PRESS RELEASE : UK Government reaffirms commitment to protect energy users in the North of Scotland [January 2023]

The press release issued by the Department for Business, Energy and Industrial Strategy on 16 January 2023.

Households and businesses in the North of Scotland will continue to benefit from energy bill savings through the Hydro Benefit Replacement Scheme.

The UK government is today announcing that all households and businesses in the North of Scotland will continue to receive protection from higher energy bills, with average savings of £60 to offset the higher costs of electricity distribution in the region. This is in addition to savings offered through other UK government schemes including the Energy Price Guarantee and Energy Bill Support Scheme.

£94.9 million of support will be provided through the continued Hydro Benefit Replacement Scheme (HBRS) and Common Tariff Obligation (CTO), which is automatically taken off bills.

The government introduced the HBRS in April 2005 to provide a cross subsidy to reduce distribution charges in the North of Scotland. Electricity distribution in the region is more costly than elsewhere because of its unique geography, which presents challenges to electricity networks. The scheme is funded by charges on all licensed electricity suppliers across Great Britain, costing £1 per household.

Following the illegal invasion of Ukraine, the UK Government stepped in to provide Scottish households with support to help meet rising energy costs. This includes the Energy Price Guarantee, saving the typical household in Great Britain around £900, payments of £400 towards bills through the Energy Bill Support Scheme, as well as £1,200 being provided to the most vulnerable households.

UK government Minister for Energy and Climate Graham Stuart said:

The UK Government is determined to protect energy users wherever we can and to ensure fairness when it comes to energy prices across the Union.

Therefore we are reaffirming our commitment to the Hydro Benefit Replacement Scheme and Common Tariff Obligation, which are vital tools for easing energy costs for those living in rural areas of the North of Scotland.

Technical improvements are being brought forward. This will mean that funding charges are minimised without reducing assistance being offered.

UK government Minister for Scotland John Lamont said:

At a time when the cost of energy bills is on everyone’s minds, the UK Government wants to see equality for users, whether you live in Sutherland or Sunderland.

The continuation of this payment is good news for people in rural parts of Northern Scotland, protecting households from the higher electricity distribution costs in certain areas.

Legislation to be introduced in Parliament will make technical improvements to the HBRS and follows support of £92.7 million provided through these schemes in 2021/22.

The Common Tariff Obligation (CTO) performs a similar function to the HBRS within the North of Scotland by preventing electricity suppliers from charging comparable domestic consumers different prices solely on the basis of their location within the region.

David Hilferty, Social Justice spokesperson for Citizens Advice Scotland, said:

We know consumers and business in the North of Scotland continue to face higher costs when it comes to energy and extending this scheme and the associated protections is a welcome move. If anyone is worried about energy bills or costs generally they can seek free, impartial and confidential advice from the Citizens Advice network.

There is a requirement for the UK government to review the HBRS and CTO every three years. The latest review included a public consultation, where most respondents supported the UK Government’s proposal to retain the schemes in their current form with some technical improvements to the funding arrangements of the HBRS.

These technical improvements included:

• Removing a distortion which allowed some suppliers to avoid charges at the expense of others.
• Adjusting support for inflation using the Consumer Prices Index including owner occupiers’ housing costs instead of the Retail Price Index, as the former is now considered a better measure.
• Addressing an ambiguity that could be interpreted as requiring funding to be recovered twice-over from electricity suppliers.