Industry regulator Ofgem has received documents showing that rogue energy brokers may have been swindling small businesses, to the tune of up to £2 billion per year. According to consultations, micro businesses have a hard time finding new deals due to brokerage services failing to be transparent regarding their offers.
In the end, small enterprises miss out on better deals because they are unaware of the full terms they are signing up to, causing them to lose a significant sum of money.
Several documents submitted to Ofgem have revealed that micro and small businesses are being targeted by unscrupulous energy brokers, costing them as much as £2 billion annually. Brokerage services for energy services often promise small businesses a good deal, but only if they pay a hefty commission.
The problem is that these micro and small businesses often have no idea that they are being taken advantage of by the broker.
Typical victims can include places like care homes, churches, and charities that often find themselves locked into a deal for anywhere between two and five years, preventing them from finding better and cheaper deals on the market.
Statistically, two-thirds of small businesses take on the services of an energy broker to select an energy contract that matches their requirements. However, the data revealed that transparency is often lacking in deals arranged by brokers, which leads these customers to be locked into a poor contract.
According to the report, about half of the £25 billion per year that small businesses pay in energy bills is related to a broker-endorsed contract.
Of that amount, about £2.25 billion is made up of sales commissions that go directly to the brokerage firms. This figure is reported by Business Energy Claims (BEC) founder and former broker Callum Thompson.
Furthermore, Thompson noted that about 90% of micro businesses might have, in one way or another, been mis-sold services due to a lack of regulation.
This revelation has put pressure on Ofgem to reinforce the measures protecting businesses from bad deals and unscrupulous brokers. At time of writing there are about 3,000 energy brokers in the UK because it’s simple to set up a firm, given that regulation is lax.
Thompson warned that the lack of appropriate regulation would only make matters worse, which is why Ofgem has to step up and do more to protect consumer businesses.
Feedback from the consultation showed that businesses are lagging behind domestic users when it comes to the opportunities they have to switch to better deals. To solve this issue, Ofgem is considering a set of proposals that have been designed to protect micro and small businesses from losing thousands of pounds when using brokerage services.
The measures planned by Ofgem include:
Conduct with principle
Suppliers should uphold a principle-based requirement for partner brokers to ensure that they are conducting themselves appropriately when doing business.
Suppliers will only be allowed to work with brokers that are following a standardised set of procedures for dispute resolution.
Informed contract choices
Supply licence changes will guide marketing and targeted sales rules to be applied by brokers and suppliers.
Supply licence obligations should be properly introduced to customers, including commission payments added to contracts, account statements, and bills.
A 14-day cooling-off period should be upheld for micro business contracts.
Contract rates should be maintained for as long as 30 days while switching issues are being resolved.
Banning notification requirements
Micro businesses are not required to inform suppliers of their intent to switch through a formal notice.
Ofgem Director for Future Retail Markets, Consumers and Markets, Philippa Pickford, stated that greater transparency and addressing issues relating to rogue brokers could help micro and small businesses to find better and more valuable energy deals in the market. This is particularly essential now that many companies are trying to recover from the negative impact of the COVID-19 pandemic.
Pickford further said that Ofgem is working to improve the retail market by rolling out smart meters, providing additional support for vulnerable consumers, and quicker and more dependable switching processes for customers.