We need to look at where the power lies; there are around three million domestic and commercial energy consumers in Scotland. In the current economic climate, it is impossible to estimate with any degree of certainty, the energy costs and excess profits made by the energy producers and distributors operating in Scotland. Industry commentators show no consistency, other than that the cost to the consumer and excess profits will be high for the foreseeable future.
The Scotland Act 1998 (as amended) which created the devolved Scottish Parliament, reserves energy policy and law to the UK Parliament including generation, transmission, distribution and supply of electricity, oil and gas.
The Scottish Government claims that these reserved powers restrict any actions it can take to mitigate the worst effects of the cost of energy to Scottish domestic and business consumers.
But is that really the case?
The current legal position
Under the devolved taxation provisions within the Scotland Act the only significant tax raised against business owners is non-domestic rates under the Non-domestic Rates (Scotland) Act 2020. All corporate taxation is reserved to Westminster.
However, the Scotland Act empowers the Scottish Parliament to impose ‘devolved taxes’ under Section 80I of the act which includes a tax on a transaction involving the acquisition of an interest in land. This act does not define the meaning of the words ‘transaction’, ‘acquisition’, ‘Interest’ or ‘land’.
Thus far, the Scottish Parliament has used Section 80I to impose Land and Buildings Transaction Tax (LBTT) on the purchase of some higher priced domestic and commercial properties and the purchase of some leases of commercial property. LBTT is roughly the Scots equivalent of Stamp Duty Land Tax in England.
Significantly the UK parliamentary drafters of the legislation did not restrict the power under section 80I to property purchases. They were much more permissive and general in the wording which they used. So who can acquire an interest in land?
Under Scots Law, in addition to the landowners, mortgage lenders, local authorities, creditors, property factors, the Scottish Government, energy and telecoms distributors, spouses and civil partners, and neighbours can acquire interests in land through legislation, the common law, agreement and even historic use without any formal document. These interests are all designed to secure payment of money due by the landowners or to ensure that landowners do what they are required to do. Such transactions do not necessarily require the agreement or cooperation of the landowner.
Under the current Non-domestic Rates (Scotland) Act 2020, with the exception of some field sports, landowners and their tenants are not liable to pay rates on their unbuilt land.
How is land defined?
In Scots Law, land is much more than just what we stand on. The historic legal term is ‘heritable property’ which includes land and the airspace above it, erections on it, plants and trees which grow on it, and heritable fittings and fixtures attached to it. Erections and fitting and fixtures mean buildings and structures which are attached to, or run through, over and above the land. They are not moveable in the sense that they can’t be dismantled and removed without disturbing the land in the process. Pipes and cables fall into the category of heritable fittings and fixtures.
SP Energy Networks and Scottish & Southern Electricity Networks are Scotland’s Distribution Network Operators (DNO). They own the network of electricity pipes and cables which supply Scotland’s consumers. SGN (formerly known as Scotia Gas Network) owns the mains gas pipe network in Scotland. The electrical and gas pipes and cables which these three companies own are extensive and are estimated to be around 165,000 km.
There is no reserved power to Westminster in the Scotland Act which prevents the Scottish Parliament from raising tax on the network of pipes and cables owned by these distributors. The parliament hasn’t exercised this power but it could choose to do so.
Energy bills
How can the cost of energy be tied to the land?
Purely for illustrative purposes, if the average annual gas and electric energy bill is around £2000 the nation’s total energy bill is in the region of £6 billion. By dividing the £6 billion by the number of metres of gas and electricity pipes and cables the cost per metre is under £37. If the Scottish Parliament legislated to charge the energy distributors £37 per metre on their pipes and cables either through an amendment to non-domestic rates legislation or a new devolved tax as permitted by the Scotland Act, the sums raised through the new provision would exceed Scotland’s total electricity and gas energy bill.
These funds would allow the Scottish Government to reimburse every Scottish consumer all their energy costs. Alternatively, the government could incentivise consumers to reduce their energy consumption by reducing the amounts reimbursed each year by providing substantial grant aid to insulate their properties and install more efficient heating systems.
Using a flat rate per metre negates the need for a valuation of the piping and cabling system. Each distributor has plans of their pipes and cables, so no survey of their length is required. The proposed tax is simple, easy to operate and can’t be avoided. Unlike other taxes, it is not based on assumptions or behaviour but an existing object. It can be introduced very quickly with political will.
The reaction
No doubt the reaction from consumers would be almost universally favourable since ‘free’ energy would lighten the burden on the many struggling households, businesses, councils and charities. The Scottish Government would also require offering some solace to the minority of mostly rural consumers who do not receive mains energy supplies.
The energy distributors themselves may be less enamoured, yet even they could see a benefit given that their parent companies make substantial profits from exporting much of the energy which they generate in Scotland. If they tried to increase energy charges in Scotland, the Scottish Parliament could just increase the tax rate per metre. Furthermore, the rates or tax payable to the Scottish Government reduces the profits of the distributors. Consequently, their liability to pay Corporation Tax to HMRC would substantially reduce.
There will be those who will claim that such a provision would be struck down by the British Government under the United Kingdom Internal Market Act 2020 which seeks to create a ‘level playing field’ for goods and services within the UK. I’m confident that such a challenge would be unsuccessful. However, the court of electoral opinion is likely to be much more immediate and potent. The United Kingdom government is playing fast and loose with the Devolution Settlement. It ignores Sewell conventions and undermines the powers of the Scottish Parliament at every opportunity. Until now these machinations have affected a small section of our population. However, since everyone is affected by the cost of energy, any attempt to thwart such legislation could lead to a substantial and final rejection of the Union at the forthcoming General Election.
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