Energy Rebates: Highlands and Islands

Jamie Stone Excerpts

Wednesday 6th March 2024 Westminster Hall

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

I beg to move,

That this House has considered the introduction of energy rebates for Highlands and Islands.

It is a pleasure to serve under your chairmanship, Mr Paisley. Before I start the debate, may I thank the Minister for taking time out to see me prior to this debate? Engaging beforehand is a refreshing departure from how many of her Government colleagues work, so I thank her for the way in which she goes about her business. We will see, of course, whether she can agree to the change that is so desperately needed.

Let us get something straight from the beginning. Energy policy is 100% reserved to the UK Government. I will come later to the actions of the Scottish Government on the cost of living and our attempts to mitigate UK Government harms, but let us be clear that the issue we are discussing today lies squarely at the feet of the UK Government and the regulator Ofgem.

The energy market in its current form is completely broken. Along with colleagues, I have called for urgent changes to the whole system and urgent support for those in need, the reintroduction of a £400 energy bill rebate, for regressive standing charges to be abolished, and for the Chancellor to honour his pledge to open a consultation on the social tariff. Today’s debate, however, is about a specific action for the people of the highlands and islands, who are uniquely disadvantaged, and a workable solution for them. I will underline how the people of the highlands and islands have been neglected by both the regulator and the UK Government, how energy injustice has not levelled up but rapidly increased, why now is the time to fix it and, of course, how the Government can do that.

Part of the problem in preparing for a debate such as this is that the message is so straightforward and the injustice so clear and unarguable that it feels almost surreal. How has the problem been allowed to get to where it is and why has it not already been fixed? Of course, the highlands and islands are largely rural, almost entirely off the gas grid and so rely on higher electricity use, fuel oil and liquefied petroleum gas. It is much more expensive than for the majority across the nations of the UK who are on the gas grid. We have a colder climate, sometimes spectacularly so. As a result, we use more units of electricity and pay more than the UK average, with higher electricity bills just to get through the days. More of our people—around a third—are in fuel poverty and a fifth are in extreme fuel poverty, by far the highest across the nations of the UK. We might think that those facts alone would have spurred any Government with a spare ounce of conscience to look at meaningful interventions to help, but that has not happened.

Fuel poverty is a major driver of actual poverty. When the time comes when you cannot switch the heating on—a lived experience for many—other problems click in. Some people are already barely eating due to the punishing cost of living and simply try to endure the cold. Some go to more extreme measures, as we know, such as self-disconnection. That has depressingly obvious consequences.

As the medical journal The Lancet pointed out, when people can no longer heat their homes their mental health deteriorates significantly. The odds of their reporting depression, anxiety or hypertension increases by around 50%, as does the risk of suicide. Children in cold homes are at increased risk of asthma attacks and respiratory infections. As the temperature drops and the circulation of viruses increases, immunity is impaired. Absolutely avoidable public health dereliction continues while that remains unaddressed. We might think that any Government with the power to do so and any shred of decency would act in those circumstances, but instead things have been allowed to get worse.

We have long been arguing these points, but the kick in the teeth for the people in the highlands and islands is the standing charge for electricity, which is a pernicious beast for those suffering fuel poverty because it applies every single day, warm or cold, whether the heating is on or off. The consumer cannot control it; there are no measures they can take. What have the UK Government allowed Ofgem, the regulator, to do across the highlands and islands? People were already paying 40% more for their standing charge than those living here in London, yet the Government have let Ofgem increase it to 50% more. According to Yourweather.co.uk, the mean daily temperature in London—the warmest city in the UK—is 16°C; in Skye, it is 9°C. How can that be fair? Surely any Government with the power to do something about that and with a shred of decency would do so.

If that were not unfair enough, think about this: the families across the highlands and islands who suffer these unfair charges, which lead to fuel poverty and even extreme fuel poverty—those who are terrified of the envelope containing the bill when they turn their heating on and try to feed and warm their kids—are sitting in the middle of energy wealth that is much, much greater than their needs, and they get none of it paid back to them. They can see the infrastructure all around them. Renewable energy generates at least six times more than the electricity they use—the figure is higher than that, but let us go on the low side. The rest is exported to the grid, only to be sold back to them at the cost I have described. It is immoral.

The UK Government have the power to do something about it and must make amends for that grossly unfair situation. The Minister will say that her hands are tied because Ofgem makes these decisions, and Ofgem will say that its hands are tied because it needs instruction from the Government. I do not believe anybody suffering those conditions in the highlands and islands will take that argument from the Minister when we hear it. Perhaps she will adjust her notes before we get to that point—we will see.

The Scottish Government have been doing what they can to mitigate Westminster policies that increase poverty in the highlands and islands, although they should not have to. They have been paying the bedroom tax, for example, so our people do not have to. They have supported children through the Scottish child payment and put money in place to fund a council tax freeze, but they do not have power over energy: the UK Government do. That is the same UK Government who introduced the two-child limit and the rape clause, cut universal credit by £20 a week, and reduced funding for public services in the last autumn statement by £19 billion, severely restricting devolved government and local authority support.

I started by praising the Minister for her engagement with me prior to the debate, and she told me that she would like some figures, so I have some for her. Northern Scotland, as it is called under Ofgem, pays more for both standing charges and unit rates than the UK average —60.1p and 24.5p respectively. Currently, northern Scotland’s standing charge cost is 59.38p, roughly 50% higher than London. Energy usage in the highlands and islands averages over 4,400 kW per household, compared with about 3,000 kW in London. Some 62% of the properties in the highlands and islands are not connected to the gas grid, resulting in higher heating costs per household. On current rates, April to June 2024, the daily standing charge direct debit single rate for electricity is 61.1p in northern Scotland and 40.79p in London and the daily standing charge’s direct debit multi-rate is 62.25p for northern Scotland and 40.75p for London.

The 2021 rates of fuel poverty are thought to be underestimates because of covid restrictions, and the Commons Library uses 2017 to 2019 aggregates. The highlands and islands region has the highest levels of fuel poverty and extreme fuel poverty in the UK. It is 39.8%—some 5,000 households—in Na h-Eileanan Siar, with 24.3% in extreme poverty; 32.9% of households in the highlands, with 21.5% in extreme poverty; 32.2% of households in Argyll and Bute, with 19% in extreme poverty; 31.6% of households in Moray, with 18.5% in extreme poverty; 30.9% of households in the Shetland Islands, with 22% in extreme poverty; and 30.5% of households in the Orkney Islands, with 22% in extreme poverty.

I expect the Minister will point to the hydro benefit replacement scheme as helping to balance the situation. Knowing that she will have done her research, I think she knows that that is a poor substitute, and an excuse for years of inactivity. A Department for Business, Energy and Industrial Strategy report of 2022 notes that the HBRS

“does not (and never could) provide an efficient or effective way of providing targeted support to specific groups of vulnerable consumers within a region.”

However, in its own unique and inadequate way, it points to a solution, along with another precedent that has come up recently and could be adopted, which I will come to shortly.

The HBRS was established in the 1940s to compensate for the small hydro dams, and it took current form in 2005 under the Energy Act 2004. As it stands, it falls woefully short of the meaningful intervention required. In 2022, the Highlands and Islands Housing Associations affordable warmth group highlighted the £60 per annum discount is only “adding insult to injury” to regional energy costs.

When someone is paying much more than the rest, that does not really make a difference, in an area that is producing much more electricity that it could ever use. In 2022, Scotland was already producing the equivalent of 113% of Scotland’s overall electricity consumption from renewable technologies, a 26 percentage point increase on 2021. As I said earlier, I am certain that figure is on the low side.

The highlands produces enough energy through electricity to power six times more homes than there are in the highlands. The highlands produced a total of 7.2 million MW of energy, with 4 million MW from onshore wind and almost 3 million MW from hydro power. Argyll and Bute produced 1.3 million MW of energy from renewable sources. The Highland Council area comprises only 0.36% of the UK total population, yet the area produces 5.5% of the 49.7 GW UK-installed capacity for renewables, 43% of the UK’s installed hydro capacity and 13% of the UK’s installed onshore wind capacity.

With those regions playing a crucial role in providing the rest of the UK with cheap energy, it is surely only right that they should start to get some benefit from cheaper energy prices, yet they are not. The HBRS could and should be converted into something more meaningful. In his autumn statement, the Chancellor offered the solution. Why not introduce a meaningful rate based on compensating the highlands and islands contributions? He said he would introduce a rebate of up to £1,000 a year for up to 10 years for people living next to planned new energy generation infrastructure. That is very laudable. If it works for those living next to new generation equipment, how about those living among existing generation equipment?

That rebate would redistribute the wealth being generated in the highlands and islands among the communities, enabling them to reap benefits from what is produced there. That would offer several benefits, such as reduced energy costs for those facing higher than average per unit costs, alleviating the financial pressure that that places on households. It would empower communities by allowing them to reap the benefits of what their communities produce, and it would boost economic growth by alleviating the pressure on households from energy costs.

[Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)]

The hon. Member is making an excellent speech, which strikes a chord with anyone who knows and works for the highlands. There is another benefit, I think. During the pandemic, the recovery of anyone suffering from covid was assisted by being kept warm. I believe that a warm household goes a very long way towards disease prevention. It is arguable that one of the benefits of getting this right would be the health of people in the highlands, which would lead to fewer days off work and greater economic productivity, and that can only be good for the economy of the highlands.

[Drew Hendry]

I thank the hon. Member for his intervention. He will not be surprised to hear that I agree; indeed, I mentioned earlier in my speech that The Lancet has reported on the health outcomes of having a house that is too cold. One of them is the fact that immunity drops, and people’s resistance to picking up infections actually decreases due to those circumstances. There are particular effects on children and their ability to develop. The hon. Member makes the good point that this is an issue of not only lost work days, but lost ability for people to operate in their communities and have a general sense of wellbeing. He was absolutely right to highlight that point, and I thank him for that.

The hon. Member talked about economic growth. As I said, a highland energy rebate would boost economic growth by alleviating the pressure on households from energy costs, allowing them some money to try to get through the cost of living and to spend elsewhere. Let us see some justice for, and amends made to, those suffering in fuel poverty who are generating and exporting power for others across the nations of the UK. The highlands and islands produce almost 6% of UK energy while having about 0.4% of the population. Why do we not benefit further from that? We pay higher than average bills, face higher costs due to the climate and have higher rates of fuel poverty and extreme fuel poverty, yet we live in an energy-rich region.

Even the UK Government’s own report, the BEIS review scheme of 2022, describes how the hydro benefit replacement scheme does not provide efficient or effective support for vulnerable consumers in specific regions. The scheme introduced by the Chancellor that will give rebates to those living near new energy infrastructure up to the tune of £10,000 over 10 years is laudable, so why can a scheme not be put in place for those living near to existing renewable infrastructure? It is time for the people of the highlands and islands to be treated fairly, for fuel poverty to end, and for the contribution of those people to the billions that is generated for the Treasury on their doorsteps to be recognised. It is time for a highland energy rebate.

--- Later in debate ---

[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.

--- Later in debate ---

[Ian Blackford]

My hon. Friend makes an important and fair point. In my constituency and home island of the Isle of Skye, a number of planning applications are coming forward. Of course, there is always a range of views on these things across all our communities, but if I look back over the past few years and, indeed, at the debate taking place today, on balance, people are generally favourably disposed towards those developments. They understand the importance of getting to net zero. My goodness, the communities that we all represent feel the impact of climate change—we can see it. There has to be that fairness, and the fact is that so many people are living in fuel poverty—the 47% of households that I referred to that live in rural areas. I see it when I am out and about.

If we think about us here in London going about our jobs, many people are dressed, as we are, in their working garb—suits or whatever it might be—but when we see people in remote rural areas, they often work outdoors, in the fishing industry or as crofters or farmers. It is largely an outdoor life, so people wear layers of clothes. They need those layers because of the climate they face outside, but—here is the “but”—in too many cases, they are still wearing those layers when they come back inside because they simply cannot afford the heating. That is the reality. When we give our consent—because it is about our consent—to that increase in energy production, where is the benefit?

I mentioned the increase in energy production that we will see in Scotland between now and 2050. We welcome it, but how can we have our people living in fuel poverty? How can we accept that? Where is the fairness? We are being charged higher transmission costs to transmit that energy into the grid, and being charged again to get the energy back. That energy is produced in our communities. Can somebody explain where the fairness is in that? How does that look for those living in these communities?

[Jamie Stone]

None of us should be under any illusion; the fact that so few of us are here today does not reflect or minimise the nature of the problem. It is fundamentally unfair that many other aspects of government would command a higher attendance of Members. There is something basically wrong here. Part of the UK is being ripped off when it comes to energy.

When the Chancellor and his civil servants were drawing up the Budget, I am sure they took into account what was fair, what was right and what was not, but has this issue been factored in? We await today with interest. It is apposite that the debate is precisely at this hour, because shortly we will know whether the Chancellor cares about a fundamental unfairness or not.

[Ian Blackford]

I thank the hon. Member, my constituency neighbour, for that contribution. I agree with the sentiment; it is a pity that more Members are not present. Having said that, the Members who represent the four most northerly constituencies are here. We four represent the communities most exposed to this issue. We have four of the most rural constituencies in the whole United Kingdom, although we could add Na h-Eileanan an Iar or Argyll and Bute to that. It is our constituents who are feeling this. It is our constituents in the main who are facing fuel poverty to such an extent. I wonder whether those in government actually recognise what it is like to live in those communities and face the kind of pressures that we face.

I have talked about the community benefiting from transmission, but it is important that the community should benefit from production as well. Again, those on the production side are encouraged to engage in community benefit, but we simply cannot leave it to the developers to determine community benefit at a whim. It must be mandatory. It must be in legislation. The highlands and islands produce enough energy to power nearly six times as many homes as there are in the highlands, even before the scale investment that we are talking about. Of course, being a windy and wet region makes us an attractive option for developers, but there must be payback for communities.

In the highlands and islands, we are exposed to the effects of climate change. In general, it is an outdoor lifestyle. Crofting and fishing still provide the backbone to economic activity, and those exposed to such activities are exposed to what climate change is bringing. Anyone who has engaged in crofting can say how difficult it is over the winter months with, from personal experience, crofters increasingly sinking into the mud because it is just so relentlessly wet. That is the effect that climate change is having on us.

It is therefore unsurprising that, in general, those who live in such places as Ross, Skye and Lochaber support green energy initiatives, but there is an increasing concern that rising production produces little direct benefit for communities for that right to produce. That is why we have a broken UK energy market. Let us not forget that the increase in pricing over the last two years is largely because electricity prices are tied to gas prices. However, we have talked about the fact that in the main, people who live in the highlands and islands are off grid. We do not consume gas as part of our energy mix, yet highlanders are paying the price for others’ dependence on gas.

It is simply unfair that Scotland, which produces enough affordable renewable energy for all domestic consumption, must pay higher prices because other parts of the United Kingdom are more reliant on more expensive gas. In energy-rich Scotland, consumers are in fuel poverty because of the broken UK energy market. Those in Scotland are paying a price for being in the United Kingdom—so much for the broad shoulders of the United kingdom; so much for the “Union dividend”. There is no Union dividend; it is a financial penalty, and we in Scotland all pay the price. To put that in a wider context, the value in today’s prices of tax from North sea oil to the UK Exchequer is more than £400 billion. Our legacy from the bounty of North sea oil has been squandered, and we have now been locked out of the benefit of Scotland’s green energy production.

The phrase “Scotland has the energy, but we don’t have the power” is often used. It is an absolute scandal that we produce the energy and yet so many of our people are living in fuel poverty. That is the price of Westminster’s control of Scotland’s natural resources: highlanders and islanders suffering fuel poverty from a broken energy market. The blame lies fairly and squarely in this place, and its inability to act in the appropriate manner to defend the interests of our constituents.