Written evidence submitted by Advice Direct Scotland (COE0034)

Introduction

Advice Direct Scotland (ADS) welcomes the opportunity to respond to the Committee’s inquiry into the fairness of the energy system and the costs of decarbonisation. As Scotland’s national provider of energy, debt and welfare advice, ADS serves as a vital conduit for the voices of Scottish households – particularly those most vulnerable to energy price volatility and fuel poverty. Our evidence is grounded in direct frontline experience supporting individuals and families facing some of the most severe financial hardship in recent memory.

The last few years have laid bare the structural inequalities embedded in the energy market. Millions have been exposed to the volatility of global energy prices, but the brunt of the impact has fallen disproportionately on our least financially resilient.

The cost of energy has become one of the most acute poverty drivers in Scotland. At the same time, the transition to a low-carbon energy system – while essential – risks exacerbating inequality if not managed equitably. The social contract must be rebalanced: access to affordable energy is a basic necessity, not a commodity to be rationed through market exposure.

This submission outlines our response to each of the Committee’s questions and draws from our data, research and frontline experience.

1. Are the costs and benefits of the energy system properly reflected in consumer bills?

The current structure of consumer energy bills is inherently unjust. Costs are not allocated according to need, usage, or ability to pay, and the benefits of system improvements – such as increased renewable generation – are not equitably passed on to consumers.

One of the most glaring examples of unfairness in the current energy billing system is the continued use of the standing charge. This fixed daily fee disproportionately penalises the poorest and most vulnerable members of society. In practice, it functions as a regressive tax on energy access.

Consumers who use less energy – often because they cannot afford to use more – end paying significantly more per unit of energy consumed. Older adults on modest pensions, disabled people living alone, and low-income families are already forced to ration heating, lighting, and cooking. These are the households that already suffer the most from cold homes, higher rates of ill health and increased financial stress. And yet, they are paying proportionately more for the very infrastructure they are least able to use.

In Scotland, this injustice is magnified further. Despite the country’s role as a net exporter of renewable electricity and the proximity of many communities to wind, hydro, and tidal generation, Scottish consumers pay some of the highest standing charges in the UK. This is particularly acute in rural, remote, and island communities – where distribution and transmission costs are higher, and yet incomes are often lower. People living in the areas closest to clean energy infrastructure are punished through inflated charges, with no reflection of the contribution they make to national energy security.

During the summer months, when usage is typically low, the standing charge can account for the majority of a household’s energy bill. Many consumers – particularly prepayment meter users – report inserting money into their meters simply to “stand still,” paying £3–5 a week, without actually consuming energy. This is deeply demoralising and creates a psychological burden on top of a financial one. It tells low-income households that they are being charged not for what they use, but simply for existing on the grid.

This system fundamentally misunderstands the lived reality of energy poverty. It assumes a level of consumption that many cannot afford and penalises attempts to conserve energy. Households who actively limit their usage – out of necessity rather than environmental choice – receive no reward, no support, and no recognition. Instead, they are punished through a pricing model that detaches cost from behaviour or need.

For many of the vulnerable consumers we support, the standing charge is not just a technical detail on a bill – it is a constant reminder of the imbalance of power between supplier and consumer, and of a market that appears blind to social justice. We frequently receive contact from households who cannot understand why their bills remain high even when their radiators are off and their appliances unused. It is profoundly unjust that the poorest consumers – who already endure the coldest homes and the greatest health risks – must also shoulder an outsized share of infrastructure costs.

We raised these concerns in our response to Ofgem’s standing charge consultation, highlighting how the current model entrenches inequality and disproportionately affects those least able to pay. Our submission reflected the lived experiences of the people we support every day – those for whom standing charges deepen hardship and disconnection from the energy system.

We urge the Committee to consider alternatives to this model. A fairer system would reduce or remove standing charges for low-income and vulnerable households, with costs redistributed through progressive taxation or more equitable tariff structures. Essential services like water, health, and education do not impose blanket fixed fees on those who use them least – and energy should be no different. Access to the grid should not be a luxury; it is a basic necessity, and pricing must reflect that moral imperative.

At a structural level, the energy market continues to treat essential energy as a discretionary commodity. Market mechanisms – particularly those that tie retail prices to marginal costs – fail to protect consumers from global shocks, offer no guarantee of affordability, and ignore the societal necessity of energy for health, well-being, and inclusion.

2. How should consumer bills be insulated from inflated prices due to shocks to the global supply of gas? What needs to change?

The circumstances of the last number of years have shown us the danger of overexposure to volatile global gas markets. Households were left exposed to unprecedented price increases, despite the UK’s ambitious renewable energy targets. Future policy must be rooted in resilience and social justice, ensuring that shocks to global gas markets do not translate directly into domestic hardship.

A critical step is the introduction of a social tariff, for which ADS has long advocated. Such a tariff must be mandatory, UK-wide, and targeted based on income and vulnerability. It should provide a guaranteed level of affordability that is protected from wholesale market fluctuations and ideally funded through progressive taxation or redistributive levies – rather than by increasing costs for other consumers. A well-designed social tariff would directly shield low-income households from volatile prices while reducing the administrative complexity of short-term support schemes.

Moreover, the continued linkage between gas and electricity prices must be severed. The current marginal cost pricing model means electricity prices are pegged to the most expensive generator – typically gas – even when renewables comprise the bulk of supply. This artificial inflation of electricity prices undermines the economic and environmental case for electrification, whilst unfairly burdening households attempting to switch to cleaner heating or transport options. Electricity pricing must be decoupled from gas and reflect the real, lower costs of renewable generation.

Beyond pricing mechanisms, structural reforms are needed to reduce reliance on imported gas. Investment in home-grown renewables, storage capacity, and localised energy systems can provide long-term insulation from global volatility. Similarly, accelerating domestic energy efficiency measures – particularly in social housing and the private rented sector – can reduce overall demand, lowering exposure to price shocks at the household level.

Finally, the long-term consequences of price shocks – particularly energy debt – must be addressed. Households forced into arrears during the crisis often remain trapped in debt spirals that impede their ability to recover. ADS calls for the development of national debt relief mechanisms and payment matching schemes to help consumers regain financial stability. Such interventions must be paired with accessible, stigma-free advice services.

3. Where should the costs of decarbonising the grid lie?

The decarbonisation of the grid is essential to achieving net zero and reducing long-term energy costs. However, if financed through regressive levies on consumer bills – as is currently the case – it will deepen inequality and undermine public support for the transition.

Costs must instead be funded through general taxation. The energy transition is a public good, with benefits that extend beyond the energy sector into health, productivity, and climate resilience. As such, it is appropriate that its costs are borne according to ability to pay. Shifting environmental and social obligations from bills to taxation would immediately reduce consumer costs, particularly for low-income households who spend a larger proportion of their income on energy.

Furthermore, those who have historically profited from carbon-intensive activities – particularly fossil fuel producers and large-scale emitters – should be required to contribute more substantially.

Transparency is also vital. Many consumers are unaware of how much of their bill is attributable to decarbonisation policies. This lack of clarity erodes public trust and limits accountability. All future policy must be accompanied by clear communication of its costs, benefits, and redistributive impacts.

Finally, the investment strategy for grid decarbonisation must prioritise equitable outcomes. Public funds must be directed toward upgrading homes in fuel poverty, expanding community energy schemes, and supporting low-income households to adopt low-carbon heating. This includes improving the fabric of Scottish homes – enhancing insulation, airtightness, and energy efficiency – to reduce demand and lower bills in the long term. Decarbonisation should not be imposed on the most vulnerable – it must be delivered with them.

4. Is it practical for consumer bills to be reduced by £300 before the end of the Parliament?

Reducing energy bills by £300 before the end of the current parliamentary term is undoubtedly ambitious – but for many households across Scotland, it is both urgent and essential. In a country where excess winter deaths remain persistently high, and where over a third of households are estimated to be living in fuel poverty, such a reduction could represent the difference between a warm home and a serious health risk. For the most vulnerable – those on low incomes, in remote or rural areas, or with additional support needs – it could be the difference between financial stability and severe deprivation.

While achieving a universal £300 reduction may prove challenging, it is entirely feasible to deliver this level of support for the households most in need, provided that bold and targeted policy interventions are pursued. The most effective route to this goal would be the introduction of a Scottish-administered social tariff.

A carefully designed social tariff, based on automatic eligibility and supported by data-sharing agreements, could reduce annual energy costs by more than £300 for qualifying consumers. This would be particularly effective if the tariff removed standing charges – currently a significant financial burden on low-income households – and applied a heavily discounted unit rate to a defined essential band of energy consumption. That threshold should reflect regional variations in climate, housing quality, and household composition.

Scotland’s distinct geography and climate make this approach particularly appropriate. Homes in rural, remote, and island communities face longer, colder winters and greater exposure to the elements. Many also rely on expensive, carbon-intensive fuels such as heating oil or LPG due to limited access to the gas grid. Yet these same communities are often located closest to renewable energy infrastructure and contribute significantly to the UK’s overall energy supply. It is indefensible that a resident in the Western Isles – living beside wind turbines – pays more for their electricity than a household in the south of England. This regional disparity must be urgently addressed.

Although energy market regulation is reserved to Westminster, the Scottish Government has a critical role to play in delivering a more equitable system. Within devolved powers, it can provide direct support to low-income households, leverage partnerships with suppliers, and advocate forcefully for UK-level reforms. The Government can also strengthen interim measures such as the Warm Home Discount, Winter Heating Payments, and crisis support mechanisms to help mitigate the immediate impacts of energy affordability challenges.

In tandem with these direct supports, the expansion of energy efficiency programmes must be a key strategic priority. A significant proportion of vulnerable households in Scotland live in poorly insulated or energy-inefficient homes – especially within the private rented sector and older housing stock. Advice Direct Scotland’s work on child poverty has repeatedly highlighted the financial and health consequences of living in cold, damp homes. Evidence shows that improvements such as insulation, draft-proofing, and modern heating systems can reduce annual energy bills by several hundred pounds while also improving health outcomes and quality of life.

Government-backed schemes such as Warmer Homes Scotland and area-based retrofitting programmes must therefore be scaled up, streamlined and more effectively targeted. Eligibility criteria should be inclusive of those in precarious or marginal housing situations, including disabled people and those with complex health needs. Retrofitting must also be delivered in a way that avoids disruption or displacement of tenants.

Short-term emergency interventions also remain critical. Targeted bill credit schemes, debt relief grants, and direct winter payments can provide essential relief during the most financially difficult periods. At ADS, we regularly engage with individuals who cannot afford to turn on the heating or prepare hot meals. These are not isolated cases – they are emblematic of a wider affordability crisis affecting communities across Scotland. Through our delivery of the £14 million Home Heating Support Fund on behalf of the Scottish Government – part of the wider Fuel Insecurity Fund – we supported over 35,000 households experiencing fuel poverty. This involvement has deepened our understanding of the scale and urgency of need, and the importance of sustained, well-targeted support.

Delivery of such support must be efficient, coordinated and person-centred. Cross-sector collaboration – between Scottish Government, local authorities, energy suppliers, and the third sector – is vital. Improved data-sharing, particularly across DWP, HMRC, and devolved agencies, would enable automatic targeting of support and reduce the stigma and administrative complexity that currently deters many eligible individuals from applying for help.

Finally, a just transition to a decarbonised energy system must not impose disproportionate costs on the very households least able to afford them. Low-income and rural households are often locked out of low-carbon solutions like heat pumps or home battery storage due to high upfront costs and structural barriers in the housing stock. Without intentional and equitable investment, these communities risk being left behind in the transition – despite already contributing more than their share through high standing charges and elevated network costs.

A £300 reduction in annual energy bills should not be seen as a political ambition, but as a moral imperative. In an energy-rich nation such as Scotland, it is inexcusable that so many children, families, and older adults continue to experience cold homes and energy insecurity. By introducing a social tariff, accelerating energy efficiency upgrades, and deploying emergency financial supports, this target is not only attainable – it is a necessary step towards a fairer, more resilient energy system.

6. What is the impact of transition costs on business and commercial users who do not benefit from the domestic price cap?

Since 2024, ADS has also provided critical non-domestic advice to small businesses and third-sector organisations across Scotland. Through this work, we are acutely aware of the mounting energy-related challenges facing microbusinesses, particularly those operating in low-income, remote, and rural communities. These businesses are often more than commercial entities – they are social lifelines, providing essential goods, services and employment while supporting some of the most vulnerable groups in society.

Despite their importance, small businesses remain largely unprotected in the current energy landscape. Unlike domestic consumers, they do not benefit from the energy price cap or equivalent regulatory safeguards. Many have been left exposed to volatile pricing, inflexible contracts and mounting operational costs. For numerous microbusinesses, energy now represents their most significant overhead after wages, threatening not just profitability but long-term viability. This financial pressure is compounded by recent cost increases in other areas – particularly the rise in Employer National Insurance contributions – which further constrain their ability to absorb energy price shocks or invest in sustainable improvements.

The consequences are stark. Across Scotland, we have seen small enterprises – especially in hospitality, care provision, community services, and retail – struggling to cope with sharp increases in their energy bills. This is exacerbated for those that signed fixed-term contracts at the height of the energy crisis and are now locked into paying rates that far exceed current wholesale prices. These business owners often feel abandoned by suppliers, unsupported by regulation, and unable to find a sustainable path forward. Many report feeling trapped – unable to renegotiate contracts or secure the capital investment needed for energy efficiency improvements.

This problem is even more acute in rural and island communities, where standing charges tend to be higher, energy options more limited, and buildings often older and harder to heat efficiently. In these areas, small businesses are not just economic actors – they are community hubs. They host food banks, offer digital access, function as informal advice points, and provide warm spaces during winter. Their closure not only removes access to essential services but also weakens social cohesion and exacerbates isolation and deprivation. In communities where transport links are sparse and internet access is poor, the loss of a single business can have disproportionate effects.

The cumulative impact of these closures ripples through communities. As local businesses reduce their hours, cut back services, or close altogether, households find themselves travelling further, paying more, or going without. The knock-on effect is increased local hardship and diminished community resilience – particularly in the context of a cost-of-living crisis and a national transition to net zero.

To ensure that the energy transition is genuinely just, it is vital that the needs of small and medium-sized enterprises are addressed alongside those of domestic consumers. This requires more than generic business support: it demands a recognition of the unique role that microbusinesses play in Scotland’s social and economic fabric, and a commitment to mitigating the specific energy-related barriers they face.

There is a pressing need for targeted energy support schemes that reflect the realities of small-scale operations. This could include hardship grants during periods of price instability and subsidised access to energy-efficiency measures such as insulation, efficient heating systems, or renewable technologies. Many of the premises occupied by microbusinesses are poorly insulated or lack modern infrastructure, resulting in unnecessarily high energy usage and costs.

Financial assistance in the form of low-interest loans or grant funding would enable these businesses to undertake the types of upgrades that are increasingly expected as part of the national decarbonisation effort. However, without this support, few can afford the upfront investment, even if the long-term savings are clear. Public procurement systems also present an opportunity to support business sustainability, and streamlining access to these opportunities would allow small enterprises to play a more active role in delivering local services in energy-efficient ways.

Moreover, there is a case to be made for extending a limited set of consumer protections to the smallest commercial users – particularly those that provide core services to vulnerable populations. Clearer contract terms, improved dispute resolution access, and greater transparency around standing charges and exit fees could make a substantial difference to these businesses’ stability.

Improving access to advice is also essential. Many business owners lack the time, expertise or confidence to navigate complex energy markets or to challenge unfair practices. A dedicated advice channel for non-domestic energy users, modelled on ADS’s experience in delivering public-facing support, could equip businesses with the tools they need to manage their energy costs more effectively and engage with decarbonisation in a meaningful way.

Scotland’s energy future must be inclusive. Supporting small businesses to thrive within that future is not only a matter of economic development – it is a matter of community resilience and social justice. The viability of many small enterprises, particularly in disadvantaged areas, hinges on energy affordability. By offering targeted, fair, and accessible support, government and regulators can protect the very institutions that hold communities together.

ADS remains committed to working with policymakers, regulators, and industry stakeholders to ensure that the needs of microbusinesses are fully integrated into energy policy. Just as domestic consumers require tailored interventions, so too do the enterprises that serve them – especially those working at the frontline of community need.

Conclusion

Our transition to a fair, green energy future must be built on the principles of equity, inclusion, and resilience. The current energy market fails to meet these standards. It punishes the poorest for their poverty, exposes the vulnerable to market shocks, and allocates costs in a fundamentally regressive manner.

Advice Direct Scotland calls on the Committee to champion reform that puts people first. We urge the adoption of a mandatory social tariff, the removal of levies from bills, the decoupling of gas and electricity prices, and the transformation of the Ombudsman system to truly serve those in need.

The energy system must work not just for the market, but for the people who depend on it.

We would welcome the opportunity to provide oral evidence and support the development of future policy in this area.

April 2025