Consultation on UK energy costs, industrial decarbonisation, and economic growth

18 September 2026

Via online form

UK Parliament Energy Security and Net Zero Committee

Business and Energy Inquiry

Submission from Consumer Scotland

About us 

Consumer Scotland is the statutory body for consumers in Scotland. Established by the Consumer Scotland Act 2020, we are accountable to the Scottish Parliament. The Act defines consumers as individuals and small businesses that purchase, use or receive in Scotland goods or services supplied by a business, profession, not for profit enterprise, or public body.

Our five key areas of focus are:

• Reducing harm to consumers
• Increasing consumer confidence in dealing with businesses that supply goods and services
• Increasing the extent to which consumer matters are taken into account by public authorities
• Promoting the sustainable consumption of natural resources and other sustainable practices
• Advancing inclusion, fairness, prosperity and other aspects of wellbeing in Scotland

We are the levy-funded advocacy body for electricity and gas in Scotland with a focus on ensuring that energy markets and transitions work for all consumers in Scotland.

Our response

Given our role as the statutory advocate for small business consumers in Scotland, this response focuses on addressing questions 4 and 5 in the committee’s call for evidence and primarily from the perspective of small-sized enterprises only.

4.What should the Government be doing to incentivise SMEs to decarbonise?

4.1 Latest Scottish Government statistics show a drop in the overall numbers of SMEs installing energy efficiency measures, from 25% in 2023-24 to 17% in 2024-25. 76% reported having no plans to install a low carbon heating system in the course of the next year, with only 9% saying they were going to install a heating system and/or energy efficiency measures.[1]

4.2 Meeting climate, clean power and flexibility ambitions at both Scottish and UK-Government levels will require a step-change in small businesses’ engagement in efforts to decarbonise. Putting in place the right incentives are key but these should go hand-in-hand with efforts to address the wider affordability challenges that small businesses continue to experience (as we explore in more detail in our response to Q5) as a result of high energy prices.

4.3 Like households, small business consumers will need support to navigate a rapidly evolving energy market to help them decarbonise their businesses and bring down bills. This could include financial support to help with the upfront costs of new technologies and/or energy efficiency measures as well as high-quality advice and information so small businesses can identify, install, use and maintain the appropriate products, services and tariffs.  In practical policy terms, this will require:

• Governments to help provide adequate incentives in the form of financial schemes and advice services
• Ofgem to ensure that new outcomes-based regulation provides appropriate and enforceable protections for small businesses
• UK Government and Ofgem to sustain momentum around introducing and ensuring robust enforcement of regulation of third-party intermediaries (TPIs) and load controllers that provide a range of energy procurement and management services to small businesses
• Governments to ensure clear routes for complaints and redress for small businesses and ensure consistent quality assurance standards for all traders in the energy efficiency and low-carbon heating sectors.[2]

4.4 As UK Government develops it plans around reforming protection for home upgrade schemes, it will need to consider how the resulting improvements of any strengthened framework operating effectively across devolved nations could also benefit small businesses.[3], [4]

4.5 Decarbonisation of small businesses in Scotland will rely on effective coordination between Scottish and UK Governments as some policy areas are devolved (e.g., support for energy efficiency and decarbonisation measures including the SME Loan Scheme) while others are reserved (e.g., smart meter rollout, electricity cost reduction schemes including the British Industrial competitiveness Scheme - BICS). This is key to helping small business consumers navigate a potentially complex and fragmented policy landscape and get the support they require to flourish and grow.

4.6 UK Government is already taking steps to incentivise SMEs to decarbonise and contribute to wider policy ambitions around clean power and developing a flexible electricity system.[5][6] One of the key ways it is doing this is through the planned rollout of smart meters to businesses. From September 2027, all new fixed-term energy contracts with business customers will be contingent on businesses having or agreeing to have a smart meter installed in their place of business.[7] This is important because smart meters are a gateway to managing energy use more effectively through low carbon technologies and other flexibility products and services.

4.7 In its response to UK Government’s consultation on the non-domestic smart meter rollout, Consumer Scotland highlighted the following considerations to ensure successful implementation:

• Provide the right incentives for landlords who arrange energy contracts on behalf of business tenants to install smart meters and other energy efficiency and clean heating measures/technologies.
• Learn lessons from the domestic smart meter rollout and avoid installation rates falling behind in rural and remote and locations. This is particularly important in Scotland. 
• Ensure third-party intermediaries (TPIs), who many small businesses use to identify and negotiate energy contracts, are providing the right information on smart-contingent contracts.
• Explore extending smart meter contingency to other types of contracts given a third of small businesses are not on a fixed-term contract.
• Make sure that businesses do not lose out on the benefits of a fixed-term smart-contingent contract because they need additional works to be completed before a smart meter can be installed. [8]

4.8 Business Energy Scotland funded by the Scottish Government provides financial support and advice to SMEs in Scotland on energy savings through energy efficiency improvements and installing low carbon technologies. The service could provide lessons for coordinated support provision across the rest of UK.[9]

5. Is the biggest barrier to SMEs the high cost of electricity? 

5.1 The high cost of electricity is undoubtedly a significant challenge for SMEs, both in general and in relation to decarbonisation. It is worth noting that electricity consumption is proportionally higher and gas consumption lower amongst industry and the services sector compared to the domestic sector where demand for gas remains high due to the prevalence of gas-fuelled home heating.[10]  So, the real gains in terms of emissions reductions remain linked to the decarbonisation of home heating. However, bringing down the cost of electricity will help reduce small businesses’ costs and emissions.

5.2 Recent research from the Federation of Small Businesses (FSB) has seen a significant drop in small business confidence, particularly in Scotland, with Scottish small businesses experiencing increased running costs, and utility costs cited as one of the biggest drivers.[11] Consumer Scotland’s small business research undertaken in 2025 research found that of those businesses using energy goods and services, 45% felt that they did not pay a fair and reasonable price for them and 31% did not feel that their terms and conditions were fair. Our research also found that 20% of small businesses in Scotland were dissatisfied with goods and services purchased in the energy market compared to 11% in the water sector, 5% in the postal sector and 4% in the financial services market.[12]

5.3 Many small businesses have seen recent rises to their electricity bills as a result of increases in Transmission Network Use of System (TNUoS) charges from April 2026. These increases potentially added several hundred pounds per year to the bill of a typical small business, depending on its electricity usage and location.  

5.4 How energy system costs are recovered from businesses’ electricity bills also potentially compounds the affordability challenges they face. Network costs tend to be higher in some parts of Scotland, particularly rural and remote areas, meaning higher bills. Schemes such as BICS exempt eligible manufacturing business from certain electricity policy costs, but this support will not be available to many small businesses continuing to struggle with high electricity costs. We would in any event caution against viewing the BICS as a panacea, as this scheme is ultimately paid for by domestic customers.

5.5 Consumer protections available to small businesses are more limited compared to household consumers. For example, the price cap, debt support and cooling off periods around contracts Ofgem has the opportunity to review and potentially strengthen protections for non-domestic consumers as it moves towards outcomes-based regulation, and within that consider what is required from regulation to support small businesses to flourish and contribute to economic growth (in line with Ofgem’s growth duty). In implementing outcomes-based regulation Ofgem also needs to ensure that it is applied consistently across the growing range of actors in the energy market, not just energy suppliers. So, for example, TPIs that provide energy procurement and other services to small businesses.

5.6 For many small businesses, navigating energy markets to secure the energy they need at a price they can afford is by no means straightforward. Many employ the services of a TPI to help them identify and negotiate contracts, and there is evidence to suggest that most small businesses are pleased with the service they receive.[13]  However, data from Advice Direct Scotland, as well as data available through the Energy Ombudsman suggests this is not always the case. TPI small business consumers report a range of issues including lack of transparency around contracting terms (including use of verbal agreements), differences in prices quoted and prices contracted, aggressive selling practices and issues with transparency and consistency around billing. [14],[15] These bad practices lead to consumer detriment and harm. UK Government has recognised these challenges and is moving forward with regulation of TPIs, and Consumer Scotland is keen to see a robust and enforceable framework put in place as soon as possible.[16]

5.7 The FSB report that 45% of small businesses in the UK do not choose their own energy supplier, with landlords arranging energy contracts and effectively reselling and invoicing energy to these businesses. [17] Landlords can, depending on the lease, recharge the customer at a higher rate than the cost of the energy, and there is likely to be limited scope for small businesses to influence choices made on their behalf. Ofgem is currently reviewing its Maximum Resale Price (MRP) arrangements and Consumer Scotland has recommended that it consider bringing small businesses into scope of this regulation so as is already the case with households, resellers cannot make a profit on the resale. UK Government should grant Ofgem enforcement powers around the MRP. We also recommended that resellers be required to make tariff and consumption information available to end users at regular and/or appropriate intervals (e.g., in the case of a pricing change), with the information presented so that consumers can easily understand the basis on which their charges have been calculated. [18]

Endnotes