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Energy companies accused of overcharging direct debits

energy price cap direct debits crisis electricity bills gas bills - Christopher Furlong/Getty Images
energy price cap direct debits crisis electricity bills gas bills - Christopher Furlong/Getty Images

A Cabinet minister has accused energy companies of overcharging customers on direct debits to shore up their own finances as millions of households struggle with the cost-of-living crisis.

Kwasi Kwarteng, the Business Secretary, announced a crackdown on suppliers following “troubling” reports that some are hiking bills “beyond what is required”.

He revealed that the industry watchdog Ofgem has launched an investigation into the market and ordered companies to hand over their data.

If suppliers are found to have increased customer bills by more than is necessary, they could be hit with fines worth up to 10pc of their turnover, equal to hundreds of millions of pounds.

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On Twitter, Mr Kwarteng said:

Ofgem has written to every energy company – including the likes of British Gas, EDF and Ovo Energy – asking for data on how much they charge customers. They have three weeks to provide the information.

Energy companies are allowed to increase their customers' direct debits based on estimated annual energy use and rising tariffs.

However, campaigners say some are exploiting the situation to boost their own finances in breach of rules, by demanding bigger than necessary payments so that customers end up hundreds of pounds in credit. This money can then be used to shore up suppliers' own balance sheets.

It is thought that people most likely to have been affected are those without smart meters, because their bills are based on manual readings or rough estimates. Around 14 million households still rely on traditional meters.

The crackdown on energy companies comes as the Conservatives brace for a voter backlash at Thursday’s local elections, amid anger over “partygate” and the cost-of-living crisis.

In a television interview, Boris Johnson admitted “there is more we can do” after he was confronted with stories of viewers who were struggling to make ends meet.

He promised to "use all the ingenuity and the compassion" available to help families, but warned he did not have an "unlimited number of shots to play" in tackling the crisis.

It came after the Chancellor, Rishi Sunak, said last week it would be "silly" to do more to cut energy bills now, without knowing what will happen to wholesale prices later in the year. The price cap is due to be reset again before the winter crunch.

Mr Sunak has said he will "look at" the possibility of a windfall tax on energy companies, an idea that was rejected again by the Prime Minister on Tuesday.

An extra levy would "discourage [energy companies] from making investments we want to see, that in the end will keep prices lower for everybody,” Mr Johnson said.

One of the biggest blows to household budgets has been the unprecedented surge in energy prices since last summer. Last month, the cap on energy bills rose 54pc, from an average of £1,277 to £1,971 per year.

This has allowed suppliers to raise their rates for gas and electricity for the second time since October, prompting many to recommend that customers increase their direct debit payments so as to build up enough credit for next winter - when the cap is expected to rise yet again.

Consumers have contacted The Telegraph after being shocked by increases to their bills, with one man saying his direct debit had more than doubled from £52 to £122 a month. Another reader said his direct debit had leapt from £85 per month to an “outrageous” £185.

He added: “My boiler has not been switched on for more than half an hour a day and I barely use it in summer.”

The surging costs will add thousands of pounds onto the yearly outgoings for some households.

But Gillian Cooper, head of energy Policy at Citizens Advice, warned that suppliers should only increase payments for “valid reasons”.

Customers can also object to direct debit increases and ask for a lower amount if they think their company has got it wrong.

Ms Cooper added: “There are normally justifiable reasons for an increase to your direct debit – such as building up credit for the winter – but your supplier should always be able to explain why this has happened.

“Unfortunately, in the past we have seen some energy companies shore up their finances at the expense of consumers. This is totally unacceptable.”

Mr Kwarteng has raised concerns about the “troubling” reports with Ofgem and urged it to take swift action.

In a letter to the regulator, seen by the Daily Telegraph, he said: “Now more than ever we need to closely scrutinise and hold energy companies to a high standard that the British public rightly expect.”

“I have been hearing troubling reports that some energy suppliers may be increasing consumers’ direct debits by more than they should be. This is completely unacceptable behaviour.

“The people who are suffering most as a result of record high gas prices are ultimately customers, not energy suppliers.

“It is absolutely critical that consumers pay a fair price for their energy.”

The letter was sent on April 22. On Tuesday, Ofgem replied to confirm it had commissioned a string of “market compliance reviews”, giving suppliers three weeks to respond to its requests for data.

A spokesman for the regulator said: “Our top priority is to protect consumers and we recently wrote to suppliers to alert them that we are commissioning a series of market compliance reviews to ensure, amongst other things, that they are handling direct debits fairly, and that overall, they are held to higher standards for performance on customer service and protecting vulnerable customers.”

No individual companies are known to have increased their direct debits artificially.

A spokesman for Energy UK said: “Suppliers are having to increase direct debit payments to reflect bill increases and are required to set them 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’s 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.”