Good morning and welcome to this meeting of the Scottish Affairs Committee. I am very pleased to have our witnesses along today. Will you please introduce yourselves?

I am Lawrence Johnston from Scarf, a fuel poverty charity based in the north-east of Scotland.

Thank you for having me here. My name is Stephanie Mander and I am policy manager at Citizens Advice Scotland.

Good morning. I am Charandeep Singh, chief executive at Scottish Chambers of Commerce.

Thank you—and congratulations on your recent promotion, Mr Singh.

Thank you very much, Chair; that is very kind.

Since the energy crisis, challenges have remained for households and businesses in Scotland as a result of high energy costs. Do you think standing charges are fair to customers in Scotland?

Obviously, while the higher pressures of the energy crisis have somewhat eased, a lot still exist for the business community. In fact, for the last three years around 60% of our members have continued to cite high energy costs as one of the highest cost pressures they face in running a business. In terms of standing charges, there is an element of unfairness particularly when we look at some rural and non-urban businesses, which are perhaps operating seasonally or have reduced some of their operations as a result of other issues such as the availability of labour, but still have to continue paying the standing charges on their bills. So there is definitely a question of fairness around those businesses that still shoulder the burden of that cost. In terms of how that applies to the wider costs, there is still an issue around the high cost of the standing charge even on those businesses that are still operating at full capacity.

From Citizens Advice Scotland’s perspective, we would support tariffs with reduced or removed standing charges for people who would benefit, but that would be people who have limited energy usage. We know that people who have necessarily high energy usage would not benefit from having reduced or no standing charges. From our perspective, it is important that the supplier enables people to access the best tariff for their usage. I will give an example of somebody who came to visit our network. His name is Simon—his name has been changed for anonymity reasons—and he sought support from one of our bureaus, for various debts including energy arrears. He was struggling financially because of his low income and the cost of living increases, so he decided to maintain his house without any heating. He did not understand why he continued to receive charges and accrue energy debt despite the fact that he had decided to turn off his heating because, of course, he had not been aware of the daily standing charges. So there are concerns around that. Across the piece, when it comes to the standing charges conversation, our overall thinking is that this is not where the focus should be. It feels like this is tinkering around the edges when it comes to trying to tackle the issue of energy affordability. From the perspective of Citizens Advice Scotland, this is nowhere near enough to tackle the depth, scale and severity of the issue we know exists within Scotland when it comes to the severity of fuel poverty. We can see that in the evidence we have gathered from across the network. From our perspective, conversations around tackling energy affordability should be much more linked to social tariffs. We would like to see that come forward, rather than solutions we consider to be more tinkering around the edges, such as standing charges.

I would certainly echo Stephanie’s comments in terms of how we deliver energy advice to domestic properties in and around the north-east of Scotland. The standing charge is very much a hidden evil for many people, because they are unaware of the accruing of charges on a daily basis. Even though they have potentially self-disconnected themselves from the network, they are still accruing energy debt in the background, unbeknown to them. The other comment I would make is that standing charges are estimated to be between 15% and 20% of the total bill cost, and this is a charge that no consumer has any control over, irrespective of how effective and efficient their consumption energy is.

Mr Johnston, do you think the price cap is still effective in protecting households?

To a degree but, as with a lot of energy measures that have been tried and tested—and some have failed—over the last four to five years in particular, it does not go far enough. We are talking about energy today but it comes into the general cost of living. We talk about poverty, and poverty is a symptom of society, not just energy poverty. The energy cap, to some extent, helps a little but does not go nearly far enough to support the people who really are the most vulnerable in society.

Would that be your view, Ms Mander?

Absolutely; we would completely echo that. From our perspective, we need to see a social tariff. In our view, the energy market is broken and there needs to be root-and-branch reform. Seeing a social tariff brought forward as a priority would very much be what we are keen to support.

We will come on to the social tariff a little later. Mr Singh, without a price cap, how exposed would Scottish businesses, especially smaller businesses, be to the wholesale price volatility that we know is in the market? Is there a consequence from that to investment, for example?

SMEs are not protected by an energy price cap. At the height of the crisis, chambers, other bodies and trade associations called for more targeted support for SMEs. We certainly welcomed the support that was offered to families and households. At the end of the day, support for any of these groups is critical. They are customers and employees, so we certainly welcome that approach. For SMEs specifically, which are not protected by an energy price cap, the cost burden is high. When you add that cost burden to the increases in various taxes—whether it is devolved, reserved or the higher cost of labour—for many SMEs a lot of questions have to be asked around the viability of running a business in local communities. Our view at the Scottish Chambers of Commerce, in terms of the long-term impact of businesses questioning their viability when the cost burdens are so high, is that they are not being protected or shielded by price caps or other interventions. We have a long-term view of the impact on communities, community resilience and jobs in local areas. We understand that some of the solutions are challenging. We have offered other potential areas for Governments to look at. For example, if an energy price cap for SMEs is not possible, what other interventions can the Treasury look at? Can they pause some wider taxation increases that have hit businesses quite hard, such as national insurance contributions? It is certainly a big issue. It is a day-to-day issue. As an example—I will never forget this—one of our members in Dundee had a storefront. They switched the lights off in the middle and the back of the shop, and only switched on the front window area so people knew they were still open. When customers walked in, they would switch it off and put on the middle section of the shop. That was at the height of the crisis, not today. However, it is important to note the scale of decisions that are being made by SMEs just to survive and, ultimately, this is what the whole debate is about. We have turned it into a debate around business survival rather than thriving businesses and local communities. It continues to be a big challenge. The cost of energy is no longer a crisis question as it was in 2022; it is now baked into decision-making. SMEs are not expecting energy prices to come down dramatically from what they used to be, and that will have a long-term impact on decisions around investment from an SME perspective. Will they hire? It is a question mark. Will they expand? It is a question mark. Will they open up in a new location? It is a question mark.

Ms Mander and Mr Johnston, I want to ask about the barriers that are preventing households from reducing their energy debt. Once they are in debt, how do they find it?

I will kick off by saying that the root problem of this links back to energy affordability. We know that years of unaffordable energy costs have left people in Scotland burdened with huge amounts of energy debt, and we see that throughout the network. To give you an example, in 2025, so this past year, we had more than 2,500 people come into our network for support with energy debt, and a total of over £6.7 million of energy debt presented to the network. The scale is enormous. This averages to a debt of £2,700 per household, which is a 43% increase since 2021. So the figures are very stark. We know the impact that debt has on people. It degrades mental and physical health, causes anxiety and depression, traps people in unsafe relationships, and means they are unable to plan for the future. We know full well that it links into job loss which then, of course, causes a situation where debt increasingly gets worse and then has a knock-on impact on social care, housing and the NHS. The important message I am trying to communicate is that energy debt is costing us all and it is incredibly important that we try to tackle that. Back to your question, the root problem is very much concerned with energy affordability itself. Despite the fact that a debt relief scheme is currently in the process of being rolled out by Ofgem, that the debt relief scheme talks about a very specific time period suggests that the energy crisis is over, when we know from our evidence that that is not the case. Actually, the solutions that are currently on the table are not really tackling the heart of the problem, because if we are not tackling energy affordability in the first instance, we just see that debt is mounting in the background. We can see that people are getting into debt just to survive, for the basic essentials of keeping their houses warm, making sure that their children have warm baths and there is hot food on the table. This is not a luxury at all; this is a basic essential. To be able to face the series of high energy costs and the severity of the debt is a real problem, and they find themselves trapped in cycles. I will take a moment to share a quote from one of the advisers who supports the NAC work. She said to us: “There is a lack of understanding of what the experience of being debt is actually like for people. People are doing their very best just to get by, and they are at the mercy of different organisations, their staff, their processes, and it is just one barrier after another after another.” There is a real sense that people do not know how to tackle it. They are feeling overwhelmed by not being in a situation where they have control over their finances.

I echo the sentiments again. From our perspective, the levels of debt are unprecedented, as we probably all know. To give some background statistics—this is just for the north-east of Scotland—in the past 12 months our organisation has delivered over 4,000 individual face-to-face home visits to domestic owners and renters, for what we call behavioural advice. We give tips on how to save energy and consume less. We have estimated costs, based on the Energy Saving Trust dynamic, at almost £800,000 of assumed savings or potential savings. In actual fuel bill savings, through giving people advice on tariffs and suppliers, we have been able to save households almost £350,000. We have also been able to support customers in writing off almost £70,000 of debt through negotiation with their supplier. The difficulty we find is still the lack of awareness by the consumers and households of what support is out there, what could potentially be done for them, and who to go to if they think they can be supported. We are fortunate, in terms of the area that we work in, as we are funded by local authorities. In the past couple of years, we have started to access some private funding, but that is not the case across many other regions in Scotland. The key thing for me is that we are able to reduce the levels of debt. We are able to reduce consumption levels which obviously, by default, will reduce spend and debt. It is about getting that message out there to the people who really need it. Of course, there is still a stigma around poverty. People may know tentatively where to go, but it is doing that—picking up the phone or popping into a drop-in centre to get help—that is still a big challenge for many people.

Are you saying that behavioural change is part of the solution? Do you think that behaviour has been a large part of the cause, or is it just part of an education process?

It is part of the process. I think the net cost of energy is the main thing, but that is closely followed by the energy efficiency of properties. I will talk about the north-east in particular, because it has a lot of stone-built properties and rural areas. No matter how energy conscious you are in the home, if your home is leaking heat, it is not going to get to the level it needs to be.

How confident are you that Ofgem’s proposed debt relief scheme will adequately support households in Scotland that have unmanageable levels of debt? Ms Mander started to touch on that, but would either of you like to expand a little?

I want to build on Lawrence’s point about the necessary high energy usage that exists within rural communities, because of concerns around energy efficiency. I want to bring in the fact that we know that lots of people who are disabled, or people who have long-term health conditions, also have necessarily high energy usage. This is because of things such as assistive technologies—for example, the continuous use of ventilators; the need for charging things like electronic wheelchairs; hygiene requirements such as additional laundry loads; and the need to have warmer houses in order to be able to manage their conditions. We know that being unable to meet energy needs has a deep and profound impact on people who are disabled and people with long-term health conditions. With regard to the question around the debt relief scheme and what our thinking about it is, we can most readily sum it up by saying that, in our view, the scale of the solution does not match the scale of the problem. Ofgem’s own data has said that there is £4.4 billion-worth of debt. It is a national shame to have that many people struggling. In our view, it is essential that the debt relief scheme is focused on debt write-offs rather than on repayment plans, which is currently the focus. From our perspective, the proposed scheme has a restricted time period focus that I mentioned in my previous answer—March 2022 through to April 2024—but we know from the evidence we see from across the network that the energy crisis goes way beyond that. We are in a situation where, unless we address the issue of energy affordability at its source through a social tariff, debt will continue to accrue despite the fact that there is a debt relief scheme on the table. In our view, it is definitely not adequate.

Very much so—the last data suggested that in excess of 250,000 customers were in extreme energy debt. For me, there needs to be more transparency around how the energy debt relief scheme is going to be structured and administered because, at the end of the day, many people may not know that, as consumers, most of us are already paying a contribution as part of our energy bill towards offsetting debt. This essentially is the same, but you would assume that it must be different as it is being rolled out as a new and evolved scheme. I sit here today not knowing the structure behind it. I say transparency; we need to understand more about how this scheme is actually administered. It is hard numbers that we need to see. They are talking about recovering £500,000 of the debt in the first year, but what does that actually mean against £4 billion of debt? It does not seem to even touch the tip of the iceberg.

How do you respond to concerns that financing Ofgem’s debt relief scheme risks shifting it on to the people who are already facing high energy bills and are struggling?

That is exactly what is likely to happen.

Those numbers are actually really shocking. Mr Johnston, you have said the standing charge is a hidden evil. Do you think we need to look at how we can educate people to understand that it is happening? How do you think we can make that clearer?

If we take our organisation as an example, we are going into people’s properties and doing an assessment primarily to support them with their utilities—their energy. We are not a one-stop shop in terms of being able to help them with other challenges they may have. We have an extensive network, probably 400 to 500 now, so we can signpost and refer to other organisations. We try to ensure that the journey is as seamless as possible. In terms of that element of education, an organisation like ours could take on part of it, but there needs to be a more direct relationship with the suppliers themselves. It may be part of the billing process or part of the information that goes on to bills and into conversations. I feel that, at the moment, it is almost a taboo subject that does not get spoken about. This goes back to more transparency with suppliers in particular around how costs are made up. They do it to an extent, and undoubtedly there is a reason they do not do it, but until it gets thrown on the table it is still a challenge to deal with.

From our perspective, we have the largest independent advice network in Scotland. We have presence in over 300 different communities, and in 2025 we put £170 million back into the pockets of about 200,000 people. We know full well the difference advice makes. The question about how to make sure people feel supported when it comes to understanding their energy bills is very much linked to advice, and trying to make sure that there is sustainable and multi-year funding for advice services. Citizens Advice Scotland feels that it is an essential part of ensuring that there is long-term support for people when they are facing these struggles. It is an essential part of this. It is essential that the onus is not put on the individuals who are struggling and facing fuel poverty. They have to navigate and understand very complicated fuel bills. The problem is not based on them. It is about a broken energy system and market. It is incredibly complicated for people, even with expert advisers, to try to understand what is happening with energy bills. That is an issue. The fact that the question is about education concerns me, because it feels like it is shifting the onus on to them rather than it being about making sure the system is fit for purpose.

Ms Mander, you quoted Ofgem’s statistic of £4.4 billion in energy debt, which is incredible. Is that UK-wide or Scotland?

That is UK-wide.

What is the figure for Scotland?

I’m sorry but I don’t have that to hand. I can give you the figure that we see within our own network, which is £6.7 million. That was in 2025.

That’s not Ofgem’s stat for Scotland?

That’s right. Ofgem’s figures are within its consultation specifically.

Would you be able to send that to the Clerks after the session?

Yes, absolutely. Q395       Mr MacDonald: While listening to this, I have been looking at AI to find out how much profit the major utilities make, and it is multiple billions of pounds in the UK. I can be more specific but I do not want to be. Do you think there is a case for an inquiry to be set up to see whether the utilities are profit-gouging at the expense of their customers?

Yes.

It is, of course, a very important area. The Committee should always look at areas of interest for inquiries, particularly when it comes to the topic we are discussing today. We are very open to coming to a future inquiry on the particular topic you raise. If I can make a broader point on AI, it is obviously an emerging topic of interest in this country. We are investing a lot in this area, and it is very energy intensive. We will need to look at the energy sector and how we are set up to benefit from AI in this country. In terms of the profit gouging topic, we are very open to coming to a future inquiry to talk to you about it.

Ms Mander and Mr Johnston, the proposals by Ofgem for debt relief involve transferring the burden of that debt on to the bills of people who are not in debt. That is essentially what the plan is. There is good reason to think that Ofgem does not actually understand the market that it is charged with regulating. Are you concerned that it thinks the market is essentially, “We have all these people over here in debt, and we have all these people over here who are not in debt, so we will transfer that debt over to the people who are not in debt so that they can pay it”—forgetting that, of course, the people either side of the line are very close in their circumstance? These people are only just not managing to pay their energy bills, these people over here are only just managing to pay their energy bills, and it is a sliding scale out from that line. The people over here, in Ofgem’s world, are perfectly capable of shouldering the burden of the people just over the line and not managing to pay their energy bills. Are you concerned that that is inherently iniquitous and unfair?

Very much so. This is again about transparency: let us see some modelling. There may well have been modelling done by Ofgem but the general public—the consumer—needs to have some visibility of it and a better understanding of its impact, because there will be an impact, as you rightly say. It is essentially robbing Peter to pay Paul. When you get to this side of the fuel poverty line, a consumer will just fall within fuel poverty. There is an argument as to whether the onus should be put on the consumer who finds their bills affordable and has disposable income. There is still a question as to whether that is that fair; it is probably not.

From our perspective, there are lots of flaws in the debt relief scheme they have put forward. There really needs to be a more ambitious and holistic approach that is much more focused on debt write-off. It feels like the proposals are all about looking at particular details that are tinkering around the edges. To clarify, this is now the second winter in a row we have been consulting on the debt relief scheme that Ofgem has proposed. This is now the second winter in a row that we have been facing these increased debts. The energy crisis is continuing and the impact and harm is being felt across Scotland. We are prevaricating in going backwards and forwards around the specifics of the design instead of seeing that more wholescale root-and-branch reform that we need: tackling affordability at the root through a social tariff which, in our view, is what needs to be prioritised.

We are spending quite a lot of time on this topic, but Members are clearly very interested in it, so as long as Members are happy to move more rapidly through further sections, I will allow another supplementary question, not least because I want to ask one myself. I am going to abuse the position of Chair and ask a specific question of Ms Mander. You have mentioned twice now that you think it should be a debt write-off scheme. I had a very interesting conversation recently—this is anecdotal—with an energy supplier that told me about a new scheme it has introduced. It is providing air source heat pumps or solar panels to people who it has identified as being in debt to it. The reason for doing that was because many of the people in the cohort it was looking at had had debt that had been written off and then, understandably, it accrued again the next year, and that again was written off. It became a pattern. Staff had suggested the best thing to do was to look at the system of heating in their home to see whether there was a way of reducing the amount of energy costs the household faced by introducing a more effective heating system. If it were possible for Ofgem to encourage suppliers to do that kind of thing, would it not be better in the longer term than having some form of debt write-off?

From our perspective, putting in place energy efficiency measures such as clean heat technologies, or looking at fabric-based solutions, is absolutely something we would be encouraging, but it is also a long-term solution. We are talking about people currently in crisis. I have just shared with you the statistics that show the severity of the issue and the harms that are being felt across the network with people coming to us. We would be encouraging of that but, at the same time, we need to make sure that we are having conversations about energy efficiency. In talking about future generations and the benefits they will see, we cannot forget the current generation and the impacts that are happening within that. When it comes to tackling debt, I hear your point around debt write-off and future debt write-off. I will point towards the fact that—of course, you will be expecting me to say this—the root of this problem is the affordability of energy, and we therefore need to make sure that we are putting in place a social tariff. That is our view.

Who would cover the cost for the proposed debt write-off?

The question about how this would be negotiated cost-wise is not something we have particular evidence on. What I am here to present is evidence from our network on the impact and harm that we are seeing with regard to the current broken energy system. That is what I would be—

So it is not a plan with a plan behind it. You just think the debt should be written off, but who pays for that, and where the cost ultimately lands, has not been considered.

No. Where the cost ultimately lands, from our perspective, is a very important question for decision makers and one that needs to be tackled. The current debt sitting with individuals who are only using energy to meet their basic essentials is a problem. It is for decision makers to understand how best to balance the books to enable us to address this problem, but it should not fall with those individuals. Q400       Mr MacDonald: I am the MP for Inverness, Skye and West Ross-shire. With the exception of Inverness city, everybody largely uses electricity to heat their properties. We know that electricity costs more than four times the price of mains gas. A hotel in Inverness might be spending £25,000 on heating, in which case a hotel in Mallaig or Portree is paying four times as much to do that. Nobody could possibly say that it was right to pay four times as much to have the staff, but somehow we have ended up with the second biggest cost of a business being four times as much for people who are not lucky enough to have gas. I know one business where 30% of its costs are staff and 10% of its costs are energy, whereas, if gas was available, it would be 2.5%. Do you have any specific feedback on a process we could go through to make it more appropriate for households or businesses in rural areas to survive this extraordinary discrepancy?

In terms of information and data, we can certainly supply the Committee with our quarterly economic survey specifically looking at the geographical areas you have mentioned. It is a Scotland-wide survey delivered on a geography basis, so we can give you data, for example, on the highlands. Clearly, from the example you have given, there is a penalty on geography, which is unsustainable if we are looking at every community in Scotland thriving, being successful, attracting investment and having strong, resilient communities. That is not the case right now. If you put energy aside, it is more expensive to have labour in some areas and hire staff. We have to increase wages to get people to work in these areas. We have to offer more incentives for people to work in these areas as well. That is quite a compounded cost burden for businesses. These are also areas that are part of Scotland’s economic strategy in terms of tourism and renewable investment. We have quite a lot of work on our hands to tackle these issues and make sure that we continue with the long-term view. There are really exciting opportunities in all these areas but—this is the challenge we all have—the short-term challenges we are discussing will have an impact in the long term. We need to make sure that long-term investments are coming through for the resilience of these communities. We can definitely supply you with the data and we can break it down by sector to help to inform your thinking. There is definitely a penalty on geography. In fact, timing also plays a big issue. One of our members in Dundee, at the height of the crisis, sent their representation to the local chamber, and they said that it was effectively like winning or losing the lottery, depending on when your contract renewal was with your energy supplier. It was the difference between surviving and shutting down. Timing is obviously a big issue when it comes to contract renewal, but geography is an important issue. The businesses in these regions are exceptionally worried, as are all businesses. In geographical terms, we need to be acutely aware that there are specific challenges in these geographies. There are also households, which colleagues might talk more about, that are not connected to the grid. They use alternative fuel options and there is a cost burden of that too. So there are a lot of wide-ranging issues. Of course, renewable energies and how we manage the transition will be critical. Ultimately, we all want affordable energy. How we are balancing renewables, the North sea, the transition, protecting our skill set and protecting our resources will be the full solution to the shared goal that we all want to get to.

It may be interesting to see how much awareness people have of the existing Scottish Government-funded programme CARES, which is the community and renewable energy scheme; I do not know whether you are familiar with it yourself. One of our delivery partners administers it for the highlands and islands and we do it for the north-east. It is a fully-funded service by the Scottish Government that supports community groups in exploring and researching potential opportunities to commission renewable energy—wind farms, wave technology and so on. The service basically means that a full evaluation is done, with reports and recommendations, and the community can get a hand-holding service to look at what funding is available, and project planning. Ultimately, the community benefits from clean energy, but also a kickback into the cost of the energy they are consuming. Again, there may be an awareness gap there. Certain communities may not necessarily be fully aware of where they should go to get more information.

I mentioned earlier that we have a presence in over 300 different communities across Scotland, including remote, rural and island communities. I would point you towards a report called “Up in Smoke”, which was recently released by Skye & Lochalsh citizens advice bureau. It talks about the energy challenges that are facing those in the local community. In particular, it mentions Donald and Marion, who are over 80 and have witnessed too many power cuts to count, some lasting days and days. Others said that they have electric storage heaters that are very expensive to run, but they use alternatives, such as log burners, to try to make sure they keep their houses warm and can manage cold snaps and power cuts. We already know that living in rural and remote communities has particular challenges. For example, they have colder and darker winters—it seems obvious to say but it is the truth—which means they obviously have higher energy needs in order to counteract that. We know that those households, as Lawrence has already mentioned, have poor insulation that is very difficult and expensive to retrofit. We know that those households often struggle when it comes to having people available with the skills to put in place the energy efficiency requirements they need. Because a lot of rural households are more exposed, the material of their households actually degrades because of the wind and weather. It also affects their energy efficiency. People who live rurally also have expenses associated with higher food and transportation costs. All these things compound, which means the question around energy costs is particularly challenging for people living rurally and, of course, are further compounded if they are elderly or have disabilities. When it comes to making sure that we recognise the particular affordability challenges they are facing, I will point you again towards a social tariff. From our view, a successful social tariff would factor in not only low-income households but also households that have necessarily higher energy usage, such as those of disabled people, and households factoring in rurality, because we know those areas face particular challenges. To complete my contribution, it is central for the energy transition that we are talking about that the people who are on the sharp end—including those living rurally—are baked into the design of what is happening within those programmes and schemes. It is essential that we recognise where they are and that they are part of our thinking moving forward, because they are definitely more likely to be experiencing fuel poverty and extreme fuel poverty because of being rural.

Lawrence, you mentioned the CARES programme. I am aware, as is this Committee, that £5.5 million of funding from the UK Government went into CARES at the tail end of last year, specifically for community projects. Do you think more work needs to be done to raise the profile of this funding, which could better support communities in those areas struggling with high energy costs and those that are off-grid?

Yes, I believe that is the case, but I can only comment on the north-east of Scotland. We see quite a good return on investment in the programmes that we have been directly involved in. I cannot comment on the highlands and islands but it may be worth visiting that with local authorities, because it could increase the communication breadth and width. With the community and renewable energy scheme, there is still a slight conflict in that our supply chain is probably not where it needs to be in terms of cost-effectiveness and efficiencies. Although I said that we see a good return on investment, we are mainland. Obviously, when you start to go out from the mainland and into the islands, the whole supply chain costs increase quite significantly. Therefore, the return on investment and the evaluation or approval to proceed may be a more difficult question to get answered positively.

How sufficient is the available data that would make implementing a social tariff possible?

I know there are concerns around trying to make sure that the data is adequate to enable the roll-out of a social tariff. Citizens Advice Scotland was part of the Scottish Government’s social tariff working group, and would very much endorse its recommendations as part of that report, and I would point you in that direction. Equally, I would echo some of the work that has been done by the Energy Security and Net Zero Committee. It recently had an evidence session with the big energy suppliers and, as a result, produced a report that was informed by that session. It has called for a social tariff and, within that, for an energy data-sharing taskforce to be set up by the UK Government. The purpose would be for energy suppliers, Government Departments, local authorities, HMRC, the NHS and relevant third parties to establish effective mechanisms for that data sharing to improve the delivery of support schemes and enable the introduction of a social tariff. We think there is merit in that and would encourage resources to go towards that with urgency.

Forgive me if I am repeating this question but how do you respond to the argument that lowering the cost of energy and improving energy efficiency is a more effective way of reducing bills than a social tariff?

In our view, as you will have heard, we believe that a social tariff is the most important way to approach it because it is tackling the question of affordability at the root. We are absolutely supportive of energy efficiency measures but, again, I will point to the fact that we are talking about that in the longer term. It will take time to put in place. We would be very keen to make sure that households who are on the sharp end get prioritisation when it comes to putting forward energy efficiency measures. But we need to be realistic in where we are right now and the debt crisis. The conversation we have been having around the debt crisis has been years in the making, and we are only seeing it becoming more stark.

There is a point here about the cost of energy; surely reducing the cost of energy overall would be the most important thing for all these arguments.

To follow on very quickly from that, both improving energy efficiency and the cost of energy would be helpful, as would a social tariff. Is it cogent to suggest that a social tariff could be delivered with a level of immediacy? Energy efficiency and lower energy prices will need to unwind through the system over time whereas, if there was political will and legislative intent, we could introduce a social tariff much more quickly and make life substantially better for people who are at the very sharp end of paying for their energy?

Absolutely. Looking at the Energy Security and Net Zero Committee’s recent work on this, it was calling for a consultation on a social tariff to be released in January 2026, which now, of course, has come and gone. It was hoped that it would be put in place and rolled out by this upcoming winter. That level of urgency is certainly what we are looking to see, and I absolutely take your point that we need to be seeing action now to be helping people who are currently experiencing the harm that we see across the network. Our advisers are helping people every day to tackle these issues, but they are not magicians and they cannot fix the broken energy market. To be honest, it takes a real toll on the advisers as well. They have a constant mounting case load and are having conversations with people who are really feeling the harm of the problems: conversations about suicidal thoughts, concern about putting food on the table for their children, or being able to afford to keep them warm. One example that I remember is from an individual called Callum, who was a new father. He woke up to a household that was cold and dark, which is a parent’s worst nightmare. He also had two younger children. He came to our bureau because he was looking for emergency support. When he came to us, he was in receipt of universal credit but it was six days until he received the next payment. He told us that he was not able to afford baby formula or nappies and, obviously, was not able to top up his meter. From our perspective, we hear stories such as that all the time. We hear stories about pensioners going to bed at 4 pm because they are concerned about saving energy by turning off their lights or try to keep warm by staying under their blankets. We hear about people with long-term health conditions who are facing discomfort in their final months because they cannot afford to keep their house warm enough. This is the reality that is facing advisers across the network and is what we are hearing every day.

On the back of that, how effective are existing Government schemes aimed at reducing energy bills?

In our view, they are not effective enough. We have already touched on the debt relief scheme and its shortcomings from our perspective. We are encouraged to see that the warm home discount has been continued but again, in our view, it is very much scratching the surface of what needs to be happening; £150 is nowhere near enough to be tackling the scale of the issue that we are seeing across the network. In our view it is not sufficient.

I will refer to a real example we are involved in, in the north-east. We are the delivery agent on behalf of the Government for the warmer homes Scotland programme. Complementary to that, we have also been running an ECO programme. This is the same ECO programme that will end on 31 March. It was partially funded by an additional £150 charge that was put on to consumer energy bills. Only £59 of that charge was actually directed to the ECO fund, so we are talking about £60 a year for a consumer. A comment was made by a member of the Government at the Budget that the ECO scheme was being withdrawn because it had failed. If I can now reference some data, this is relevant to Scarf in the north-east of Scotland: during our time in supporting local authorities to administer the ECO scheme—this is from the most recent iteration, ECO4, which started in late 2024—we supported 1,600 unique and eligible properties to benefit from energy efficiency measures. Eligibility takes into consideration EPC rating and is means tested. The properties benefited from almost 5,000 measures—that is solar, heat pumps and loft cavity insulation. The funding that that brought in for the north-east of Scotland from the energy companies themselves, which are part of the programme, was £28 million in the year and a half that it has been running. It also achieved over £2 million of annual bill savings—actual bill savings for the households that benefited from the measures. The average property benefited from around £18,000-worth of work at no cost to them through the scheme. Our frustration, as an organisation, is that we believe we have demonstrated that it is a very successful scheme, if administered well. Unfortunately, the scheme will be withdrawn from the end of March. We have had schemes, and continue to have schemes; we need to accept that these things are demonstrable and positive, but they need to be delivered consistently in all the areas where they are available to the consumer.

How do you report back on that successful scheme? Or are you saying that it is just not getting listened to?

Reporting from us goes via the installers, which then ultimately ends up with Ofgem. We also report to the local authorities, although they have no real weight or influence in terms of the continuation or the cessation of these schemes.

What you are saying is, “Listen to us: it is working.” Mr Singh, given that the UK Government’s energy measures target households and energy-intensive industries, are there similar interventions that would address the same challenges faced by SMEs?

Thank you for that question; it is an important one and a big topic that is on the mind of chambers across Scotland and the UK. SMEs are not currently provided with any support. As I said earlier, we welcome the support that has been provided to households but clearly, as my fellow panellists have said, it is not enough. This point is really important because when we say households, the people within those households are our customers and employees. They may be part of our supply chain. We need that part of the economy to be confident. If colleagues are saying that it is not enough, it is incumbent on us all to understand what more we can do. We also welcome the support for energy-intensive industries like chemical industries and manufacturing. It is obviously on the larger end but it is important that the Government have intervened in that space. For SMEs—I was just reminded of one of our case studies—our members have welcomed this Committee inquiry. We would like to see it go further at a Government level as well to understand the true impact on SMEs, particularly in rural areas where they struggle the most and are making the biggest decisions in their business operations. I would suggest that, if you look at the highlands, islands or the rural areas first, whatever we see happening there today is probably what is going to be happening in the central belt in one to three years’ time, if we do not start to bring in the right interventions. It is a difficult topic in terms of what support is on offer for SMEs when it comes to energy, which is why we are gearing more towards levers that, for example, the Treasury can use, because the challenge is being felt now by SMEs. When I mentioned the employer national insurance contributions increasing earlier, or the minimum wage going up, these are obviously important interventions for various reasons but, for an SME impacted on a day-to-day basis, we are seeing the costs pile up. Members say to us, “We might not be able to fix the energy prices or system today but we should have a focus on it for the medium to long-term.” What levers can we pull today to support them? That is very much a message from our members. What costs could be paused and what costs could be reduced? If it cannot happen right away, can the Treasury give us a signal, perhaps in 2027 or 2028, to try to give some policy certainty or fiscal stability so businesses know that, although they are burdened today, it will ease in one to three years’ time? A longer-term view from the Treasury would be very helpful. We understand that it is a challenging topic. A hospitality business spoke to us. It has already reduced its business operating hours and done what it can that is in its control. It is negotiating with a new supplier but it knows that it still will not go far enough. That is the challenge that we are all dealing with. If you look at any of the SMEs around Scotland, ultimately it is a lottery, depending on when your contract expires and when you have to renew it. That is the big challenge, and we are not going to see the impact of it for a couple of years.

Mr Johnston, you paint a very positive picture of the ECO programme. I was interested in the way the feedback loop goes via the installers to Ofgem. Is there any difficulty in the installers finding the skills needed to deliver? Is that something you have come across?

There are supply chain challenges. How we do it, as an example, is we have a framework on Public Contracts Scotland. We have seven contractors who we try to keep as the most local contractors in terms of the circular economy. We also have contractors from the central belt who have the skills and expertise. It is probably fair to say that they themselves have had the foresight to evolve their businesses and look at energy transition. If we were to start looking nationally across Scotland, there is an extreme skills shortage. The supply chain right now is not capable of delivering the targets that currently exist.

When feedback has been given through the installers, does it come from the users—the people who have had these schemes?

As part of our process, we do customer satisfaction. Essentially, it is a technical evaluation report, but we also do social evaluation reports. We talk to the householders before any works have been undertaken and then, generally within six to 12 months, we revisit the householders to get a before-and-after scenario.

We have briefly touched on this but I am going to ask the question nevertheless. Ms Mander and Mr Johnston, does the scale and design of the UK Government’s warm homes plan align with what you think is needed to reduce energy bills and improve energy efficiency?

I previously spoke to the warm home discount; are you talking about the warm homes plan?

The warm homes plan, yes.

In our view, it is really important that the people who are least able to pay, the ones who are on the sharp end, are very central to the design of the work. It is encouraging to see that investment is happening with regard to the energy efficiency conversation, but action is needed on the cost of energy in the immediate term, which is why we are keen to see that social tariff brought forward. At the moment, for people who are very much on the sharp end, it feels like the idea of being able to put energy efficiency measures in place in their homes is really far into the future. They are currently struggling, often with compounded multiple different issues that they are balancing. If they cannot afford to keep energy on at the moment in their household—to keep the lights and heating on—the concept of putting in place energy efficiency measures feels out of reach for them. It is so central that they are front and centre in the design of this.

What information is available around the detail of the warm homes plan? I believe we essentially have that already within Scotland with warmer homes Scotland and home energy Scotland.

In your view, what policy interventions would best help consumers in Scotland to make better decisions about their energy bills, consumption and home efficiency?

I am keen to make sure that we do not end up putting the onus on the people who are in situations where they are struggling to understand what their energy bills are really saying. It is more about making sure that it is as clear and accessible as possible to enable more of them to achieve the standard of living that we are hoping everybody will be able to achieve across the country. Are there measures that would enable people to take forward energy efficiency? It is very important to ensure that it is as accessible as possible while also taking into consideration, for example, location. Some bureaus that we have are located in rural, remote or island locations. They hear evidence from people who have taken forward energy efficiency measures such as heat pumps. However, we know full well that, because of the location, there are a lot of challenges around heat pumps. For example, salt air can rust heat pumps, meaning their lifespan is much shorter. So there are specific things that energy efficiency measures put in place need to take into consideration, and individual locations are part of that, as well as the means of the household and their necessarily high energy usage.

I agree with Stephanie. We talk about clean energy: solar PV battery storage would be the go-to in my opinion, in terms of the benefits of moving to clean energy and also the cost-benefits, not heat pumps at this point in time, because of the supply chain and the cost to procure, install, maintain and run a heat pump. Through programmes that we are involved in, and the support and advice we give, people who have had the disposable income or savings to invest in heat pump technology are coming to us and saying, “Actually, I am no better off in terms of the cost of my bills.” It is not one-size-fits-all in terms of what people can do and, more importantly, what they have access to do. Q412       Mr MacDonald: On heat pumps, I attended a briefing yesterday on the warm homes plan, which is obviously just for England, but theoretically there is the same theory for Scotland, with the same benefits. One of the biggest issues in my inbox is from people who have had heat pumps put in. They were originally meant to last 18 years, according to the briefing; I know of many that have failed after seven years. You do not get the grant again, so the cost of putting in a new one once yours has gone has become so expensive that they cannot be bought, and the cost of running them is also a multiple of what people thought it would be. People are being sold the idea that it is going to be brilliant and actually they turn out not to be brilliant. The last thing, coming back to Susan’s point, is remote areas where there is no gas or qualified gas fitters. The councils, housing associations and private individuals have a real problem in getting people to come and service them. I am wondering whether we have been sold a pup in rural or remote Scotland. I do not know whether you think it is that bad or not.

It is evident that there has been an assumed lack of proper detailed research—I keep going back to supply chain—into what is required for the physical componentry, the materials and the skills and experience. It is newish technology. In the north-east, there is still a very weighted association to the oil and gas sector. Several training centres have come online in Aberdeen and the Aberdeenshire area to support the transition of individuals, not just from oil and gas but from being Corgi-registered installers. There are things happening, but they are playing catch-up with what has already been set out as a strategic aim. Effectively, they will probably never catch up unless something changes. That something has either got to be the target, which is less likely, or investment in the infrastructure and the supply chain, which needs to be fast-tracked to get to where we need to be.

That is the end of this session. Thank you very much for your evidence and for coming along to the Committee; we very much appreciate it. The Committee will now have a short private session before our next panel. Witnesses: Dr Christian Calvillo, Madeleine Gabriel and Ned Hammond.

We reconvene this meeting of the Scottish Affairs Committee and welcome our second panel of witnesses. Can you briefly introduce yourselves and tell us what you do?

I am Ned Hammond, the deputy director on the customer policy team at Energy UK. I lead the work on retail policy and clean heat, and much of the work around bringing down energy bills.

I am Madeleine Gabriel, the director of sustainability at the innovation foundation Nesta, and I lead an area of work that focuses on cutting carbon emissions from homes.

I am Christian Calvillo, a senior research fellow at the Centre for Energy Policy in the University of Strathclyde and UK Energy Research Centre, working across the energy transition.

Dr Calvillo, how do features of the UK energy wholesale market contribute to the high price of energy in the UK?

There is no surprise that it is very much linked to the high cost of gas, which has driven up energy prices over the last few years. My colleagues in the UK Energy Research Centre analysed this and released a report recently which found that gas-fired power plants contribute to around 30% of all energy produced—all the electricity produced—but they have set the price about 90% of the time over the last few years, so of course that is one of the main drivers here.

We have heard a lot about the UK having the most expensive energy in Europe. Why would that be the case?

It is partly, but not only, because of this. Other countries have similarly high gas prices, but there is also the element of network costs, which are higher in the UK than in other parts of Europe. Arguably that is the result of disinvestment over many decades. We need to catch up and put more money into the network. The other part is that general policy costs are higher in the UK relative to other countries. In some countries there is less on the bill and more on other parts.

For interest’s sake, are there other countries that are comparable to the UK?

There are bits and pieces that are similar. For example, Germany has a higher tax on the bill, but the policy costs are probably lower, so their energy prices are not so different from what we have here. It goes back to removing some of the policy costs; anything you can do to remove costs from the bill and do something else is a positive thing. My colleagues in the centre have done work on this—for example, through moving the green levies into general taxation. That is a more progressive and better outcome for everyone, not only the more vulnerable.

In your opinion, how will the expansion of renewables across the UK and within our energy mix impact either electricity pricing or industrial electricity pricing going forward?

Thankfully, my colleagues have done excellent work on this. As more renewables come online, the expectation is that from gas setting the price 90% of the time, that will go down to 60% or 50%; as we move forward that percentage will continue to go down. In the shorter term that translates to maybe £20 a year per customer. Unfortunately, it will not be a huge change from one day to the next—it will be gradual—but it will be of that order of magnitude.

Does that £20 a year include the impact of having to pay for curtailment payments? We paid £1.5 billion last year in curtailment payments.

Maybe my colleagues could chip in here. It is a cost, but it will also improve, though probably not as quickly. As we know, there is a great deal of offshore wind in Scotland, but the power lines in the transmission line are very congested. There are two high-voltage DC lines in development under the sea on the east coast, which are planned to come online in 2029. When that happens it will basically double the capacity and massively reduce the cost; the payments will continue to be around, but things will get better.

Whether in the short term or the long term—ideally both—how do you see the impact of renewables changing as more wind comes on? The average electricity price last year was about £80 per megawatt-hour. We have just signed on to AR7 at £95 per megawatt-hour for wind, but that does not include things such as the grid, balancing and curtailment, and firing up gas when needed, so the actual price we have signed up to for 20 years is much higher than where we are now. How is that going to reduce bills? It is quite a hard circle to square.

Of course, not everything is on CfDs; part of it is coming from there, but there will be some generation that is no longer in a CfD. The ones that are in older CfDs are even more expensive—they are £150—so coming down is a good thing and it will continue to progress as, for example, we develop more offshore floating turbines.

That was an even higher price.

Yes, at the moment, but the same happened with offshore wind 10 years ago. As we have more and more, these particular ones will probably stay at a slightly higher price than we would like, but in general with the gas-fired power plants it can be even higher, so getting rid of those very high peaks will bring the average down as well.

You say it will stay higher for a wee while if gas is there as well. We will still need gas-fired power plants, so we will be building those anyway.

Yes, we will still need them, though hopefully they will be used less.

They will be built anyway, whether they are used less or not, but that will probably mean they are less efficient if we use them less. What I am basically getting at is: will the speed and the price we are paying for renewable energy now have a net positive or net negative impact on bills in the next five, 10 or 15 years? You can pick a horizon.

All the analysis I have been doing with my colleagues suggests that it will be positive, though not as hugely as we would like it to be in the short term. It will become more and more prominent and positive.

At the moment, approximately 18% of an electricity bill is made up of levies to fund environmental and social programmes, but there have been long-standing calls—including from the Climate Change Committee and yourself, Dr Calvillo—to remove these policy costs in order to make bills cheaper. Ms Gabriel, how you think the Government could reallocate these costs to bring down the cost of electricity bills?

Nesta has done quite a lot of analysis on policy costs on bills because, as you say, these are one of the major costs on bills. They are also disproportionately skewed towards electricity bills, which contributes to the gap between electricity and gas prices that was mentioned in the previous session. The Government made some key changes in the November Budget, which involved removing 75% of one of the main levies—the renewables obligation—which will be paid through taxation instead. Previously that was levied solely on electricity bills. As you have also heard, the Government removed the ECO levy, so that from April it will not apply to either electricity or gas bills. Our estimate suggests that that will remove 50% of existing levies for the typical household, so from April they will be paying half as much as they would have paid otherwise. However, that is still over £100 of levies on the typical bill, and they are still skewed towards electricity. Our estimate is that from April, 75% of the remaining levies will be on electricity bills and 25% on gas bills. For a typical home that would be an extra £83 on their electricity bill and an extra £28 on their gas bill. So further changes could still make quite a big difference to people’s bills and to the electricity and gas price ratio.

How do you think they could further reduce those additional policy costs?

There are two key options: one is to move more of those levies into general taxation, and the other is to shift the balance between electricity and gas bills. So far the Government have focused on removal. There has not been as much rebalancing as has been discussed. We thought there might be some further rebalancing with the warm homes plan, but that did not come through. There are pros and cons to both. The main levies cover the cost of legacy renewables. The renewables obligation is the key one, the other main programme is the feed-in tariff, which is a payment to people who put solar on their roofs several years ago, so it is not possible to get out of. The Government have recently announced that they will start linking these payments to CPI rather than RPI, which reduces the cost over time somewhat, but otherwise it is a question of who pays for it rather than can you pay for it, so really it is just moving the costs around. More could be brought into taxation and, as my colleague said, that would probably be the most progressive way of doing it. Another option is to move some of that between the bills and to make sure you do it in a way that does not disadvantage those who need to use a lot of gas.

Do you foresee any negative implications of moving the levy costs to general taxation? I understand the argument for doing it, but I would be keen to hear of any potential negative consequences.

It is really a question of who pays. There are some people—even in the energy sector—who question the general assumption that it will always be more progressive to move the levy costs into taxation. Nesta has not done any detailed analysis on that, so I do not have a view on it, and I do not have any other views about why that would be more negative.

The obvious point is the fiscal headroom that the Government have; that is where the trade-off always comes with that decision, whereas the rebalancing decision is around whether you increase costs for gas users. There is an opportunity at the moment which has not yet been taken. Because of the removal of the energy company obligation there has been a reduction in gas costs, so we could now rebalance some costs from electricity to gas without having a net increase, or we could still have a decent net decrease in gas costs and that would encourage shifts to low-carbon technologies without having an impact on gas users.

What factors or barriers have influenced successive Government’s decisions not to do that rebalancing? Why do you think that is?

Essentially it comes down to those trade-offs. In terms of moving costs into general taxation, it is about whether we want to use our fiscal capacity for this purpose, or for other purposes. When it comes to rebalancing costs between electricity and gas, it is about the political challenge of increasing the cost for gas users. Around three-quarters or more of households in the UK use gas for heating, so while most would benefit from the net change by moving them away from electricity, some high gas users would see higher overall costs as a result of shifting them to gas. Nesta and ourselves have looked at how you could protect those customers while still rebalancing costs to a combination of gas and taxation and then reducing electricity costs.

To add to that point, it is worth noting that the ECO levy has been removed from gas bills as well as electricity bills and, as Ned said, that creates an opportunity to move other levies across from electricity without pushing up bills for gas users overall. As my colleague said, there are trade-offs in moving levies between bills, but there are also some real positives that sometimes get overlooked. As we heard earlier, some communities that are on electricity and not on the gas grid end up paying an awful lot for their energy, particularly if they are using direct electric heating rather than more efficient technologies such as heat pumps. That means that when most of the levies are on electricity, those users are paying a much higher burden and a much higher share of levies than dual-fuel households. They also have a much higher rate of fuel poverty. Those who are only on electricity are much more likely to be in fuel poverty, and the fuel poverty gap is deeper, so they are more in fuel poverty than the average for a dual-fuel household. Shifting levies can make a substantial difference to their bills and move them closer to not being in fuel poverty, but they are a smaller group than the large majority of people who are on gas, so yes, it is all about trade-offs. Mr MacDonald: Every word you have said is bread and butter to me, because it comes up the whole time. Basically, people in rural and remote Britain—not just Scotland—are subsidising people in the cities. That is what is actually happening. When you take on senior people in Government about this, what they do not say is that effectively the vote is the 80% of people in the cities. That is why you cannot put the tax on gas: because they will kick up a stink about their energy prices going up. Meanwhile, it is people in remote Britain who are funding it. I just cannot get this message through; it is really harming remote Britain. That is a statement, rather than a question.

I would like a question; that would be helpful. Mr MacDonald: I do not have a question, but thank you for letting me make the point.

Mr MacDonald has put his point on the record. Q425       Dave Doogan: Leaving aside that individuals pay roughly 50% of Exchequer receipts anyway, the £150 of levies moving to general taxation is not really a discount; in so far as it is a discount of your energy bills, you are picking up the other 50%—the other £75—somewhere else in your life. What consideration have any of you given to the idea that the Chancellor might remove the 5% VAT—unlikely as this may be—which would be an instant and actual discount on energy bills?

When that was being considered ahead of the Budget, we suggested that a better option would be to remove the 75% of renewables obligation, which the Government ultimately chose. That will significantly reduce electricity costs relative to gas, as well as reducing the burden of energy bills as a whole. You then get the dual benefits of reducing energy costs for everyone, so you are tackling the cost of living, and you are helping people have more cash to spend, so you are helping the economy. By reducing electricity costs, you are also getting the benefit of making it more attractive to shift to low-carbon technologies—clean heat solutions such as heat pumps—and as a result you are enabling that new market to develop significantly. If we make that market more attractive, more people start shifting to electric heating solutions, which means we are getting an increasing number of electricity units being consumed, the fixed costs of electricity, such as network costs, are spread across more units, and we start to bear down on electricity costs. You get that virtuous circle where it becomes more and more attractive to get heat pumps, so as the initial people get them, it becomes attractive for the next people. Those are the longer-term benefits of the policy that the Government ultimately chose, and it is a better solution than cutting VAT.

I would add that, in terms of the Government’s fiscal situation, removing VAT and removing levies is similar, because if you are foregoing a tax you have to make up that difference elsewhere. As with Energy UK, we supported the removal of those levies rather than the removal of VAT for the same reasons that my colleague has set out.

Ofgem has announced plans to introduce a requirement for suppliers to lower the standing-charge tariff for customers. Mr Hammond, what are the implications of recovering a greater share of network costs through unit rates rather than a daily flat charge?

As much as it is controversial, the standing charge is a very important cost. It covers fixed system costs. If you shift that into unit rates, you are creating a volume risk. If, for example, we have a mild winter and people use less electricity than expected, that cost is not recovered, so you need to bake in a higher cost to cover that risk and there is a possibility that you make overall costs higher as a result. The other challenge with that specific Ofgem proposal is that it risks sending a message to customers that this is a tariff they are requiring suppliers to do and therefore it is the one you want to get on. Actually, high consumption users, which include vulnerable customers and low-income customers, would be at significant risk of having much higher costs as a result of moving on to that tariff. So we really think the proposal is not a good idea. What is better is Ofgem’s cost allocation review that it launched towards the end of last year, which is a thorough review of costs between the standing charge and the unit rate, looking at various options for how the standard charge could potentially change in the future. We are encouraging them to focus on that review, do it properly and make sure that we have a proper long-term solution for how standing charges should be done in the future, rather than going ahead with this temporary measure that could have significant negative consequences.

Can I chip in? It is a difficult one, and this also goes for the discussion among the panel earlier. The reality is that it is very damaging for vulnerable consumers, but it is true that not all vulnerable consumers are low energy users—they can use a lot of energy for medical reasons or whatever—so it goes back to that element of needing the right tariff for the right people. This is potentially a good option for many, but not for everyone, and we need to be careful about that. Going back to the previous point, the main challenge here is also the cost of wholesale electricity. If we can make that cheaper, everything else will look a lot better.

An additional point is that as more homes start generating their own electricity—for example, through solar generation—the amount of electricity they import from the grid may fall. So if standing charges are low and fixed costs are recovered through unit rates, some households will be using fewer units and therefore may be contributing less to the overall cost of running the electricity system. That is probably not going to be a huge problem for the UK in the near term, but in some other countries—for example, in Australia, where solar uptake has been very high—it has been a problem. That is why we need to look at how we allocate the fixed costs.

Dr Calvillo, curtailment charges are a huge challenge. People find them inexplicable because they are inexplicable: it is like buying an expensive generator and connecting it to your off-grid house with a 13-amp cable and then only being able to operate your lights, not your heating. That is essentially what the UK has done with its investment in offshore wind, which it cannot connect to the market except in times of low demand. It beggars belief. Has any other country got itself into this mess?

That is a good question. Unfortunately I cannot comment on all countries, as that is not something I have looked into in detail. I know that it definitely happens in other countries as well, but we are probably particularly bad, because of those network challenges that we highlighted before on the famous B6 and B4 boundaries, which affect transmission from the highlands into the central belt and then further on into England. A system with no curtailment is also not desirable, because it will be very expensive. You would need to have a lot of network and use a lot of time in order to have zero curtailment. A little curtailment is necessary, but I agree that we have too much. It will get better, for the reasons I highlighted earlier of more cables coming online. The other thing that is also important is that curtailment is probably occurring at the moment because we are not flexible enough. It is not as important as the network challenge, but it is still something we need to consider. As we become more flexible, there will be less need to turn down generation in one place and get gas-fired power plants in the south, for example.

My concern—please explain if I am inaccurate—is that we have the worst of all worlds: bill payers are paying for the investment in offshore wind through the contracts for difference, but we are not getting the benefit of that, because we cannot get it on to the network in the volume we require. People are very focused on curtailment charges, but they forget that the demand that offshore cannot meet still has to be met, which then requires the dispatchable power of gas to be switched on. It is a triple whammy. We have paid for the renewables, we cannot get the benefit, and then we have to pay for gas. Now, we are having to pay for massive upgrades to the grid, much of which is going to come down through my constituency and others on the east coast of Scotland, but which will not bring energy to the east coast or anywhere else in Scotland. To Mr MacDonald’s point, it has to bring that energy to the large conurbations in the midlands and the south of England. When is this situation going to improve for people in Scotland?

I do not have a short answer for that, unfortunately. Zonal pricing is another matter altogether—it is a challenge in itself—and I am sure my colleagues here will have views on that. I have had conversations about this with people in the highlands; they cannot understand why the turbines are moving all day, but they still have the highest electricity prices in the country. It is a very difficult square to circle. We have obviously made the decision not to go for Zonal pricing, but hopefully the benefit is that when we improve those transmission network constraints, prices will come down for everyone.

You are absolutely right that there is a lot of generation in Scotland, and the demand is then further south. Scotland has the benefit of great natural resources with a lot of ability for offshore and onshore wind, and we have to make sure that there are benefits for Scotland. In terms of job opportunities, thousands of jobs are being created as a result of investment in the transmission development we have been talking about. Community benefits are being provided as well: there is a pretty decent set-up in Scotland in terms of voluntary community benefits for onshore wind of at least £5,000 per megawatt of capacity, which is going into things such as STEM education, and into direct electricity discounts in some areas as well. The other thing we support is the bill discount scheme for people who are close to the transmission networks that are being developed; they will receive £2,500 over 10 years. It is absolutely right that a lot of that generation is going towards demand elsewhere, and it is really important that there are benefits in Scotland, but there are potentially significant economic benefits as well as benefits to those local communities.

Would you say there is a fair balance between transient benefits for the local communities during construction and structural benefits that will endure over time? Even the discount—if you happen to be near a pylon or a new pylon—is limited to 10 years; the pylons will be there for 70 years at least.

That is absolutely right, and there always has to be a balance between how long those benefits last. I am sure there have been discussions about the perfect amount of time; obviously 10 years is a decent amount of time.

Who says 10 years is decent? The industry or the Government?

That is a subjective point. Community benefits will typically last for the lifetime of the project; they are providing benefits for 20 to 25 years—for as long as those projects last. There is absolutely a conversation to be had about whether the scale of benefits in the local area match the benefits to the country as a whole, but we are talking about reducing energy costs; we need that development to happen so that we can shift away from volatile gas prices that are set on the international market, and we need that grid development to take place to get generation to where there is demand. We also need to make sure that the electrification of demand is aligned, so that we are actually consuming the units that are being generated. That is where the big policy gap is at the moment.

As a representative of industry, what is your estimate of when any of our constituents will see a single penny come off their electricity bills as a result of grid investment?

We expect that by the 2030s we will start to see bills come down significantly as a result of the shift to renewables.

Is that 2031 or 2039?

I cannot tell you the exact year right now. The critical thing is that you have renewables development. We have seen a fantastic auction in the latest CfD round, so there is a lot of development in the pipeline. It is really important that it is aligned with the grid development taking place. We have seen from the latest Ofgem price control that it is now enabled in terms of the investment, but we still have a lot of challenges around the planning and consent process, which risks those things being delayed, and therefore, as you say, the problem of having a lot of renewables without being able to get energy to the place where the demand is increasing. So we really need to make sure that can happen. Finally, we need to align that with the electrification of demand. That is where we need to see more policies to help to reduce electricity costs now so that more people shift over to low-carbon technologies. Then we can start to, as I say, see the costs spread across more units.

You say you need to reduce energy costs now, but energy costs are going up now.

We expect that if we can align all those things correctly, then by the end of the decade you could see electricity bills meaningfully lower than they are at the moment. Q432       Mr MacDonald: I really want to challenge you on a lot of what you have said. I was on a Highland Council planning committee and I have been very involved in this whole thing. We are seeing the industrialisation of the highlands. You talk about jobs, but they are not local jobs: they are teams of thousands of people employed by main contractors and coming from elsewhere. The turbines are made offshore, and they are often owned by overseas utilities or infrastructure funds. The community benefit in the highlands last year for a population of 250,000 people was less than £10 million. For Scotland as a whole, it was £30 million for multibillion-pound industries. We are not seeing the benefit. It is admittedly not entirely the fault of the utility industry, but we are not being fairly compensated for the fact that we are generating Britain’s electricity. That is a fact.

It is absolutely a fact that there is more work to be done in terms of making sure that as many jobs as possible are in local areas and that the supply chain is domestic. Certain policies are helping to do that, such as the clean industry bonus, which has ensured that £3.4 billion is in the UK rather than elsewhere. The Government are putting policies in place to help workers who are currently in the oil and gas industry to move across to renewable energy industries, but there is absolutely more policy development work to do to make sure, as you say, that workforce benefits remain in the local area. In terms of the community benefits, I do not have the exact figures to hand, but a minimum level is set and negotiation then takes place between the developers and the local communities. It is absolutely right, as you say, that developers are providing a requisite level to those local communities so that they are being rewarded for hosting that infrastructure.

Consumer bills are projected to rise following Ofgem’s approval of £28 billion of national grid upgrades. Where else, apart from consumer bills, could the cost of decarbonising the grid reasonably fall?

This was discussed in the previous panel as well. One point to mention is that it is important to break the cycle of debt—no matter how you want to recover it—to make sure that it does not happen again every year. You do that by improving the affordability of electricity and gas. As I mentioned in the general discussion, whatever we can do to remove debt from bills and into taxation tends to have better outcomes for the economy and for the households. It is a more progressive way of doing things, but it also affects fewer businesses in the sense that you need energy to operate to open up your cafés and your pubs and your industries, so any debt we can remove tends to be a better outcome. Proportionately speaking, lower-income households will spend more of their income on energy than higher-income ones, and the tax they will pay will be lower, so it is a good way of rebalancing it.

At the beginning, my colleague set out a really good explanation of what has happened to energy prices over the last few years and what has driven those. As he said, it is largely due to the price of gas. But over the next few years, wholesale costs might make less of an impact on bill rises than the costs we have been describing today of investing in transmission and distribution networks. We would see that as a transitional cost to a renewable-led energy system. We have under-invested over the last few years in transmission and distribution, and we now need to catch up. There are two points I would make in addition to what has already been said, and building on points that Ned has made. One is that although large amounts of money are needed to invest in the grid, if electricity demand increases, that can be spread across more units of electricity, which might mean that on the whole bills do not increase that much. The NIC—now NISTA—estimated that the distribution network costs on a typical bill would rise by only £5 by 2050 as a result of investment in expanding the grid because of that additional demand, thus spreading those costs more evenly. The other point is that if you do see this as a transitional cost—a one-off step change to a new type of energy system—maybe there is an argument for more of that to be borne by the Exchequer rather than bill payers. We have not done a detailed analysis on how those costs could be distributed.

Network costs are an essential part of the energy system, so it makes sense that they are paid through energy bills. There are other schemes—we have talked about policy costs—where the Government have effectively provided a subsidy to early-stage industries, and that cost was chosen to be put on energy bills when, potentially, it would make more sense to pay it through taxation. Similarly, you could say that social schemes should be paid through taxation. The question is at what point they are paid and how the costs are spread over time. Obviously these networks can be developed—as has been mentioned, they will last for several decades—and the network companies go through a rigorous price-control period, with Ofgem deciding on exactly when those costs are going to be recovered. We saw a change between the draft decision last summer and the final decision in the winter about how quickly that cost will be recovered: it is going to be recovered slightly slower than expected, so the increase in costs this April will not be as big, but it will get to a similar point by the end of the decade. By then, however, we will start to see the benefits of the additional grid reducing curtailment costs and the electrification of demand getting it spread across more units, so it will not have as big an impact on bills.

Given the scale of planned upgrades, how realistic is the UK Government’s aim to reduce bills by £300 before the end of this Parliament?

It is challenging but I do not think it is impossible. It will not be done by one single thing alone, but by a combination of several things. Reducing the curtailment costs as we highlighted and having those two extra connections online will give us another £40. The increase in renewables will reduce the dependency on gas-fired power plants, and that will give us another £20 to £40 a year. Reductions and the Budget decision to remove levies and ECO from the bills will give us an estimated £150. By doing all these little steps, we will get closer to that point. I cannot guarantee that we will get there, but we are going in the right direction. Hopefully there are no more delays, we will get more renewables online and we can get make it happen.

At the system level, it is dependent on that alignment I have talked about around renewables, the grid and the electrification of demands. The other key things on the customer end of the spectrum were talked about in the previous session. We need to see a better targeted support scheme for those who are struggling the most. There are some things that the Government could do as stepping stones now, such as tiering support so that people who are struggling the most are getting more. It does need to be a larger-scale scheme as well; £150 is simply not enough with energy bills at the current level. Over time, we need to see a better targeted scheme using things such as income and health data, alongside energy-consumption data, to make sure that we are targeting those who are struggling the most. The other key area would be making the most of the warm homes plan. The ambition in that is fantastic—it is a really good start—but the policy development still needs to come. We need to see exactly what the scheme is for low-income households and exactly how the financial transaction is going to work. The final thing is tackling the energy debt crisis. It has already been mentioned that on official figures it is over £4 billion—on our numbers, it is over £5 billion—and the average customer is paying £60 a year towards debt-recovery costs. We need to see a combination of things to help that. Partly it will be about tackling affordability, and making sure that Ofgem’s debt relief scheme works effectively and is expanded and better targeted over time. We also need to see an improvement in the relationship between energy suppliers and debt advice agencies; our vulnerability commitment is increasing our work on debt significantly this year. Finally, we need to see regulatory drivers that encourage customers to engage with their suppliers if they are in debt, and more pathways for debt recovery specifically with their customers so that we are not having to spread it across so many people.

Given rising network costs, will consumers feel the benefit of the UK Government’s £150 bills cut announced in the autumn Budget?

The latest forecasts for the price cap are that it will come down by around £100 in April; while that is not exactly in line with the Government announcement, it is still a significant decrease. It is really important to note that £150 is an average figure. There will only be a few households that see that exact figure. The reduction is dependent on the level of consumption and the fuel type used, as we have discussed. While everyone is likely to benefit, the amount they benefit will vary. We have also been doing a lot of work with Government to ensure that customers who are on fixed tariffs—about 40% of the market—are also seeing the benefit filter through to their bills in April.

Speaking on the element of fixed prices, that is a positive thing recently. We stopped having good retail deals and there was no incentive for switching, because everything was in the price cap, but in the last year, or year and a half, it has become a little more competitive and you can get better fixed deals. Also, translating the reduction from what happened in the Budget into fixes is very positive. That correlates to more CfDs coming online as well, and more long-term contracts between retailers and the energy generators, because they can offer fixed prices for longer. My colleagues may have better information on this.

Mr Hammond, can you give us a bit more information? You mentioned that not everyone would see the £150. Is there a scale that would help us?

The scale will be enormous, because the things that have been taken off bills are actually on the unit rate, so it depends on how much people consume. It is £150 for the average household, which is the average level of consumption; anyone whose consumption is different from the average will have a different figure. Also, larger amounts of the discount are on electricity than on gas. Those who are on electric heating will see bigger reductions than people who are on dual fuel, which is positive. We would like to see some rebalancing to make sure that those people are seeing bigger discounts as well, because they are the ones who struggle the most with their energy bills.

Mr Hammond, you say you are working with the Government for customers on fixed tariffs. What is the conclusion of that work? My understanding is that if you are currently on a fixed tariff, you will not benefit.

People who are on fixed tariffs absolutely will benefit. All the suppliers have committed to making sure that it is passed through. We are working with Government officials on the specifics of the implementation and how it will develop, so I cannot say what exactly it will be right now, but it will all be passed through to customers in April.

Your point is well made that £150 is indicative. How can a customer work out how much they will benefit, whether it might be a tenner or £150?

We are worried about this. There are various things that are happening over the next few weeks and couple of months that could be very confusing for customers, so we want to make sure that it is as clear as possible. On our part, we are developing explanatory materials and doing briefings to MPs and to the media to make sure that message gets through to customers, but we are also encouraging the Government to start changing their narrative slightly so that it is clear to customers that they are not all going to get a £150 discount and that it will be dependent on their consumption. We need to see that higher up the messaging. There is also a more specific challenge around when the price cap is announced at the end of February, which we are working through with Government at the moment as well.

Do you have to be a high-usage customer to benefit from £150?

Someone using slightly more than the typical household would benefit from £150. It is based on average consumption, which is a bit more than typical consumption.

So would people who use a ridiculously high amount benefit proportionately and receive more than £150?

They would benefit more, yes.

So it is not capped in any way?

I cannot remember the exact numbers off the top of my head.

In our analysis, we looked at dual-fuel users using Ofgem archetypes. They have one for a low, typical household and one for a high user. We calculated that a low user would save £103, and a typical household—which is slightly different from the mean average—would save £133. A high user would save £200 and a household on electrical heating could save over £200.

As you are aware, the warm homes plan announced energy efficiency upgrades for low-income families and incentives for other homeowners. Mr Hammond, you said that it was a good start. Ms Gabriel, how confident are you that these measures will help reduce energy bills for most consumers?

First, the warm homes plan only sets out to improve things for up to 5 million homes, not all energy users, although in my view that is a good proportion and a good ambition. It is true that there is slightly more investment in upgrading homes under the warm homes plan than there has been before, even with the removal of ECO. At Nesta we have analysed the numbers, and our overall conclusion is that the ambition in the plan is deliverable but does not leave an awful lot of room for error, in the sense that we are already some way into the Parliament. The Government will need to move quite quickly in doing the further policy development and laying the necessary regulations in order to see those benefits coming through. Quite a lot of the benefit will not come through grants or direct investment as part of the warm homes plan, but through increasing the minimum energy efficiency standards on landlords in the social rented sector and the private rented sector in England and Wales. Those regulations need to be put in place fairly quickly. There is a different regime in Scotland that is already further ahead. Secondly, in terms of the general approach to helping households to save money through grants and investment, at Nesta, for the reasons we have heard already, we support the overall approach of electrification. We have done some analysis on how combining different low-carbon technologies in the home could reduce bills. We are quite positive about the potential bill reductions when those technologies are combined effectively, particularly when you start using tariffs that are designed for those purposes. We calculate that a typical household with solar and batteries and a smart tariff could save 40% or more on their energy bill—in money terms about £700—whereas if you combine that with a heat pump and a tariff designed for that, you could save over half of your bill, so £1,000 off a £1,600 bill. That relies on certain assumptions: you have to be using those technologies effectively, and in implementing the plan we need to think really carefully about how we help people to make sure those technologies are set up well, that they are combined with a good tariff, and that people understand how to use them and have support to get the most from them, but we think they can generate significant bill savings. As we have already heard, the next step is to set out what the schemes should look like in practice. The Government have allocated £5 billion to schemes for low-income homes. At the moment we have the local warm homes grant and the warm homes social housing programme. Those will be replaced with something new that could have implications for Scotland, but we do not yet know what that programme will look like.

To summarise, there will be a combination of regulation that needs to keep pace in terms of being able to achieve the deliverability of the programme, and a combination of the measures and different technologies could achieve more than has been set out in the plan. So we need to focus on a number of different things rather than just one household looking at maybe one particular thing, and it has to be appropriate for those households. Could I ask for your assessment of how the plan will reduce energy bills through improved energy efficiency, given that bills are increasingly shaped by standing charges rather than usage?

I would challenge the statement that bills are increasingly shaped by standing charges rather than usage. Colleagues may want to come in on that.

We heard earlier that in some cases households are really reducing their usage because they are worried about the cost, but there is a huge element that they cannot affect and that is the standing charge. They are still being pushed into debt because they cannot afford the standing charge, even though they are turning off their heating, not using the oven or making other interventions in their daily life. There is an element that they cannot change.

Thank you for the clarification; I would add two things to that. First, a situation where people are having to curtail their energy use to that extent is not a good thing. One potential positive from the warm homes plan is that it is trying to introduce more efficient, low-carbon technologies that could allow people to better heat and power their homes. If you have solar panels and a battery and you are able to import electricity at cheap times and keep it in the battery, hopefully you are not going to have to turn off your heating and not use your oven. It gives you access to cheaper electricity. Secondly, the other aspect is something that you heard about from the first panel, which is that when people are struggling to that extent, they need more support with their bills. Nesta has not set out its own proposals around social tariffs or other types of social support, but when we looked at levy rebalancing we recommended that it should sit alongside an expanded discount programme that could look like a warm home discount for more people. Since then, the warm home discount has been extended to more people, but it is still a flat rate rebate. We think a unit rate discount would probably be more supportive and progressive overall. We should support people more effectively when they are in such dire straits, but we also do not want people to have to curtail their usage to the extent that you have described. Low-carbon technologies could help with that.

I agree with everything Madeleine said. If people are in that situation, they have an affordability problem with their energy costs—it is not just about the standing charge—and they need significant support. Where suppliers see that, they will be providing support, so if, for example, someone is on a prepayment meter, they might be able to get additional support credit. But we also need to see a better targeted support scheme from the Government and actions from Ofgem to start resolving the debt crisis.

Can I ask the panel for their assessment of how the Government are currently managing and communicating the trade-offs of the energy transition to the public?

I would say that, so far, communications from the Government have largely focused on infrastructure development and particularly the clean power mission, which has done a fantastic job in galvanising industry; we have seen significant investment as a result. That is a clear message to customers. But we have not seen as much of the other stuff I mentioned that needs to come alongside, particularly around electrifying demands and the importance of customers shifting to low-carbon technologies to make sure the system works together at the lowest possible cost. We would definitely like to see more focus on that, both from a policy and a communications perspective. The slight sub-point is that to make sure we can most benefit from electrified demand, we need to complete the smart meter roll-out so that everyone can get those flexible tariffs and benefit from shifting their demand to different times of the day when possible. The Government talk very little about that, and we would definitely like to see them talking more about the positives of smart meters. While there have been significant challenges with the roll-out, there are big benefits to customers who move to smart meters, and we are starting to see the technological changes that will mean those historical problems will be removed over the coming years.

I agree with those points.

Those are very good points. It is a challenge, because you talk to people and they have very different views. The media tells one side of the story but maybe not the whole story, so it is a difficult idea to sell to people, though there have been attempts. My colleagues have worked more on the public perception piece, but I feel we probably need more transparency and more direct ways of communicating. To go back to the elements about the community benefit, meaningful communication and engagement is important, not just “Can you please approve this and we will give you £5,000?” We need more than that across the whole project planning stage, including transparency and the pros and the cons of everything. People are perceptive, people care and they want to engage with this, but they do not want to be taken advantage of.

I was going to ask about your assessment of public attitudes, but you have covered that in respect of the aim towards the energy transition to date and what could be done to build understanding and consent. Reflecting on what Angus MacDonald said before, the unfortunate reality is that we all promise jobs, but then you go down to the ground and you see that actually they are only jobs for people coming up here from down south. That really hurts perceptions and consensus-building. We need to stick to our words: if we are going to promise jobs, we must try to actually make them happen. Of course there are logistical challenges—there is a reason why things happen this way—but we can probably do a better job of integrating communities and making them part of it.

I would add that we have done some research on the public acceptability of policies around the energy transition and what might make those policies feel more acceptable to the public. Two key things came out of that. First, for many of the policy areas that we tested—such as phasing out gas boilers and rebuilding more energy infrastructure—there were quite high levels of public support, perhaps higher than we had expected going in. Secondly, things that could make them more acceptable included directly addressing questions around fairness, deliverability and people’s belief that it would actually happen. The point Dr Calvillo made about transparency was good, in that when we talk to people about where energy infrastructure should go, they want to know things like what sites have been considered and why they are good sites, so that they are not just being guinea pigs, and things have not been landed on them. They want to know the process behind getting to this decision.

I agree with everything that has been said. The key thing is making sure that the message is coming as early as possible and from multiple stakeholders. There are certainly improvements that developers can make to the way they engage with communities, but often the first time communities hear about it is when developers are coming and want to do something very quickly. We now have a pretty decent understanding of where a lot of this development needs to happen, so there is an opportunity for the Government, other stakeholders and people who talk to these communities to start that conversation early, so that they can be prepared to negotiate well and get the best benefits possible.

That concludes our session. I thank all three of you very much for coming this morning and for giving us the benefit of your experience and your knowledge. We very much appreciate it.