[Mrs Anne Main in the Chair]
I beg to move,
That this House has considered regional differences in energy network charges.
It is a pleasure to serve under your chairmanship, Mrs Main, in this debate about the sharp regional differences in energy network charges that penalise consumers and businesses in certain parts of the United Kingdom. This Government like to talk about being a one nation Government. If the Minister believes that to be the case, I ask her to reflect on why consumers in the highlands and islands have to pay a premium for their electricity. I acknowledge that the previous Labour Government introduced a hydro benefit replacement scheme in 2005 to partially take account of higher distribution costs and that that support is being continued. The Minister, who I look forward to hearing from later, said late last year:
“It is not right that people face higher electricity costs just because of where they live”.
I agree with the hon. Lady, and it was a pretty fundamental statement that she made.
This debate is not just about the highlands and islands; there are 14 regional markets throughout the United Kingdom, with different levels of network charges. Nor is it about price competition. It is about a regulated charge varying from region to region through a price control framework. The reality is that a person living in the highlands and islands will pay for the privilege of doing so, courtesy of the UK Government. Electricity distribution charges for the north of Scotland are an eye-watering 84% higher than the distribution charges for London. One nation? Whose nation? It is not mine, or that of my hon. Friends here today. Westminster calls the tune; highlanders and islanders pay the price.
We pay a high price for transmission charges, and we also have a high rate of energy consumption. The highlands and islands are noted for windy and wet conditions. It is not unusual for folk in the highlands to have their heating on all year round.
My hon. Friend is making a good point about the travails of people living in the highlands and islands and the fact that they face additional charges and costs. Does he agree that many of those consumers are off the grid and rely on Calor gas or oil for their heating? Ofgem should regulate such things, as well as the normal transmissions.
I am grateful to my hon. Friend for making that very valid point, which was raised in a recent Ofgem report. Perhaps the Minister will reflect on what we can do to give support to those on off-grid connections.
A recent study by Ofgem noted that households in the north of Scotland that use electricity for heating would benefit from a cost reduction of about £60 a year if there was a universal network charge. That would have a significant impact on the budget of someone on a low income or a pensioner.
Not only are we faced with high transmission charges, but many consumers in the highlands and islands suffer from a lack of choice in energy provision. As my hon. Friend just mentioned, many households cannot access grid connections for gas, among other things, and have to rely on other sources of fuel. It is often a choice between electricity and domestic heating oil. With such limitations, the last thing we need is price discrimination—that is what it is—being foisted on us by a Westminster Government. Where people live should not result in them being penalised through paying higher network charges. Where is the one nation that the Government speak of? It should be about equity and fairness, but that does not exist today.
We have heard a lot since the European referendum about those who are left behind. We often hear that it is a priority for this Government to tackle fuel poverty, but fuel poverty is exacerbated by having higher network charges in the highlands and islands. I will focus on fuel poverty because there is a clear link between higher prices resulting from network charges and fuel poverty.
I am grateful to Changeworks, which has estimated the percentage of households in fuel poverty in the highlands region. It bands each locality in the highlands into groups. On its calculations, no district in my constituency has less than 47.9% of households in fuel poverty; indeed, in a number of districts fuel poverty is evident in at least 73.5% of households. I look across from my constituency to Na h-Eileanan an Iar, where fuel poverty affects 71% of households. That should shame every single Member of this House and every Government Member. Why should we accept that such a percentage of households in a wealthy country such as this should be in fuel poverty? It should be a priority for the Government to tackle the issue and eradicate such high levels of fuel poverty.
I am listening carefully to the hon. Gentleman, but he surely must accept that while the UK Government are doing all they can to support Scotland, this is a devolved issue, so the Scottish Government are responsible for tackling fuel poverty in Scotland? He will be aware that only last week, the Scottish Government stated that their 2016 eradication target would not be met. I am very happy to talk about what the UK Government are doing, but I am not comfortable with him blaming it all on the United Kingdom. It is a devolved matter.
I hope that people in Scotland have listened to what the Minister just said. It was quite astonishing: blaming the Scottish Government for fuel poverty that is visited on households in Scotland as a direct response to things that are the responsibility of this Government and to the failure so far to deal with the matters we are discussing today, such as network charges. I have outlined to the Minister that people in the highlands and islands are paying 84% more for connection charges than people in London. That clearly demonstrates that it is the responsibility of the UK Government. How dare the Government turn around and blame the Scottish Government! The situation has arisen because of austerity and failure to take opportunities, and the responsibility for that lies fairly and squarely in the hands of Westminster.
The hon. Gentleman is making a very passionate case. I agree that Ofgem in its October 2015 report found that electricity distribution charges are higher than average in the north of Scotland, but in contrast it found that electricity and gas transmission charges are higher in the south of England and lower in Scotland, and that gas distribution charges are higher in London and the south of England and lower in Scotland. Does he accept that there is a real issue with regional variation, but it is not unitary that Scotland is always disadvantaged by that variation?
I thank the hon. Gentleman for his comments, and I accept what he says to a degree: there are differences in gas transmission charges in other parts of the UK that are not fair. What is at the heart of the matter is that there should be fairness and a universal market. Why should people in Scotland pay more for their electricity than people in London, and why should people in London pay higher prices for gas? It is not right. We live in a unitary state; the transmission charges should be the same throughout the country. Focusing specifically on gas, my constituents in the main do not have access to a gas network. We are discriminated against because we are not on the mains.
Let me return to the issue of fuel poverty and heating costs. A recent report by Highlands and Islands Enterprise said that because of heating costs and other factors:
“The budgets that households need to achieve a minimum acceptable living standard in remote rural Scotland are typically 10-40 per cent higher than elsewhere in the UK.”
The highlands and islands of Scotland experience the harshest climatic conditions in the UK and record levels of fuel poverty. There is far greater area-wide dependence on the use of electricity for heating as well as lighting, but the standard unit price charged is 2p per kWh more than many other parts of the UK and 6p more than various economy tariffs that are on offer. Two pence might not sound like much, but it is a price premium of 15%. That is what the UK Government have done to consumers in Scotland. Let us hear no more about the Scottish Government and their responsibilities, because the responsibility for this lies fairly, squarely and solely in the hands of the Minister. She could do something about it this afternoon, if she had the guts.
That is the price set by the UK Government to live in the highlands and islands. On top of that, there is far greater reliance in off-gas areas on domestic heating oil and solid fuel, which pushes up household heating costs further still. As a result, average domestic energy bills in off-gas areas are around £1,000 more per annum than the £1,369 UK average—that is £1,000 more in the highlands and islands.
Figures from Lochalsh and Skye energy advice service in my constituency suggest that average annual heating bills in Skye and Lochalsh are £2,218. It is little wonder that there are so many people in my constituency in fuel poverty. For those whose primary fuel for heating is heating oil, the annual bill is as high as £2,519. To cap it all, customers on prepayment electricity meters—often the least well-off—not only have to pay additional standing charges, but discover that their notional right to change to a cheaper electricity supplier has become impractical.
The Government must accept that having 14 regional markets in the UK, with consumers in the highlands paying that 2p premium, is detrimental to the interests of the people in the highlands and islands. We must have a universal UK market.
Does my hon. Friend agree that the United Kingdom Government’s policy is strangely based on a horizontal line drawn through London? The Indian Queens power station in Cornwall has been subsidised to the tune of £5.80 per unit of electricity generating capacity, while until its closure this March Scotland’s Longannet power station charged £17.50 per unit of electricity generating capacity. That is a £23.95 difference per unit of electricity capacity—
Sitting suspended for Divisions in the House.
To recap on what I said at the beginning, we are talking about fairness and ensuring that people are treated in the same way throughout the United Kingdom. I quoted a statement made by the Minister at Christmas time last year:
“It is not right that people face higher electricity costs just because of where they live”.
I commend her for that statement, and I urge her, when she gets up to speak this afternoon, to tell us that she will take the necessary action to make sure that is brought into reality. We do not have a universal service today; we must do so. Why are highlanders and islanders being penalised? Fuel poverty: delivered to Scotland from Westminster. The Government have a responsibility, and the power, to do something about that.
I have submitted a number of questions to the Minister about the continued existence of 14 regional electricity markets in the United Kingdom. Here is one response:
“Electricity distribution network charges vary by region and reflect the costs of running the network in that area and the number of consumers that those costs are spread over. Moving away from this ‘cost-reflective’ approach would weaken the local accountability of the network operator in ensuring expenditure is fully justified, in turn weakening downward pressures on network costs overall.
In addition, a national price for electricity distribution would mean lower network charges in some areas, but increases in others.”
Where is the evidence for a detrimental impact on overall network costs? That is simply a red herring. As for the comment about lower costs for some and higher costs for others, the whole argument is about fairness. Somebody living in Skye should face the same network costs as somebody living in Southend. Anything else flies in the face of the statement by the Minister that people should not pay higher costs because of where they live. Let us make her statement a reality today, because those warm words from the Minister are meaningless unless we take action on a universal market. She talks about increases in some areas as a result of a universal market, but that is fairness—we all pay the same network costs. I prod the Minister to live up to her words: to take action today and to be seen as delivering fairness throughout the United Kingdom.
In Scotland, in our independence referendum, we were told that we were “Better Together”—
I have immense admiration for the hon. Gentleman, as he knows, but where is the “Better Together” in this? As I have already said, consumers in the highlands are paying 84% more for their transmission charges than someone living in London. Better together for whom? Not for us.
While I am on the topic, we were also told that our European future was secure if we remained in the UK—Scotland in Europe, and part of a wider European energy market. Well, we know where we stand now. The Minister wants to take us out of Europe with the rest of the UK. If she secures her ambition to become Prime Minister, I hope that she recognises the sovereignty of the Scottish people, who voted to remain in Europe.
France has a universal market for transmission charges. I would prefer a national transmission market, as there is in France, to the unequal system that we have in the UK. Why do we not do as France does and treat consumers equitably? We can learn from Europe, and at the same time we should remain part of it and not be dragged out. If the UK Government will not do that, perhaps we need—to paraphrase others—to take back control ourselves.
Research by the national charity Turn2us graphically shows the kind of challenges that those in fuel poverty are facing. One in two low-income households is struggling to afford energy costs, despite being in work. Among the hardest hit are people with disabilities, with more than two in three reporting their struggles, and families, with almost two in three working parents unable to meet these costs. Worryingly, of those households that are struggling with energy costs, nearly half have done so for more than a year. The knock-on effect is severe, with a third forced to skip meals and more than a fifth experiencing stress and other mental health problems. Here are some of the comments made to Turn2us:
“The bills are killing me, sometimes I have to contemplate paying all the rent or heating my home.”
“There are many pensioners like myself who don’t qualify for any help but still have to decide whether to eat or heat.”
“We have stress, debt, arguments and a low mood at home.”
“Starve or freeze? Either way you get ill and can’t work, eat or pay any bills.”
“No lights, only candles, only hoover once a week, only use washing machine once a week, no heating, meals that cook”
In Scotland I am proud that our Scottish Government have used their powers to intervene to mitigate some of the effects of rising energy costs. It has been the failure of Westminster and the regulator to properly protect consumers that has led to a marked deterioration in the level of fuel poverty. Transmission charges are an important factor in the high levels of fuel poverty. The Scottish Government are committed to tackling fuel poverty head-on and ensuring that everyone in Scotland lives in a warm home that is affordable to heat, but the measures we are taking in Scotland are undermined by the austerity measures of the Westminster Government. That is why the responsibility for fuel poverty lies wholly, solely and squarely at the feet of Westminster and not at the Scottish Government’s, as the Minister implied earlier.
It is important that the root causes of fuel poverty are taken into account. Some 4.5 million people across the UK suffer from fuel poverty, and the cost of transmission grid charges in Scotland add to the cost for highlands and islands consumers. Does my hon. Friend agree that it is about time the issue of ducking responsibility for fuel poverty was taken squarely on the chin by the Minister?
Again, I am grateful to my hon. Friend for intervening to make a very important point. Today, in this debate, the Minister could bring this matter to a conclusion. She could follow through on the warm words that she used at Christmastime, when she said that no one should be penalised. If she believes that, I implore her to do the right thing. Let us have a universal market—a transmission market that treats everybody fairly in Northern Ireland, in Scotland and in England. Why do we still charge people based on the location they live in? It is wrong and needs to be dealt with.
When we talk about fuel poverty, there is not just a moral and ethical impact but a cost to society in increased health costs as a consequence of the mental health issues that arise; or in children being sent to school in less than ideal circumstances as a consequence of family pressures, adding to the difficulties of our young people flourishing to the extent that they should and making closing the attainment gap increasingly burdensome. That is the social cost of fuel poverty and it is an issue for which the Government in Westminster have to accept responsibility. Ending the discrimination of higher distribution charges would be a good start. I hope the Minister will respond in an appropriate manner this afternoon.
It is a pleasure to speak in this debate, Mrs Main. I congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing it. It is always a pleasure to follow him. I look upon him as a friend in this House, as I do all my SNP colleagues, who are sitting on my right-hand side. We might have some differences about what is best for the United Kingdom of Great Britain and Northern Ireland, but I believe we are better together. They perhaps have a slightly different opinion; none the less, it does not mean that we cannot be friends in this House, and that is the important thing.
According to a study by the Northern Ireland Chamber of Commerce and business advisers BDO, almost a third of businesses in Northern Ireland believe that high energy prices are to blame for deterring investment. What the hon. Gentleman outlined in his presentation is something that I would like to mirror when it comes to Northern Ireland’s energy prices and so on.
May I also say that it is a pleasure to see the shadow Minister in his place? It is especially pleasing to see the Minister in her place. I look forward to hearing her response, which I am quite confident will be very positive and encouraging. It is always a pleasure to see her here in the House.
The regional disparity creates real challenges for the business community in Northern Ireland, at a time when those in the business community are seeking to expand and succeed and when their success is essential to rebalancing the Province’s economy and ultimately ensuring our economic success as a region. We are fortunate to have lots of jobs being created and we want that to continue. We believe we can continue that outside the European Union. I know there might be a difference of opinion among some of the Members present, but I believe Brexit will give us a great opportunity to expand and create more opportunities and move forward. A key issue for that to happen is the energy price.
The success of the United Kingdom of Great Britain and Northern Ireland depends on the success of all our regions. Although Northern Ireland is a starkly different place today from what it was a couple of decades ago, it is clear that there is much more work to do, especially in encouraging and facilitating economic development, particularly in the private sector. We have made giant leaps forward and done great things in Northern Ireland, with the Department of Enterprise, Trade and Investment creating numerous jobs—supported, let us be fair, by the Westminster Government. The Conservative party has had a strong economic policy to create jobs, and by and large we have seen the benefit of that in all our constituencies across the United Kingdom of Great Britain and Northern Ireland.
The Northern Ireland Chamber of Commerce study to which I have referred also found that just under two thirds of Ulster firms cited power and heating as among their most costly overheads. The hon. Member for Ross, Skye and Lochaber touched upon fuel poverty at the end of his speech. It is a massive issue for my constituents; in fact, it is a massive issue for constituents throughout Northern Ireland. Some 35% of people in Northern Ireland are subject to fuel poverty. We have the highest number of people in fuel poverty in the whole of the United Kingdom, so it is a massive issue for those who own or rent their houses and for those just trying to get by.
The Northern Ireland Executive continue to play a key role in addressing the issue by maintaining and improving local infrastructure. No doubt the devolution of corporation tax will allow for local business needs and circumstances in the Province to be taken into account. There has been talk in the past few days about the Chancellor reducing corporation tax in the United Kingdom. If he reduces it to a level that we would like to see in Northern Ireland, the opportunities will be greater for us. If it was reduced more, we could automatically take all the jobs that are coming in and all the potential growth could come our way. However, more often than not it is the regulatory framework that seems to create the issues. Literally all the major job losses in the Province that are down to big firms exiting or scaling back operations have been attributed directly or indirectly to high energy costs. I will give some examples.
Bombardier is one of the Province’s biggest employers. It is a business operating in the Province that has become a source of pride for us, owing to its world-renowned reputation. Bombardier has centres for manufacturing in my constituency, and many of my constituents in Strangford travel to east Belfast to get employment as well. Bombardier cited the costs when explaining why jobs had to be moved out of the Province in order to maintain competitiveness.
Michelin and JTI Gallaher are two more examples of large firms that have been good to the Province, especially in the constituency of my hon. Friend the Member for North Antrim (Ian Paisley). Michelin attributed redundancies directly to the high energy costs that business operators in the Province face. Similarly, they proved an issue for JTI Gallaher as well. We have lost them both and the impact has been great, especially in one constituency. It is not just the jobs that are lost; it is the impact that the money and wages going out of those constituencies has on the economy, which affects everything. The Northern Ireland Department for the Economy has taken steps to try to fill the gap. One way of doing that is to help with energy costs.
Northern Ireland stands out from the rest of the United Kingdom when it comes to the recruitment of part-time staff. That is another indicator of the challenges that manufacturing faces. Views about cash flow are too often the most negative in the United Kingdom. Those are some of the things that we face back home. The issue cannot be remedied just through the intervention of the responsible Minister in the Northern Ireland Executive. They can play their part, but only with co-operation, support and help from Westminster. There is no single policy that can remedy the difficulties faced by large energy users in Northern Ireland, of which there are about 20. There is a need for a long-term strategic objective of delivering competitive energy policies; but in the meantime the regulator can make the difference. The key issue preventing the change that is needed at the moment is that if large energy users were to benefit from being asked to pay less, the cost could, under the current framework, be passed on to households and small and medium-sized enterprises. Therefore, the statutory remit of the regulator would have to be expanded significantly to include that area. I would ask the Minister to respond to that point.
In the Republic of Ireland, it is not the wholesale prices that make the difference; it is the allocation of network costs, which disproportionately favour large users in a comparison between the Republic of Ireland and Northern Ireland. In Northern Ireland, the LEUs would like similar treatment. Should the Minister in Ireland want to follow that methodology, the decision would need to be politically acceptable. Given the trade-off that could ensue between SMEs, households and LEUs, such a move could prove contentious. A way forward palatable to everyone would need to be worked out to keep as many stakeholders as possible happy. There are some balancing tricks to be done, as well as some advance strategic work.
The Chancellor often talks about a northern powerhouse, and refers to economic engines and the like. He is right to recognise regional disparities in business activity and inward investment, but I hope that the worrying news coming out of Northern Ireland about the harm that energy costs are doing to our ability to attract investment will put us on the map for Ministers in Westminster, who can be part of spreading the wealth more evenly in the nation.
As everyone present for the debate knows, I am a true believer in the United Kingdom of Great Britain and Northern Ireland. I believe in it with a passion. I believe that we are better together. Those are my heartfelt thoughts, but we also need to spread the wealth across the whole of the United Kingdom, and see that we get some of it on the fringes of Northern Ireland and on the fringes of Scotland, about which the hon. Member for Ross, Skye and Lochaber made his comments very clearly. The extra power and influence here at Westminster would be of great benefit if Ministers and those with an interest would lend a hand to the Minister in Northern Ireland, as he inevitably comes to deal with an issue that is, unfortunately, very complex.
It is a pleasure to take part in the debate. I am grateful for the opportunity to speak, and I look forward to the speeches of the shadow Minister and, in particular, the Minister.
It is a pleasure to serve under your chairmanship, Mrs Main.
My hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford) has said most of what is required and he said it in his usual passionate way. It is right that he should feel passionate about this, because there is a clear sense of injustice—one that, as he rightly pointed out, the Minister has acknowledged in the past. To quote her again for the record:
“It is not right that people face higher electricity costs just because of where they live”.
We have heard that that applies not just to the north of Scotland but to Northern Ireland and other regions of the UK. Nobody is asking for special treatment. We are asking for a level playing field, and I do not understand how that cannot be justified. Perhaps it is possible to hide behind what Ofgem has said, but this is a Government who purport to be a one nation Government. How can you be a one nation Government when, just because you live in a different part of the country, you have to pay more for your electricity? That cannot follow from the Government’s rhetoric.
The Ofgem report states:
“There does not appear to be any clear justification for a national charge in terms of the regional concentration of vulnerability. Distribution regions represent large areas and the socio-demographics of the population in each region tend towards the Great Britain average.”
The justification is fairness. Just because you may have average distributions of poverty and wealth in the north of Scotland and the south of Scotland—which, to be fair, is highly debatable—does not mean that if you are rich or poor in the north of Scotland, you should pay more than anyone in the south of Scotland. If you are disadvantaged in the north of Scotland, it is no consolation to you that you are part of a national average and you fit neatly into a demographic box, so that Ofgem can dismiss your legitimate concerns about additional costs plunging you further into fuel poverty.
My apologies, Mrs Main.
The issue, as I say, is one of fairness. My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) has highlighted the additional impacts that come from the rural nature of large parts of the highlands and islands and the north of Scotland in general. The Government must take those into account. It is easy to hide behind Ofgem, but the Government must act, and there is a clear and pressing need to do so. As has been mentioned, the charge in the highlands and islands, based on per unit usage, is 84% higher than in London. It is colder in the highlands and islands, so people have to use more electricity. Also, for large periods of the year it is darker, because of the more northerly latitude. The costs of heating and lighting a home are greater the further north people live. That is not taken into account. Also, a far higher proportion of people in the north of Scotland use electricity to heat their homes. That comes at an extra, punitive cost to them. That cannot be acceptable and the Minister needs to explain it.
The Minister, perhaps inadvisedly, intervened on my hon. Friend the Member for Ross, Skye and Lochaber to talk about the fuel poverty record of the Scottish Government. There is more work that they need to do, and they have acknowledged that. Contrary to what is happening here, fuel poverty and, indeed, energy efficiency are national infrastructure priorities for the Scottish Government. There will be record levels of investment. If a comparison is made between the investment record in Scotland and that of the other nations of the United Kingdom, it is highly favourable.
Let us break down fuel poverty and look at where responsibility really lies. Electricity distribution and network charges rest with the Government. The regulation of the market, in terms of the energy companies, rests with the Government. Looking at the fuel side of the issue, it is clear that the responsibility lies with the Government. As to the poverty side of things, it is even clearer that the responsibility is the Government’s. They control the economy, set taxation and, perhaps most importantly, set the parameters of the welfare state, which they have undermined time and again, plunging more people into fuel poverty. On the face of things, the term “fuel poverty” may be devolved to the Scottish Government, but the actual responsibility—the actual levers to effect real change—rest with this Government and largely with the Minister and her Department.
It may be fine and well to engage in back and forth as we regularly do in this place, but we need to see where responsibility really lies. If the Minister really wants the Scottish Government to have that responsibility, I can tell her that we will happily take the powers out of her hands, and I promise her that we will use them more effectively than her Department has in ensuring that the people of our country do not live in cold, dark houses or have to choose, as my hon. Friend the Member for Ross, Skye and Lochaber said, between heating and eating. That is not acceptable in the 21st century. If we are one nation and there are simple things that can be done to address fuel poverty, it behoves this Government to do them.
Another theme that has run through the debate—one that was mentioned by my hon. Friend and the hon. Member for Strangford (Jim Shannon)—is the economic and social impacts that fuel poverty has on our society. Fuel costs are adding cost for and holding back our businesses and social services. There is an opportunity cost. I disagree with the hon. Gentleman about redistributing wealth. This is not actually about redistributing wealth; it is about keeping wealth where it is generated and ensuring that people do not have to pay too much of their own wealth and that it is not sucked out of their economies. It is about keeping the wealth where it is generated and allowing it to be put back into communities in Northern Ireland or in the north of Scotland. That is not redistribution; that is just fairness, which is utterly absent from this regime.
We are not necessarily asking the Minister to agree with the Scottish National party or even the Democratic Unionist party on this issue. We are asking her to agree with herself and with her own Government’s one nation rhetoric. If she cannot do that, perhaps she can explain to us why.
Mrs Main, I took the precaution of speaking to the Clerk beforehand, and found out that it was in order to speak in Welsh, Norman French or English. Given that this is a regional debate, I thought it was only right to speak in Welsh at the beginning, but she did advise me that a translation was always required, which I will of course be very happy to provide to both you and Hansard. I said: “Thank you very much, Mrs Main. In a week when Wales has done the whole UK proud, no debate should fail to celebrate the genius of the Welsh people, especially if they go on to beat the French or the Germans in the final.”
Ofgem concluded last year that from a regulatory perspective, there
“does not appear to be any clear justification”
for national network charges
“in terms of the regional concentration of vulnerability.”
However, as we shift towards cleaner energy to deliver our legal climate targets—an issue on which the Minister has nailed her own colours to the mast—we must also overhaul the management of our energy networks to become smarter and more flexible.
The Energy and Climate Change Committee remarked last month:
“Networks are transforming. We recognise that this presents challenges for the Government, but it has been slow to present a clear, holistic plan for the evolution networks need”.
That Committee’s June report, “Low carbon network infrastructure”, concluded that networks
“are at the heart of the UK’s low carbon ambition”,
yet network charges
“form an increasing proportion of consumer bills.”
The Committee called out
“outdated and inflexible regulation and governance”
as potential obstacles to making our energy network fit for the 21st century. Remarking that network connection costs “remain geographically skewed,” the Committee called for Ofgem to
“assess the costs and benefits of levelling connection costs across Great Britain”
and Northern Ireland in order for the Government to consider whether geographical disparities can continue to be justified.
Ofgem also found last year that it is
“legally possible to introduce national network charges but the change from the current approach would need to be justified against various criteria in European law, particularly on cost reflectivity.”
Although I am mindful, Mrs Main, of your admonishment of the hon. Member for Ross, Skye and Lochaber (Ian Blackford) for straying into the whole debate around Brexit, it seems appropriate, given that that is the legal situation, to ask whether the Government have sought new advice on this issue in light of the vote to leave the European Union.
The “Low carbon network infrastructure” report also recommended:
“DECC should investigate the disadvantage UK generators may consequently face against other European generators as Great Britain becomes more interconnected, and the impact this may have on development of domestic renewable generation.”
Given the vote to leave the EU, I also ask the Minister to provide greater clarity on the future of the UK’s electricity interconnection with the continent.
It is also worth noting that transmission tariffs for generators are higher in Great Britain than in the rest of the EU. The UK is one of only three EU member states with locational transmission tariffs. The Minister recently wrote to the Energy and Climate Change Committee, stating that
“one of the main drivers for transmission costs is the need for new network investment to accommodate renewable generation in areas such as Scotland.”
I therefore ask a further question: how much is being invested in upgrading our networks to be able to carry clean energy? Is that spending based on projections that include meeting our 2020 clean energy target?
The debate is also important in highlighting the systemic problem of the lack of transparency in an energy market that is failing the overwhelming majority of customers. The Government’s response to the Ofgem inquiry, in answer to a written question by the hon. Member for Christchurch (Mr Chope), was to reassert their objective to keep
“overall costs down for bill payers across Great Britain.”
I note that they did not say Northern Ireland. The hon. Member for Strangford (Jim Shannon) is no longer in his place, so I will add “and Northern Ireland,” because I trust that that is what the Department meant.
Network charges on a typical dual fuel consumer bill have risen by approximately 30% in the past four years, according to British Gas—we need some sort of explanation for that from the Minister—and seven out of 10 customers are currently being overcharged for their energy. As a result, millions of households cannot afford their energy bills, as the hon. Members for Ross, Skye and Lochaber, for Strangford and for Aberdeen South (Callum McCaig) said, yet Ministers are still letting the energy companies off the hook and failing to ensure that the drop in wholesale energy prices is passed through to bill payers.
The Energy and Climate Change Committee reported on energy network charges in February 2015 and recommended that the Government and Ofgem should
“publish an evidence-based analysis of the advantages and disadvantages of introducing national tariffs for transmission and distribution network charges.”
Following that recommendation, Ofgem published its report, but it found principally that electricity distribution charges are indeed higher than average in the north of Scotland, exactly as the hon. Member for Ross, Skye and Lochaber said, but also in Merseyside, north Wales and the south-west of England. The charges are of course lower in London and eastern England. In contrast, electricity and gas transmission charges are higher in the south of England and lower in Scotland, and gas distribution charges are higher in London and the south of England and lower in Scotland and north-east England. Although this debate has largely been presented—I speak as a Scot here—in terms of the injustice that an English Parliament is doing to Scotland, the reality is very different.
I will, but I will make a little progress first. Ofgem concluded that there
“does not appear to be any clear justification”
for national network charges
“in terms of the regional concentration of vulnerability.”
That is exactly what the hon. Gentleman and I would wish to see: that evening out across the piece. So for a household with typical electricity and gas consumption there would be an increase or decrease to the network charge element of a bill, but it would be of less than £20 a year in most distribution network areas. There would be more significant changes in three electricity distribution regions, and they are: south-west England, would be down by £38; Merseyside and north Wales would be down by £26; and east Midlands would be up by £27.
Ofgem found mixed results on bills from a switch to national network charges, which would result in approximately 16 million households facing higher bills, while about 11 million would see reduced bills under such an approach. In most cases, the increase or decrease would be small—of that £20 a year margin. In Scotland, 1.8 million households would face higher bills and only 700,000 households would see reductions. It is harder to estimate the numbers for England and Wales separately because the distribution networks that serve Welsh households also operate across the border in England.
The hon. Member for Ross, Skye and Lochaber tended to speak in percentages. Of course, when one speaks in percentages, things can sound really disproportionate. Why should someone pay 80% or 100% more in distribution costs in one part of the UK than in another? That is absolutely right, and the argument for fairness he made is correct. However, when speaking in percentages, one sometimes blurs the fact that the actual amounts are relatively small. Even households in the north of Scotland who use electricity for heating would benefit from maximum reductions of about £60 a year. That is just over £1 a week. Of course that should happen, but he should acknowledge the scale of the problem we are dealing with.
I think in my speech I referred to the price difference between the highlands and other parts of the UK as being 2p per kWh, so I gave both the percentages and the actual cash amounts. To someone in the highlands, £60 is actually quite a significant amount. Does the hon. Gentleman agree that this is about equity, fairness and creating in effect a universal service obligation? Will the Labour party join with us in calling for fairness, or will it let highlanders down and walk away?
I absolutely agree with the hon. Gentleman that it is a question of fairness. I agree that there should be a unitary basis on which this is calculated, and indeed I think the Minister is on record as having made statements that indicate that she agrees. As I have mentioned, there are issues relating to the way in which we are permitted to do that under European law that may now be freed up. They need to be investigated and, if we can do that, we should.
I simply wanted to put in perspective what I felt was the over-ebullience of the hon. Gentleman when he spoke. In the grand scheme of things, these are small injustices, not great ones, and they apply more widely throughout the regions of the United Kingdom than just in Scotland.
I will not use the word “you”. He talks about this being a small amount, but when you are faced with the costs of paying for off-grid fuel—oil and gas—the additional costs because you live in a sparse area and low wages in a low-wage economy, this is a devastating cocktail. Do you not agree that it is not as unimportant as you are making out?
I agree that many factors come together to push people into fuel poverty and into poverty. They have been ably outlined by the hon. Gentleman and his colleagues. The point I am making is that here we have something that affects not just one part of the United Kingdom but many parts of England and Wales, as the Ofgem report clearly shows.
Mrs Main, I am mindful of your ruling. I simply wanted to say I accept that there is an issue of justice and fairness, but wider effects are being felt all around the UK. If we keep this issue in that context rather than trying to make it about “us” and “them” and simple victimisation, we will have a much better opportunity to resolve the problems that do exist.
I accept the point that they may be relatively small figures for individuals—they may be generally quite important to them for the reasons outlined—but, to use the hon. Gentleman’s own figures and multiply the £60 benefit by 700,000 people, this is not quite back-of-a-fag-packet but that is £42 million being needlessly taken out of the economy of the north of Scotland. That would make a transformational impact if it were reversed, and that is the point being made.
If it were true, but the hon. Gentleman should know that it is not. If he does the arithmetic correctly, he will see that those 700,000 were of the £20 maximum variation, not £60. He will also recognise that more than double that figure—1.8 million—in Scotland would face higher bills. He really needs to try to see this issue not through the lens of victimisation but through the lens of reality. With that, I conclude.
This is an incredibly important debate, and I congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing it. Over the last year we have had numerous debates in Bill Committees and elsewhere about the vital importance of addressing fuel poverty. On that, we are absolutely as one.
I also agree with the hon. Member for Brent North (Barry Gardiner) that it is not that those outside of Scotland are doing fine and those in Scotland are being somehow penalised by the Westminster Government. While I do not think that any of the hon. Gentlemen from the Scottish National party would say that is the case, that is the impression they are giving. As the hon. Member for Brent North made clear, fuel poverty affects the whole of the United Kingdom, including Northern Ireland, which has a different distribution and transmission network. This is an issue for all of us and we need to address it as a United Kingdom, taking account of the interests of all our citizens.
In presenting this debate, I have tried to argue for fairness across the UK. I reflected on the fact that we have 14 regional markets, which I believe to be unfair, because that penalises people based on where they live. I argued about the specific circumstances of the highlands, but specifically I am asking the Minister to deal with that by creating a universal market throughout the United Kingdom so that everyone is treated in the same way. That is the correct manner for this House. It is not about dividing people; it is about recognising fairness and equity.
I will certainly address those issues; I wanted to make it very clear up front how important they are.
The costs of distributing and transmitting energy vary by location. Those differences are reflected in the charges paid by generators and consumers in a particular geographic area. The idea behind that cost-reflective approach is that it helps to drive down costs for all consumers, and it is proving successful. For example, Ofgem estimates that network costs are 17% lower in 2014 than before privatisation, while system reliability remains above 99%. However, it is right that the Government should consider action if one region has markedly different network charging levels from any other. It is also true that network charging mechanisms could never provide an efficient or effective way of providing targeted support to specific groups of vulnerable consumers within a region. I will explain some of the actions we are taking on both counts to ensure consumers right across Great Britain are receiving a fair deal.
The particular challenges of electricity supply in the north of Scotland relate primarily to the relatively large and sparsely populated terrain, meaning that it inevitably costs more to distribute electricity there than elsewhere. I reassure all hon. Members that the UK Government remain committed to ensuring that consumers in the north of Scotland do not bear an unreasonable burden of those electricity distribution costs. The response we published yesterday to our consultation on electricity distribution costs in the north of Scotland confirmed we will continue the hydro benefit replacement scheme at its current level. That scheme helps to protect electricity consumers in the north of Scotland by providing £58 million of assistance to the area, which is worth an average of £41 to each household in the region and is funded by charges on all licensed suppliers across Great Britain.
In addition, our response confirms that the Government remain committed to GB-wide funding for a Shetland cross-subsidy. That will protect consumers in the north of Scotland from the costs of replacing the ageing Lerwick power station in around 2020 and will be delivered through the hydro benefit replacement scheme. The full details will be confirmed once the replacement of Lerwick power station is known. That will have the effect of reducing costs for all consumers in the north of Scotland from the end of the decade.
The Government certainly note the calls, not least from SNP Members, for a move to a single national network charge, but we continue to believe that the priority must be minimising overall network costs for consumers across GB. As I mentioned, network charges vary regionally to reflect the costs of running the network in a specific area and the number of consumers those costs are spread across. Such a significant move away from the important principle of cost-reflective charging would be unhelpful as it risks weakening the pressure on each network company to keep overall costs down for its local stakeholders, which could lead to an overall increase in costs.
I will in a minute. It is also important to note, as the shadow Minister pointed out, that a move towards a single national network charge would produce winners and losers. All hon. Members will be aware that in October 2015, Ofgem published a detailed analysis of regional differences in transmission and distribution network charges. It found that, for Scotland specifically, 1.8 million households would face higher bills through a national network charge while 700,000 would see reductions. For Great Britain as a whole, 16 million households would face higher bills while around 11 million would see reduced bills. Ofgem concluded that there is no compelling case, from a regulatory perspective, to move to a national network charge. However, we will of course continue to consider any new evidence that is presented on the matter.
I am grateful to the hon. Lady for giving way; she has been very generous with her time. Does she appreciate that we have a universal market for the delivery of telephone and broadband and we all pay the same price, regardless of where we live? We pay the same price for a postage stamp. We are still not addressing the fundamental point: people are paying higher prices for transmission of electricity simply because of where they live. We are generating higher levels of fuel poverty as a direct result of that.
On the whole argument about winners and losers, this is about fairness. The Minister talks about being “one nation”; we should be talking about delivering fairness to everybody and not discriminating against people, which is exactly what this Government are doing.
Thank you, Mrs Main.
As with other aspects of our network charging regime, Great Britain’s transmission charging regime is governed by the principle that the user pays. In other words, the costs of operating and maintaining the system are met by those who benefit from it: generators and demand customers. That ensures the economically efficient use of the transmission network and limits the overall cost to consumers across the country. I say to the hon. Member for Ross, Skye and Lochaber that it is not a postal system; it is a transmission system. He makes the case that there is one cost for a postage stamp. In a transmission system, the clear case has been made that locational pricing is needed to keep costs down for all, as that makes it more efficient for everybody. Otherwise, if I can simply add costs to the system in the knowledge that those will be socialised right across Great Britain, I will not face those competitive pressures to keep costs down.
I see the hon. Gentleman rolling his eyes but he must look at the evidence. He must also bear in mind that, in Scotland alone, there would be 1.8 million people whose bills would go up as a result of the measure he proposes.
The higher transmission charges for generators in certain areas of the country reflect the costs they impose on the transmission network in transporting electricity to demand centres. Conversely, demand customers in generation exporting areas pay lower transmission charges. The hon. Gentleman will be interested to note that that means Scottish generators pay higher transmission charges than their counterparts further south and nearer the centres of demand, but Scottish consumers face significantly lower transmission charges.
The hon. Gentleman rightly points out that fuel poverty is a big subject for both the UK Government and the Scottish Parliament, and is a devolved matter. This Government are fully committed to tackling fuel poverty, and it is clear that we must look beyond network charging mechanisms to do so. We absolutely want to be there right alongside the Scottish Government in dealing with fuel poverty, and I will run through some of the actions we are taking to tackle that issue.
Last week we published our proposals to reform the energy company obligation. We proposed to increase the support for low income and vulnerable households from £310 million to £450 million per annum. Scotland certainly receives more than her fair share of ECO measures with 40 measures per 1,000 households, compared with 28 measures per 1,000 households in England. There is clear evidence that through our fuel poverty measures we are seeking to support Scottish households in fuel poverty.
We also support low income households through the warm home discount. We have worked with both the Scottish and Welsh Governments on how those policies could be amended to tackle the root causes of fuel poverty in all UK nations. The devolved nature of fuel poverty action allows different nations to take measures appropriate to them, and each nation has policies tailored to address fuel poverty at the local level. We will work with the Scottish Government to set up a process and methodology for evaluating the impact of schemes implemented in Scotland—on their own and in conjunction with schemes implemented in England and Wales—on the GB energy market and any relevant UK commitments and obligations.
We are determined to help households facing the highest energy costs, including those that are off the mains gas grid, which are much more likely to face higher energy costs and more than twice as likely to be in fuel poverty as households connected to mains gas. Last year, we announced £25 million in funding through the central heating fund, which is designed specifically to help support non-gas fuel-poor homes by funding the installation of complete central heating systems.
Strong competition among suppliers is a key way to keep prices down, drive innovation and improve customer service. We have seen an unprecedented number of new companies enter the market over the last couple of years. There are now more than 40 companies competing to supply households in Great Britain. In 2010, there were just seven small suppliers and the big six.
[Mr Philip Hollobone in the Chair]
We have worked with industry to cut the time it takes to switch supplier from five weeks to a maximum of 21 days, and we are working with Ofgem to move to reliable next-day switching. The number of customers switching supplier continues to rise with 2 million energy accounts switched just between January and March this year—25% more than in the same period last year. As we know, on average consumers can save hundreds of pounds on a dual-fuel bill by switching, which is incredibly important for keeping their costs down.
We are taking a range of different actions and have seen some improvements through lower energy network costs and lower energy bills, but it is clear that this area requires continued attention. I thank all hon. Members who have participated in this valuable debate.
It is a pleasure to see you in the Chair, Mr Hollobone. I have to say that I am disappointed by the Minister’s response to our appeal for fairness, which at the end of the day is what we are talking about. The Government talk about being a one nation Government. Surely to God, in such a situation people should be treated in the same way, irrespective of what part of the United Kingdom they live in. The reality is that those living in the highlands and islands are having to pay a surcharge to live in that area. What a disgrace that the Government are treating them in such a way.
Perhaps I should not be surprised. I was in my constituency yesterday, attending a meeting of the Scottish Affairs Committee, of which there are four Tory members. Not one of them came to Skye yesterday to listen to what local people were saying about the demographics and population of the highlands. That is the contempt this Government have shown for the people in the highlands, and it has been well and truly demonstrated this afternoon in this Chamber.
Question put and agreed to.
That this House has considered regional differences in energy network charges.