Factored Energy Arrangements: Pricing

Wednesday 14th January 2026 Westminster Hall

11:00

[Graham Stuart (in the Chair)]

I will call Graham Leadbitter to move the motion, and then call the Minister to respond. I remind other Members that they may only make a speech with prior permission from the Member in charge of the debate and the Minister—you need both. There will not be an opportunity for the Member in charge to wind up, as is the convention for 30-minute debates. We are trying to bring this debate swiftly to a close in order to allow the proposer to reach Scottish questions.

11:01

[Graham Leadbitter (Moray West, Nairn and Strathspey) (SNP)]

I beg to move,

That this House has considered energy pricing for consumers with factored energy arrangements.

It is a pleasure to serve under your chairmanship, Mr Stuart. I am pleased to have secured this debate on a systemic regulatory failure that is quietly draining the bank accounts of residents across Scotland and the wider UK. We are in the midst of a cost of living crisis, yet large numbers of domestic residents are being charged inflated business electricity tariffs for the essential communal services that keep their buildings safe and functional.

In a nutshell, the issue is that in many residential developments, services such as stairwell lighting, fire alarms, lifts and door entry systems are powered via shared electricity meters. Despite that electricity being used entirely for domestic living, residents are routinely charged business energy rates. It is not a niche issue; it is a systemic failure driven by outdated rules and weak enforcement.

The financial harm to our constituents is stark. A typical communal supply, using around 1,000 kWh per year, would cost roughly £380 on a fixed domestic tariff. Under the frequently used standard variable business tariffs, that same usage can rise to around £1,465, an excess cost of approximately £1,100 per meter every year. Across a modest development of 75 flats, it can add around £12,000 annually to residents’ collective bills.

What makes that particularly galling is that many residents are entirely unaware of how their communal electricity is billed. They may not know whether it is on a separate meter, how many accounts are involved, or whether it is charged at domestic or business rates. The costs are simply absorbed into factoring charges, leaving consumers unaware of both the issue and their rights—unaware when they are being roundly fleeced for someone else’s failure to either act properly or correctly inform them. The root cause of the issue is simple: it is a regulatory mismatch. The problem sits at the intersection of Ofgem regulation, supplier interpretation and third party management structures.

[Jim Shannon (Strangford) (DUP)]

I commend the hon. Gentleman for bringing forward this debate. He and I spoke beforehand, but he might not be aware that consumers with factored arrangements in Northern Ireland were historically vulnerable to high, unregulated prices, similar to consumers in GB, but the Northern Ireland Assembly moved to correct that vulnerability. Does he agree that, UK-wide, those in communal schemes must have protection from gouging and be able to access better priced energy?

[Graham Leadbitter]

That is absolutely the case. To take Scotland as an example, consumers have a route to address complaints about this issue through the regulation of factors, but it is complex and cumbersome. There should be a simpler way to do it through the energy regulator, as I will touch on later in my speech.

Many communal meters are correctly classed as profile class 01, a domestic designation based on usage. However, where a property factor, managing agent or company holds the contract, suppliers often automatically apply the business tariff.

[Adam Dance (Yeovil) (LD)]

I thank the hon. Member for securing this debate. Business owner Gary Helliar, from Yeovil, signed an energy contract through a broker who convinced him that energy prices were going to rise to 35p per kilowatt and that the 15p kilowatt was a great deal. Energy prices have fallen below that, but Gary has been stuck in that contract and is facing bills of about £390,000. Does the hon. Member agree that we need greater oversight of energy brokers, so that local businesses are not pushed into rip-off contracts?

[Graham Leadbitter]

I certainly agree on that point. It is not entirely the purpose of my debate to address that issue today, but it one that I recognise. I think there has to be a route for people to challenge the advice they are given and to take to task those who have given incorrect advice, and that has to be reasonably simple. In many cases currently, it is not.

Ofgem’s guidance on domestic communal supplies, which suppliers ought to follow, is very clear: where the non-commercial collective purchase of energy is for mainly domestic use, that should be treated as a domestic supply, provided that the arrangement is not commercial in nature. That guidance makes it clear that classification should be based on how the energy is used, not on the legal entity holding the contract, yet in practice it is inconsistently applied and weakly enforced.

Inconsistent supplier behaviour has created staggering inconsistency across the energy market. Some suppliers, including Ecotricity, Octopus and OVO, correctly apply domestic rates based on usage and do not override domestic classifications simply because a factor is involved. However, others, including EDF, British Gas, E.ON and SSE, often default to business rates, based solely on the identity of the contract holder. Indeed, in research carried out by my office, representatives of EDF have explicitly stated that they

“override the domestic classification if the usage is for a communal area managed by a business entity”.

That is in clear contradiction to Ofgem’s advice. The result is a supplier lottery. Two identical buildings on the same street can pay vastly different amounts for the same stairwell lighting, purely because of which supplier the managing agent selected.

The lack of regulatory oversight is deeply frustrating for our constituents. No meaningful reform has followed the 2023 call for evidence and multiple parliamentary questions. The current Government have carried out some further consultation, but have not yet moved things on, either. When I come to my conclusion, I will have specific asks for the Minister in that regard.

In April 2024, the Minister’s Department suggested that, due to physical set-ups, these consumers would continue to receive energy via non-domestic contracts. I have additionally met Ofgem on this issue. It recognises the problem, but consistent standards have not been enforced. Residents who do not choose their supplier are excluded from key domestic protections, including price cap coverage and Energy Ombudsman access. They are effectively trapped. More worryingly, when debts arise, suppliers may pursue residents directly as the “end users”, despite residents having no control over the contract. It is a Catch-22, where responsibility exists without authority, leaving residents unable to discuss the debts they are being chased for, because they do not hold the contract. If residents wish to complain, they often find the ombudsman route unavailable to them because the contract is held by a third party, leaving courts or tribunals as the only effective route for redress.

I therefore have six targeted and practical policy asks of the Minister. No. 1 is to reform standard licence condition 6 in order to prioritise actual usage over contract structure. No. 2 is to mandate a standardised appeal process for tariff classification across suppliers. No. 3 is to enforce profile class integrity, so that domestic or PC 01 meters are not billed at business rates. No. 4 is to strengthen Ofgem’s enforcement powers, so that protections are enforceable and not just advisory. No. 5 is to reopen the Department for Energy Security and Net Zero call for evidence and commit to legislative change. No. 6 is to ensure that residents under third party communal contracts can access the Energy Ombudsman.

The current system is a failure of logic and protection and a further cost of living blow to the people who can least afford it. We are effectively telling residents that, because they live in a flat with a shared hallway, rather than in a semi-detached house, they must pay business prices to power their light bulbs and fire alarms. To put it simply, the current situation is like someone being charged a commercial freight rate for a first-class stamp simply because the person posting the letter for them happens to be a professional administrator. It is time that the Government and Ofgem ensured that domestic use always equals a domestic price, and that residents are made fully aware of their rights when communal energy arrangements are put in place.

11:10

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Martin McCluskey)]

It is a pleasure to serve under your chairmanship, Mr Stuart. I congratulate the hon. Member for Moray West, Nairn and Strathspey (Graham Leadbitter) on securing this debate and giving Members across the House a rare and, I am sure, welcome opportunity to discuss factoring arrangements in Scotland.

The Government recognise that households in factored buildings and their equivalents face more complexity in securing the energy they need than typical households. I hope to address the six points that the hon. Member made at the end of his speech, but if there are any that he would like to discuss further with me, I will be more than happy to do so after the debate.

Factors and other property managers have an important role to play in ensuring that they secure the best-value energy contract for their building. When looking to renew their energy contracts, they should be actively comparing quotes across the non-domestic market and considering available customer service data such as Citizens Advice’s energy supplier performance league table.

Small tenements have different needs for communal area pricing from those of a large council complex, for example. Although the existing approach has generally benefited households and offered protection from unfair reselling, some households can be exposed to high prices, as we have heard from the hon. Member and others. The Government are committed to ensuring that our approach to these issues delivers the best outcomes for our citizens as our energy system evolves.

[Tracy Gilbert (Edinburgh North and Leith) (Lab)]

I welcome this debate and congratulate the hon. Member for Moray West, Nairn and Strathspey (Graham Leadbitter) on securing it. I am grateful that the Minister recently took the time to visit my constituency and meet residents who had been battling with their factors. They manage a heat network but are all too often left without heat and hot water, which happened again over the Christmas period. My constituents were very grateful to hear the pace at which the Minister is working to put in place regulations and projects that will protect residents like them. Does he agree that we need to see action from the Scottish Government to redress the balance of power between factors, companies and residents?

[Martin McCluskey]

I thank my hon. Friend for all her work to advocate on behalf of her constituents—I think it was at Saltire Square in Granton, and my hon. Friend the Member for Edinburgh East and Musselburgh (Chris Murray) is doing the same with a heat network in Greendykes. At that meeting, we heard how important it is that we get on top of this. The Ofgem regulation kicks in on 27 January, and we will be looking to Ofgem to implement it as quickly as possible. I agree with my hon. Friend the Member for Edinburgh North and Leith (Tracy Gilbert) that there are more actions that other Governments across the UK can take in this space. I will turn to that point in a moment.

As I say, the Government are committed to ensuring that our approach to these issues delivers the best outcomes for our citizens as our energy system evolves. Ofgem keeps all the standard licence conditions under review to make sure that they are working in the best interests of consumers. As part of that, Ofgem will look again at standard licence condition 6 to ensure that the definitions continue to meet the needs of consumers and the evolving energy market.

Before I turn in detail to other energy policy issues, let me briefly say something about factoring as a whole. It is a devolved responsibility, and it is for the Scottish Government to make decisions relating to it. However, there is widespread interest in factoring reform in Scotland, and there is clearly an interaction between the effectiveness of the factor and our ability to provide the best deal in energy, and many other areas, for the consumer.

There is clearly a need, and there are widespread calls, for factoring reform in Scotland. There have been no major reforms to factoring since 2011, when my hon. Friend the Member for Glasgow West (Patricia Ferguson), in her time as a Member of the Scottish Parliament, took a Member’s Bill through Holyrood. The Scottish Government have recently rejected amendments to housing legislation that would have increased transparency in charging and made it far easier for homeowners to take action against factors. I believe that further work in the area would be welcomed by many across this Chamber and by tenants and homeowners in Scotland.

As we have heard from the hon. Member for Moray West, Nairn and Strathspey, when residents do not have direct control over their energy supply, access to the Energy Ombudsman depends on the specific arrangements between them and the intermediary contracting with the supplier. If residents do not have control over the party that contracts with the supplier, allowing them access to the ombudsman fundamentally changes the role and purpose of the Energy Ombudsman as a service between the supplier and the contracted customer. Ofgem is always happy to clarify where consumers are currently able to access the ombudsman, to make sure that customers are not missing out on any avenues of redress to which they are entitled, but I am happy to take away the hon. Member’s point and raise it when I next meet the Energy Ombudsman in person.

Meter profile classes, which the hon. Member also raised, are the responsibility of Elexon. Ofgem has previously clarified that, for communal supply arrangements, profile classes should not be the final determining factor in the supply type offered by suppliers. If further clarification is needed in that area, it can be explored by Ofgem and Elexon. I encourage the hon. Member to write to both of them on that point.

We are aware that not having direct control over all aspects of the supply can create difficulties for households. Where households do not have direct control over their individual supply arrangements, Ofgem’s maximum resale price rules protect them from being overcharged by limiting the price of energy charged to consumers to the price paid by those procuring the energy. The principle is that profit should not be made when reselling energy in those kinds of arrangements. The Government are very clear that resellers such as factors or landlords should not profit from the resale of energy. The maximum resale price is set at cost pass-through, meaning that the maximum price at which energy can be resold is the same as the price that the reseller paid. Many who are resold energy have limited choice over who supplies them. The maximum resale price is important, as it is the main protection against resellers exploiting their position.

The energy system has evolved significantly since the last substantive review of maximum resale price. The transition to an increasingly decentralised, digitalised and decarbonised system, driven by net zero ambitions and technological innovation, has seen new challenges and opportunities emerge. Ofgem has begun a review of the maximum resale price to determine whether it delivers fair, transparent pricing and adequate consumer protection and whether it enables investment in the low-carbon infrastructure and services necessary to deliver net zero at the lowest cost.

Ofgem has identified that enforcement mechanisms for the current maximum resale price rules are failing to protect some consumers. That is a key area of its current review, and decisions on any further action that may be needed will be made on the basis of those findings. The review started with a call for input in autumn 2025 to gather evidence, and Ofgem aims to publish a policy consultation in summer 2026. The MRP has an important role across the energy industry: as well as improving the situation for households, changes to the MRP have a potential positive impact on other areas of the energy industry.

I will like to touch briefly on the point that the hon. Member for Yeovil (Adam Dance) raised about his constituent. He may already know that we have announced regulation of third-party intermediaries. We will take that forward through upcoming legislation—this is an important point—to give people more power in brokered energy deals.

Ultimately, households in factored properties feel that their energy costs, for communal areas and otherwise, are too high—because fundamentally they are too high. As hon. Members will know, international gas prices are still 40% higher than in 2021. Permanently reducing energy prices can be achieved only by moving to home-grown, clean power that we control. That is why my Department’s central mission is to deliver a clean power system by 2030 through renewables and through new nuclear power. This is the way to break our dependence on global fossil fuel markets and permanently protect bill payers from higher prices.

The Government are determined to deliver on that mission, and my Department is leading an ambitious programme of work that will make it happen. For example, the creation of GB Energy will help us to harness clean energy; contracts for difference will continue to drive clean power investment, as we have seen from today’s announcement of allocation round 7; the results of AR7 improvements to the capacity market will ensure security of supply while maximising bill payer value for money; and network improvements, with network providers finally making significant investment after years of under-investment, will reduce the costs of operating the energy system for decades to come.

Across all fronts, the Government are taking action to drive down energy bills. Many households in factored properties will also benefit from the announcements that the Chancellor made in the autumn Budget, with action to take an average of £150 off the cost of domestic energy bills by closing the energy company obligation scheme, and providing Exchequer funding to reduce the cost of the renewables obligation for domestic energy suppliers from 1 April. Those measures are designed to provide immediate relief for people across the country and set the foundation for sustained long-term reductions in energy bills through a transition to clean home-grown power. That support, as many hon. Members will know, comes on top of the £150 off energy bills, a measure that was provided by the Government for about 6 million families and was extended—almost doubled—under the warm home discount this winter. It is cutting fuel poverty right now for those consumers who are in receipt of it.

In addition to our work on reducing energy prices, the Government are delivering record investment in upgrading our housing stock through the warm homes plan. We have committed £15 billion to making the biggest ever public investment in home upgrades, upgrading up to 5 million homes by accelerating the installation of heat pumps, solar panels, batteries and insulation. When it is announced, it will come with Barnett consequentials for the devolved Governments, including the Scottish Government, to develop their own schemes under the funding. Alongside our action to make electricity cheaper and more flexible, that is how we are delivering warmer, more affordable homes and repairing a broken energy system.

I thank hon. Members again for being present at the debate, for raising these issues and for all their contributions, which I assure them will be taken into consideration by the Government and by Ofgem as we move forward.

Question put and agreed to.

11:20

Sitting suspended.