Energy industry calls for clampdown on brokers as businesses brace for winter
The role of brokers in the business energy supplier market is in urgent need of regulation to protect companies from high prices this winter, industry body Energy UK has warned.
Brokers act as advisors for businesses and are contracted to help them find the best deals from energy suppliers. Companies are not provided the same protection of the price cap, which households currently benefit from.
However, there is now growing scrutiny on brokers following the pandemic and Russia’s invasion of Ukraine, with spiralling wholesale costs driving up energy bills for companies.
Energy UK argued that while there are good brokers in the sector with high standards for customers, they “should be regulated, just as the suppliers themselves are.”
“Many non-domestic contracts are secured through energy brokers, who are unregulated. The industry has long called for regulatory oversight and higher standards for brokers to properly protect their businesses customers and Ofgem recently called for extra powers to regulate brokers themselves,” a spokesperson told City A.M.
Zoisa North-Bond, chief executive of Octopus Energy for Business, warned last week that the “business energy market has become the wild west” and that “bad broker behaviour is running rampant.”
The energy firm’s research found that 3.2m small businesses had a negative broker experience in the past year – with damaging practices ranging from concealing commissions, locking businesses into unsuitable energy contracts, cold calling with aggressive sales tactics, and brokers posing as energy suppliers.
It has called for the market to be subject to more oversight concerning commissions – including a cap on commissions – and for the banning of cold calls.
“It’s fundamental we raise awareness of these damaging practices – and there are things that can be done now to drastically improve transparency in the market. We need to stand up for small businesses to help drive down bills – and we need to get moving today,” North-Bond said.
Alex Veitch, director of policy at insight at the British Chambers of Commerce noted that 63 per cent of businesses in its last quarterly economic survey considered energy bills a “significant economic pressure.”
“The cost of energy continues to have a real impact on small and medium enterprises across the UK. Firms need confidence that they’re not going to be ripped off, as they battle with a host of economic pressures,” he told City A.M.
He called on Ofgem to “be given the powers to regulate the energy broker market to ensure there’s greater protection for business energy users.”
Ofgem is currently not able to regulate brokers and has instead pushed the government to consider further protections.
As part of a raft of proposed industry reforms last month, Ofgem announced it would consult on extending protections offered to micro-businesses to all businesses, so that energy bills spell out what is being paid to energy brokers.
Martin McTague, national chair of the Federation of Small Businesses (FSB), has backed Ofgem’s proposal to close a “significant regulatory gap.”
“Currently, energy suppliers are legally required to disclose brokers’ commissions only to their microbusiness customers. We want to see this extend to all small firms and believe this greater transparency will help increase small firms’ confidence in the third party market,” he said.
He also wanted the regulator to implement a 14-day cooling off period, which would ensure that if a small business does have a bad experience with a broker, “they are not subsequently trapped in the contract.”
Jack Arthur, energy expert at Uswitch for Business told City A.M., there was a role for brokers, particularly in managing the paperwork involved with switching contracts, “which can often be extremely complicated and time consuming.”
“It’s important that any business considering working with an energy broker makes sure they are reputable and transparent with regards to the services they provide, the number of suppliers they work with and the fees they may charge,” he said.
A spokesperson for the Department for Energy Security and Net Zero said: “We are supportive of Ofgem’s calls to make the sector more transparent and to increase access to the resolution dispute scheme for energy brokers.”