1. 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 purpose is to improve outcomes for current and future consumers, and our strategic objectives are:
- to enhance understanding and awareness of consumer issues by strengthening the evidence base
- to serve the needs and aspirations of current and future consumers by inspiring and influencing the public, private and third sectors
- to enable the active participation of consumers in a fairer economy by improving access to information and support
Consumer Scotland uses data, research and analysis to inform our work on the key issues facing consumers in Scotland. In conjunction with that evidence base we seek a consumer perspective through the application of the consumer principles of access, choice, safety, information, fairness, representation, sustainability and redress.
2. Our response
Rising energy costs are a significant concern for consumers, and multiple pieces of research have clearly demonstrated the affordability and debt challenges that they pose for certain consumers[1]. Standing charges are part of the driver for this overall increase in energy bills, and absent any other action they are likely to continue to rise in the coming years.
It is right, therefore, to consider ways in which consumer bills can be reduced, and to ensure the manner in which costs are recovered from system users is as efficient as possible.
We are concerned, however, that narrow changes in the context of standing charges could benefit some consumers while leaving others worse off. The changes proposed by Ofgem could lead to this redistribution happening in a disorganised way. We consider Ofgem’s Cost Allocation and Recovery Review (CARR) to be a better vehicle for considering questions of how different cost categories are recovered and from whom in a holistic way.
If Ofgem feel compelled to proceed with near-term changes to standing charges, then we agree with the proposal to make this temporary in the first instance. We would recommend that Ofgem give careful consideration now to how it will evaluate the success or otherwise of the proposed changes, to enable a transparent continue/discontinue decision to made in two years.
Temporary SLC Changes and Success Criteria for Policy Review
We remain of the view that questions about how costs are best recovered from consumers are answered in a holistic way. Narrow changes to tariff structures will lead to the redistribution of costs in a disorganised way. In this vein, we consider Ofgem’s wider work on the CARR to be the most appropriate vehicle, and we have made recommendations for how this project should be approached[2]. However, if Ofgem feels compelled to make changes to the standing charge in the short term then we agree with the proposal to make them temporary to allow their impact to be assessed before deciding whether to continue or discontinue.
A review in two years allows the policy to be analysed in the context of, among other things, significant expected increases in network costs from 2026 and any changes that arise from the CARR. It is therefore appropriate to include a sunset clause.
To ensure that this policy can be effectively scrutinised, we recommend Ofgem set out early indicators of what "success" looks like. It is difficult to identify individual indicators that would suggest the policy has been successful or not. For instance, widespread take-up of low standing charge offers could, on one hand, be seen as a positive demonstration of consumer appetite for these tariffs, and therefore suggest the new requirements should be retained in the long term. On the other hand, it could also lead to a greater risk of systematic cost under-recovery, and therefore lead to greater cost smearing between consumers in a disorganised way. The reverse could also be the case, with limited take-up not immediately suggesting high demand for low standing charge tariffs, but the wider market risks also being lower. Ofgem should give careful consideration now to the factors it will take into account when deciding whether to extend this policy not, so that that decision can be made transparently in due course.
Risk of Under-Recovery and Cross-Subsidisation
The proposed regulatory framework states that suppliers can price tariffs in line with commercial interests and minimise their potential under-recovery risk. However, the consultation provides limited details regarding how Ofgem will monitor and prevent systematic cost shortfalls, which may require more costs to be recovered from consumers on standard tariffs.
Ofgem has rejected cross-subsidisation in relation to the previously proposed zero standing charge price cap variants as this would raise questions of fairness for consumers[3]. We would welcome clarity from Ofgem about whether it considers cross-subsidisation permissible under its current proposals, and how it will monitor and prevent consumers on standard tariffs unfairly bearing any costs arising from the under-recovery of fixed costs from lower standing charge tariffs. For example, Ofgem could require suppliers to demonstrate how their lower standing charge tariffs are financially self-sustaining over a reasonable timeframe, mandating that any under recovery is addressed through specific tariff adjustments rather than portfolio-wide price increases.
Ensuring Informed Decision-Making
In general, it is critical that consumers have the tools they need to make the right tariff choice for them. Several existing licence conditions, including 25 and 31F, are intended to support this aim. In the context of low or zero standing charge tariffs, the inputs that consumers use to perform a tariff comparison increase in importance. Using monthly or quarterly consumption data may give a misleading picture of what the best value tariff for a consumer is. For instance, if a consumer uses consumption information from the summer months (when their usage is likely to be low) to compare tariffs it may suggest a low standing charge tariff is right for them, whereas they may get a different answer if they used a full year’s consumption. We recommend that Ofgem give consideration to whether there needs to be further guidance or obligations for suppliers and price comparison services to ensure consumers’ tariff comparison are accurate and not misleading.