Energy consumers support: letter to UK Government

To: Rt Hon Amanda Solloway MP, Minister for Energy Consumers and Affordability
From: Minister for Energy and the Environment, Gillian Martin MSP

Thank you for meeting with me on 31 October 2023 to discuss the UK Government’s plans to support energy consumers this winter along with your longer-term plans for consumer protection from April 2024, after the Energy Price Guarantee has officially ended. At that meeting and, as part of our earlier engagement, we agreed that I would write to you with a list of asks of the UK Government, which we feel should inform the Autumn Statement.

As you are aware, these are informed by the engagement I have had with three working groups I chaired focusing on issues relating to priority (previously known as vulnerable), rural and non-domestic energy consumers. Membership of these groups included representatives from the energy sector, advice services and consumer and community organisations. As well as identifying the action we feel the UK Government should be taking to make a real difference, these groups are progressing meaningful actions, within the limited powers available to Scotland, to help mitigate the impact of high energy prices upon consumers across Scotland.

2023/24 Winter Support

Under the current price cap, 33% of all Scottish households are in fuel poverty and 21% are in extreme fuel poverty. It is absolutely crucial that further support, targeted at priority domestic and non-domestic consumers, is introduced to help them through this winter.

The UK Government’s decision to discontinue the Energy Bills Support Scheme, combined with the fact that the energy price cap has now dropped beneath the Energy Price Guarantee threshold of £2,500, provides you with the opportunity to design a meaningful support scheme for those who need it the most.

There are also many consumers in Scotland who have accumulated considerable debt since energy prices started to rise last year. Our advice services have reported a 32% increase in fuel debt from September 2022 to September 2023 and we firmly believe that those living in fuel poverty should be able to access additional support to reduce overall debt levels now that the market is stabilising.

Social Energy Tariffs

The Scottish Government has called repeatedly on the UK Government to deliver a social tariff mechanism for those who need it the most, and our call has been supported by partners across the energy industry and the third sector.

At our most recent meeting, I agreed to share the conclusions of our priority energy consumers working group on this issue and have set them out below:

• A social tariff should provide additional support for priority consumers rather than serve as a replacement for existing support measures. That is why transitional arrangements should be put in place for those households deemed eligible for a social tariff this winter before the mechanism comes into effect.
• A social tariff should be targeted and be applied automatically to those on means-tested benefits. This includes but is not exclusive to, Universal Credit, Pension Credit,  Disability Living Allowance or those in receipt of Personal Independence Payments.
• Efforts should also be made to capture consumers who are narrowly ineligible for benefits, are on low incomes and are now in or at risk of living within fuel poverty and readily available data already retrieved through existing UK Government support schemes could help achieve this.
• Priority domestic consumers subject to non-domestic contracts, such as social tenants and people living in park homes, should not be overlooked when deploying support.
• High energy users who suffer from long term conditions that necessitate the use of medical or life saving equipment at home should benefit from this support mechanism.

The Scottish Government believes that a social tariff should be funded primarily though the Energy Profits Levy (or a similar mechanism) when energy prices are unprecedentedly high, with recourse to general taxation as prices fall. A specific levy on energy bills to fund and deliver a social tariff will not only place undue hardship on priority consumers, but also disincentivise energy savings in the same way that high standing charges currently do. 

I would also like to reiterate my previous offer to work with the UK Government on the design of a social tariff mechanism. 

Warm Home Discount Consultation

You wrote to me on 26 October 2023 advising that the UKG will soon consult on an initiative to amend the Warm Home Discount (WHD) scheme. While I have responded to you separately on this matter, I want to be clear that the Scottish Government does not view a change to the WHD scheme as an alternative to the introduction of a social tariff.

Support for Rural and Off-Grid Consumers

Our remote rural and islands communities continue to face significant and unique challenges in comparison to those living in more central areas of Scotland.

It is absolutely critical that these challenges are taken into consideration when decisions are being made on any future targeted support for consumers living in rural and remote areas who are struggling with their energy bills.

In Scotland, there are 82,000 rural households (19%) that rely on electric heating, and 170,000 rural households (40%) that use alternative fuels, such as heating oil, LPG, biomass and coal. Whereas not all of these households may be classed as financially vulnerable, those communities still have to contend with higher living costs than those living in more central areas of Scotland. That is why it is essential that off-grid consumers are treated equitably to those who are on-grid in relation to energy prices.

Access to a ‘gas equivalent’ social tariff for electricity would provide immediate support to those who rely on expensive forms of electric heating. It would also support the shift to zero emission heating systems by offering transitional protection ahead of the expected reforms to gas and electricity prices.

Furthermore, rural communities in Scotland have not yet fully benefitted from smart meters as the roll-out in most remote areas remains low, preventing them from taking advantage of automated credit support and flexible tariffs. I would welcome your assurance that rural and island communities in Scotland are not left behind and smart meter installation rates will increase locally.

Support for businesses

My colleague the Cabinet Secretary for Wellbeing Economy, Fair Work and Energy wrote to the former Secretary of State for Energy Security and Net Zero on 7 June and 19 July bringing to his attention the detrimental impacts that high energy costs continue to have on businesses in Scotland.

In his letter of 19 July, he highlighted the issues that the UK Government should focus on to make sure that Scottish businesses are able to operate confidently within this challenging economic environment. I would be grateful for an update on progress.

Energy Intensive Businesses

There are many small businesses, for example in hospitality and agriculture industries, that despite relying heavily on energy to generate their income, remain excluded from the Energy and Trade Intensive Industry (ETII) support. These businesses are extremely vulnerable to high energy prices as they are unlikely to have cash reserves upon which to fall back. I would therefore urge the UK Government to review its eligibility criteria of the term ‘energy intensive’ in order that more of these businesses can be eligible for desperately needed support.

Renewable Levies

Businesses are now facing the additional cost of renewable levies being added back onto their energy bills. We have consistently called upon the UK Government to permanently move these green levies to general taxation instead of passing the cost on to consumers and I urge you to reconsider this decision.

Support for Independent Hospices

I would also like you to take into consideration independent, charitable hospices which are highly valued and provide vital palliative and end of life care and support to people and their families.

The Scottish Government fully supports their calls for additional support in light of the extremely difficult financial challenges they are currently facing. While hospices have been placed in the same category as other non-domestic business organisations, they do not have the same commercial levers and options available to mitigate higher costs, whilst their fundraising income is also impacted by the cost of living crisis and high running costs .

Support from Energy Suppliers

The ‘blend and extend’ contracts offered by some suppliers can provide a much needed lifeline to business, particularly those that had to sign a new contract when prices were at their peak, by helping them spread high energy costs over a longer period. We would like to see more of these contracts being offered, and I am pleased that the UK Government is in discussions with Ofgem and energy suppliers on this issue and is seeking assurances that discounts are passed on to consumers now that energy prices are dropping.

I also have concerns around the recent increases to standing charges and the large security deposits requested by some suppliers. While I will raise these directly at my meeting with the Ofgem CEO later this month, I would welcome your thoughts on how to address this issue which is proving extremely challenging to some businesses.

Reform to the Energy Market

We welcome the UK Government’s intention to consult on how to rebalance the price of gas and electricity. We have called repeatedly for the market price of renewables and low carbon electricity to be decoupled from the cost of gas and look forward to engagement at official level on this matter.

I appreciate the bilateral meetings we have had this year, as well as the continuous engagement at an official level and would like to see this continue as we move forward.