A £100 Payment for Most, or Meaningful Help for Those Who Need It Most?

The UK Government’s Budget contained several measures intended to help households facing ongoing cost pressures, including two proposals with significant implications for energy consumers in Scotland.

The first was a £100 payment for households living in Council Tax Bands A-D in England. The expectation is that equivalent funding will flow to Scotland through the Barnett Formula, allowing the Scottish Government to decide how best to distribute support.

The second was confirmation of plans to reform energy standing charges, beginning with gas and potentially extending to electricity in future.

Both announcements are intended to help households struggling with rising costs.

Both deserve careful consideration.

The question is not whether support should be provided.

It is whether it is being provided in the right way.

Who Is Support Really For?

At first glance, a £100 payment sounds like a sensible response to continuing pressure on household budgets.

Few households would turn down £100. Many will welcome it. Most could find a use for it.

But the real question is not whether people would like the money.

It is whether this is the best use of what could amount to between £200 million and £300 million of public spending in Scotland.

Council Tax banding remains a remarkably blunt tool for identifying financial hardship. It tells us very little about a household’s actual circumstances.

It does not tell us:

• Whether someone is on a low income.
• Whether they are experiencing problem debt.
• Whether they have a disability or long-term health condition.
• Whether they rely on energy-intensive medical equipment.
• Whether they live in a cold or poorly insulated home.
• Whether they are already unable to afford adequate heating.

In Scotland, Council Tax valuations are still based on property assessments from the early 1990s. The circumstances of many households today bear little resemblance to those reflected by those historic valuations.

Yet once again, government appears poised to use Council Tax bands as the primary gateway to support.

The Problem with Universal Solutions

Fuel poverty continues to affect around one in three households in Scotland.

By contrast, more than 70% of households could potentially qualify for support through Council Tax banding.

That means substantial sums of public money would inevitably flow to many households who may welcome the help but are managing reasonably well, whilst families experiencing genuine hardship receive exactly the same amount.

A flat payment treats very different circumstances as if they are the same.

The family cutting back on holidays and discretionary spending receives the same support as the family skipping meals, rationing heating and carrying arrears because there is simply nothing left to cut.

Yet policymakers know these households are not facing the same challenge.

For some families, higher energy costs are an inconvenience.

For others, they are an emergency.

If the Goal Is Energy Affordability, Why Not Use Energy Bills?

Alongside the £100 payment, the Budget extended the removal of VAT from domestic electricity bills until the end of June.

For many households, that will be welcome news. It provides certainty for a little longer and ensures electricity bills remain lower than they otherwise would have been.

However, uncertainty remains about what happens after June.

The extension raises a broader question about whether reducing the cost of energy directly may be a more effective intervention than distributing one-off cash payments.

There may be understandable concerns within government about the fiscal uncertainty associated with removing VAT from all forms of domestic energy. The final cost depends on future levels of energy consumption and wholesale prices. It will depend on how cold or severe a winter we have, it depend on how high energy prices rises.

However, reducing taxes on energy has several advantages.

Unlike a cash payment, it directly reduces the cost of an essential service. Every pound of support is reflected in lower energy bills.

It can also help reduce inflation, because it lowers the price of something that forms part of household expenditure calculations.

By contrast, a cash payment increases disposable income but does not necessarily reduce the cost of energy itself.

This highlights an important distinction.

While the Chancellor has presented the £100 payment as a measure to help with energy costs, once the payment reaches a household bank account it becomes something broader. Families can choose to spend the money on food, housing costs, transport, debt repayments or any other pressure they are facing.

That flexibility is valuable.

But it also means this is not purely an energy policy.

It is arguably a cost-of-living payment delivered under the banner of energy support.

We Have Better Data Than We Did Before

One argument often advanced in favour of universal or near-universal schemes is that targeted support is difficult.

There is truth in that. No system is perfect. But it is difficult to argue that government lacks the information needed to do better.

Today, public bodies hold significant information that could help identify people most at risk.

This includes data held by:

• Social Security Scotland.
• NHS Scotland.
• Local authorities.
• Housing providers.
• HMRC and the wider tax system.

Scotland already operates different income tax rates and bands from the rest of the UK. Government has access to more information about household circumstances than ever before.

Used appropriately and responsibly, these datasets could help identify households facing low incomes, poor health, disability, high energy requirements or other factors associated with fuel poverty.

The challenge is no longer whether better targeting is technically possible.

It is whether there is sufficient political will to pursue it.

Since 2020 governments have faced extraordinary circumstances, including the pandemic and the cost-of-living crisis. Understandably, speed often took priority over precision.

But many years later we continue to rely upon the same broad and blunt mechanisms.

The question Scotland should be asking is not whether support can be delivered quickly.

It is whether it can be delivered fairly. In a socially responsible and caring society surely it matters to us who gets support.

Standing Charges: Solving One Problem, Creating Another?

The Budget’s other major energy announcement relates to standing charges.

Public frustration with standing charges is entirely understandable.

Many consumers struggle to understand why they face daily charges regardless of how much energy they use or whether they use any at all. People with gas prepayment meters on low incomes might not consume any gas for heating over the summer months and into the autumn yet during this time debt builds as daily standing charges accumulate creating a point where they can be significant cost before a unit is consumed.

The Government’s proposal seeks to address this by removing existing gas standing charge costs and recovering them through unit rates instead. It will increase unit rates for all consumers but can have a bill reducing effect. Much of that bill reducing effect is simply because low income, fuel poor households are under consumers, not reaching comfort levels conducive to maintaining health and wellbeing.

Nonetheless UK Government believes that lower-consuming households are likely to save around £45 per year.
Higher-consuming households will pay more. That could be a lot more.

At first glance, that appears progressive.

The reality is more complicated.

Not everyone with high energy consumption is wasteful or affluent.

Many households consume large amounts of energy because they have little choice.

This includes:

• Disabled people.
• Older households.
• People who spend most of their time at home.
• Families with young children.
• Households relying on medical equipment.
• Those living in larger or less energy-efficient homes.

Higher consumption does not always reflect greater ability to pay.

Often it reflects greater need.

Without appropriate protections, some of the households most vulnerable to energy costs could find themselves paying even more. It is a great soundbite to say that standing charges have been removed but the cost is still there spread amongst energy consumers.

Scotland’s Electricity Challenge

The challenge becomes even greater if similar reforms are applied to electricity standing charges.

Electricity standing charges have risen dramatically since 2019 and now represent a significant component of household bills, often exceeding 65 pence per day. Electricity standing charges are also regionally inequitable where some parts of the GB network pay significantly higher charges than others, that is in contrast to the near universal nature of gas standing charges.

Scotland has a disproportionately high number of households reliant on electric heating, particularly in rural and island communities and in homes using traditional storage heating systems.

Many of these households already face some of the highest energy bills in Great Britain.

Moving electricity standing charge costs entirely into unit rates could significantly increase bills for households that are already struggling and who have few realistic alternatives available to them.

Again, the issue is not whether these costs should exist.

It is where they should sit.

A Fairer Alternative

The uncomfortable truth is that standing charge costs do not disappear simply because they are moved elsewhere.
Consumers still pay.

The bill is simply presented differently.

A more fundamental question is whether all of these costs belong on energy bills in the first place.

Many standing charge elements fund wider social, policy and infrastructure objectives which benefit society as a whole.
Funding a greater proportion of these costs through general taxation would spread costs more fairly according to people’s ability to contribute rather than according to how much energy they happen to consume.

Such an approach would avoid penalising households whose energy use is driven by necessity rather than choice.

It would also provide greater protection for disabled households, older people and those reliant upon electric heating.

In many respects, moving a significant proportion of standing charge costs into general taxation appears a more equitable solution than simply redistributing them amongst energy consumers through higher unit rates.

An Energy Policy or a Cost-of-Living Policy?

Perhaps the most important question arising from this Budget is what problem these measures are actually trying to solve.

If the objective is to tackle fuel poverty, then support should be targeted towards those most affected by high energy costs and poor energy efficiency.

If the objective is to support households through wider cost-of-living pressures, then a broader payment may be justified.

But these are not necessarily the same thing.

Scotland continues to have hundreds of thousands of households where financial hardship is not temporary.
There are no luxuries to cut back on.

No savings to draw upon.

No discretionary spending left to absorb rising costs.

For many families, unaffordable energy bills are not a new challenge created by recent events. They are an everyday reality that has persisted for years.

Good public policy starts with a clear understanding of the problem.

That is why identifying whether these measures are energy policies or cost-of-living policies is more than a semantic debate.

It sits at the heart of whether public money is being used in the most effective way possible. When monies are tight it is incumbent on our policy makers to ensure that every public pound works as hard as it can.

Scotland Has a Choice

The coming days will see debate about whether Scotland should replicate the £100 payment announced for England.

That discussion matters.

But the more important question is whether repeating the same approach yet again is good enough.

When fuel poverty affects around one in three Scottish households, scarce public resources should be focused where they can do the most good.

A £100 payment to millions of households may be politically attractive.

Delivering more meaningful support to those living with persistent poverty, chronic ill-health, disability and unaffordable energy bills is undoubtedly harder.

But harder does not mean impossible. It does not mean that it is not the right thing to do.

Scotland faces a choice.

Continue relying on broad, easy-to-deliver interventions that spread support thinly across the population, or use the data, insight and tools already available to focus help on those facing the greatest hardship.

At a time when public finances are under pressure and fuel poverty remains stubbornly high, the question is not whether we can afford to target support better.

It is whether we can afford not to.