindful of your ruling. I simply wanted to say I accept that there is an issue of justice and fairness, but wider effects are being felt all around the UK. If we keep this issue in that context rather than trying to make it about “us” and “them” and simple victimisation, we will have a much better opportunity to resolve the problems that do exist.

[Callum McCaig]

rose—

[Ian Blackford]

rose—

[Barry Gardiner]

I will finally take the intervention of the hon. Member for Aberdeen South.

[Callum McCaig]

I accept the point that they may be relatively small figures for individuals—they may be generally quite important to them for the reasons outlined—but, to use the hon. Gentleman’s own figures and multiply the £60 benefit by 700,000 people, this is not quite back-of-a-fag-packet but that is £42 million being needlessly taken out of the economy of the north of Scotland. That would make a transformational impact if it were reversed, and that is the point being made.

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[Barry Gardiner]

If it were true, but the hon. Gentleman should know that it is not. If he does the arithmetic correctly, he will see that those 700,000 were of the £20 maximum variation, not £60. He will also recognise that more than double that figure—1.8 million—in Scotland would face higher bills. He really needs to try to see this issue not through the lens of victimisation but through the lens of reality. With that, I conclude.