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Energy bills: Ofgem launches review of firms hiking direct debits

·3-min read
Ofgem said it had seen 'troubling signs' that suppliers may have been increasing direct debit payments for energy bills by 'more than is necessary'. Photo: PA
Ofgem said it had seen 'troubling signs' that suppliers may have been increasing direct debit payments for energy bills by 'more than is necessary'. Photo: PA

Business secretary Kwasi Kwarteng tweeted on Tuesday that energy regulator Ofgem has given some energy suppliers three weeks to respond to allegations that they have increased customers' direct debit payments for energy bills "beyond what is required".

"I can confirm Ofgem has today issued compliance reviews. Suppliers have three weeks to respond" Kwarteng said on Twitter.

"The regulator will not hesitate to swiftly enforce compliance, including issuing substantial fines."

Earlier in April, chief executive of Ofgem Jonathan Brearley said the regulator had seen "troubling signs" that suppliers may have been increasing direct debit payments by "more than is necessary".

Ofgem also said that energy companies may be guiding customers towards energy deals that were not in their "best interest".

Brearly said the regulator was commissioning reviews that would include how "direct debits are handled, how much they are holding in customer credit balances, and ensuring companies are held to higher standards for overall performance on customer service and protecting vulnerable customers".

Ofgem could issue "substantial fines" of up to 10% of turnover to energy firms found failing to comply.

On 1 April, the energy price cap increased by 54%. Some 18 million UK households on standard tariffs saw their energy bills rise by an average of £693 per year.

Around 4.5 million prepayment customers saw their bills go up to an average of £2,017 — an increase of £708 from £1,309 under the previous energy price cap.

Read more: Ukraine war and energy costs push UK retail prices to highest level since 2011

Consumers who pay their bills by direct debit pay their provider a set amount every month based on an estimate of how much energy the provider thinks they will use over the year.

This means that in some periods customers may pay for more than is being used — usually over the summertime when heating bills are lower. But, as they could pay for less energy than they use at other times, and it should balance out over the year.

Although suppliers want to ensure that consumers' accounts are always well topped up they also have to make sure that the amount they are billing by direct debit is fair.

A spokesman for Energy UK, which represents energy companies, told the BBC: "Suppliers are required to set [direct debits] at a fair and reasonable level based on the customer's individual circumstances, taking into account factors like previous energy use or record with previous payments.

"It is right that the regulator is looking to ensure that suppliers are complying with those requirements. Customers who do have concerns with the level of their direct debit payments should contact their supplier."

Consumer group Which? said: "Which? has been calling on the government and regulators to closely monitor how businesses are supporting their customers during the cost of living crisis as well as put pressure on firms when they are not doing enough.

Read more: UK households face £271 rise in food bills

"It's encouraging to see that Ofgem has issued compliance reviews to energy suppliers who are increasing direct debits higher than they need to be.

"This action must translate quickly into fairer treatment for consumers — with many struggling to make ends meet during a relentless cost of living crisis, people cannot afford to be charged over the odds for essential services."

Watch: Five million households now in 'fuel stress' as energy price cap rises to almost £2,000