Around 1.5 million UK businesses face a greater risk of having their energy supply disconnected than the average household, and of exploitation by unscrupulous energy brokers. This is all due to a lack of protections in the microbusiness market, according to a new report - Closing the Protection Gap - from Citizens Advice.
Microbusinesses, which make up 96% of all UK businesses, are defined by the energy regulator as such if they meet certain criteria - including having less than 10 employees and only using a certain amount of energy.
The charity is calling on Ofgem, government and industry to close the protection gap and address the multiple problems faced by microbusinesses in the energy sector.
Microbusinesses are hugely diverse and range from pubs and convenience stores to sole traders like photographers.
The report details evidence of microbusinesses being needlessly disconnected, aggressively pursued for debts and mis-sold contracts by energy brokers. These practices can contribute to businesses failing.
If a domestic customer falls behind on their energy bills, their supplier must exhaust all other options before disconnecting them. The same protection doesn’t apply for microbusinesses, so suppliers can be much quicker to cut off supply.
This can be particularly problematic for microbusinesses where a home is attached to a business and using the same energy supply e.g. a flat above a shop.
Between June 2018 and May 2019 the Citizens Advice Consumer Service and Extra Help Unit received 3,480 complaints from microbusinesses about debt related issues.
Microbusinesses often rely on energy brokers to navigate the non-domestic energy supply market. Common complaints to Citizens Advice about brokers include businesses feeling pressurised into agreeing contracts, limited transparency on broker fees, and brokers misrepresenting how many suppliers they speak to.
Brokers are not well regulated, allowing unscrupulous operators to exploit microbusinesses which are often under-resourced and struggle to find the best deal.
Microbusinesses also face fewer protections when it comes to energy suppliers going out of business. When an energy supplier fails, domestic customers who have built up credit balances will get this money back. Whereas microbusinesses potentially face losing their credit balance as well as any deposits they may have paid.
Citizens Advice is calling for a number of measures to close the protection gap, including:
- The government should introduce stricter regulation of energy brokers and other third party intermediaries (TPIs).
- Energy brokers and TPIs should be transparent on commission, market coverage and any fees should appear on bills.
- Industry should improve debt and disconnection processes for microbusinesses.
- The industry regulator Ofgem should protect microbusinesses’ credit balances if their suppliers fail.
Alastair runs a small business. His main expenditure is energy and business rates. He was called by a broker who said that they could save him £400 a year by switching him to a new energy supplier. However, his bills from the new supplier were always higher than he’d paid before.
After he was unable to contact the broker, he contacted the Citizens Advice consumer service which referred to a specialist complaints team within his supplier. His new supplier investigated and found they would not have been able to match his previous deal and that the broker had mis-sold his contract. He was able to cancel his contract with no exit fee and given a £300 goodwill payment.
Gillian Guy, Chief Executive of Citizens Advice, said:
“Microbusinesses should not face the prospect of being cut off or ripped off because of a lack of consumer protections.
“The regulator, industry and government needs to do more to support the shopkeepers, sole traders and entrepreneurs who make up a large number of UK businesses and close this protection gap.”