Small businesses are being conned out of £2bn by rogue “energy brokers” who lock them into long-term bad-value gas and electricity contracts, according to documents submitted to the energy regulator.
Charities, churches and care homes are among the organisations paying far more than they should for their energy after falling prey to the unregulated brokers, the documents say.
Some individual firms are seeking payouts of up to £1m, according to one claims management firm that is seeking legal settlements for small businesses against their brokers.
Ofgem plans to launch a call for evidence in the next few months to determine the extent of the mis-selling problem in the energy market.
The report says many energy market brokers promise the best energy deal for small businesses at no charge to their client but go on to offer poor-value deals picked exclusively from suppliers that offer the most lucrative terms for the brokers.
A growing number of brokers can claim billions of pounds in commissions that are hidden in the inflated supply deals, many of which stretch over three to five years, according to the report.
Callum Thompson, the founder of Business Energy Claims (BEC) and a former energy broker, said 90% of micro-businesses using an energy broker may have fallen prey to mis-selling “in at least some form” because there is no official regulation in place to protect them.
He said energy suppliers were “completely complicit” because they help to hide the broker commission in their energy bills.
Thompson said it was not unusual for small business owners to be caught out by oral agreements which are binding under current regulations.
The number of energy brokers in the UK has ballooned to around 3,000, in part because the outfits are cheap to set up and face virtually no regulation despite the large sums of money at stake.
The regulator estimates that businesses, charities and public bodies spend about £25bn to cover their energy bills every year, of which about half is bought through energy brokers. Thompson estimates that around £2.25bn of this is likely to be commission.
“This won’t come as a surprise to Ofgem, they are very aware of the mis-selling in this industry,” he said. “We hope that now is the time that they start to take action on this.”
The report includes case studies of unnamed companies that won back undisclosed commissions, including £10,000 on behalf of a care home, £8,200 for a charity and £3,200 for a church. Another company, with more than 200 sites nationwide, is owed £500,000 in undisclosed commission.
An Ofgem spokesman said it would use the report to add to the evidence base it was building to “help understand the issues faced by micro-business consumers and ensure the market is meeting their needs.”.
The regulator has been aware of mis-selling in the energy market for years but has previously stopped short of calling for brokers to face regulation or comply with a code of conduct. Ofgem first put forward plans to protect small businesses from dishonest energy brokers in 2014 but dropped the plan after finding “inconclusive evidence” of malpractice.
It revived plans to investigate broker mis-selling in 2018 after admitting there was “room for sharp practices by some brokers”. At the time, Citizens Advice welcomed the plan and said it was “a shame it’s taken so long for this problem to be tackled”.
Thompson said that without action, the misconduct of some energy brokers was likely to get steadily worse. “The responsibility has to fall on Ofgem because ultimately the brokers aren’t going to improve their own behaviour,” he said.