Kwarteng accuses energy firms of overcharging on direct debits

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 clampdown on suppliers following “troubling” reports that some were raising bills “beyond what is required”.

He said Ofgem, the industry watchdog, had opened 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 10 per cent of turnover, equal to hundreds of millions of pounds.

Mr Kwarteng said: “Some energy suppliers have been increasing direct debits beyond what is required. The regulator will not hesitate to swiftly enforce compliance, including issuing substantial fines.”

Ofgem has written to every energy company 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 finances in a breach of the rules, by demanding larger payments than necessary 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.

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 54 per cent, 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.

Gillian Cooper, the head of energy policy at Citizens Advice, said 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.”

A spokesman for Ofgem 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 industry association 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.”