Public left with £4.6billion bill after collapse of energy suppliers

ThE collapse of 28 energy firms is set to cost the public £4.6billion through higher bills and taxes.

The national audit office (nao) and MPs today slam the regulator ofgem for allowing people with no idea of what they were doing to set up energy firms and sign up customers.

some £2.7billion is being added to the bills of millions of struggling households to clean up part of the mess, while taxpayers face a separate bill currently estimated at £1.9billion.

one firm was effectively set up by a graduate in his bedroom on a laptop while others were established by people without knowledge of the industry and without investing their own money.

Many executives creamed off millions of pounds in pay, fees and loans before the firms went bust, leaving customers and taxpayers to pay the bill.

In many cases customer credit balances, built up by effectively overcharging on monthly direct debits, had disappeared.

some 2.4million households with failed energy firms had to be switched to new suppliers, typically charging higher tariffs equal to an extra £30 a month.

The cost of handling transfers and buying gas and electricity needed, is put at £2.7billion. This has been funded by adding £94 to all household energy bills.

The collapse of one of the biggest operators with 1.6million accounts, Bulb, saw the firm enter special administration. The Government spent £900million running it in 2021-21 and has budgeted another £1billion for this financial year.

The nao said ofgem was largely to blame, saying its approach to licensing and monitoring new suppliers ‘increased the risk and cost of them failing’.

‘To encourage new entrants to the market and improve customer choice, ofgem operated what it termed a “low bar” approach to licensing new suppliers,’ the nao added. ‘It did not undertake detailed scrutiny of their financial position when they applied for a licence or after they entered the market.

‘By 2021 many suppliers lacked the financial resilience to deal with wholesale price increases.’

nao head Gareth davies said: ‘By allowing so many suppliers with weak finances to enter the market, and by failing to imagine that there could be a long period of volatility in energy prices, ofgem allowed a market to develop that was vulnerable to large-scale shocks.

‘Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain having seen their bills go up to record levels.’

Meg hillier, Commons public accounts committee chairman, said: ‘ofgem’s approach created an energy market built on shaky foundations. once again, it’s the public who has to pay for the mistakes of those charged with protecting them. It’s unacceptable.’

ofgem said it accepted the nao’s findings, and is working to fix the problems raised.

‘Market built on shaky foundations’