Ofgem has promised to crack down on brokers who take as much as 50% of a business’s energy bill in commission to set them up with a supplier.
The energy watchdog said it would “tackle unscrupulous energy brokers” to help millions of tiny businesses get better deals.
It said that while many of the two-thirds of microbusinesses which use a broker to get a deal benefit from the arrangement, a large number do not.
“In too many cases, microbusinesses are hampered by a lack of transparency when using brokerage services and end up being locked into poor-value deals because they are not fully aware of what they are signing up to,” Ofgem said on Wednesday as it unveiled new plans to help regulate the sector.
Some businesses are paying thousands of pounds more than they need to in broker commission charges, the watchdog said.
It cited the example of a golf club whose energy deal contained a “hidden” commission of 50% of its energy bill. The golf club is estimated to owe £24,000 in these hidden fees.
Despite promising to search the entire market for a good deal, the unnamed golf club’s broker only gave its customer one option at the end of the process.
Meanwhile, 41% of the energy bill for Stranton Social Club in Hartlepool went to its broker in commission that had not been disclosed to the club either at the point of sale, or on bills or the contract.
Around 1.5 million of Britain’s 5.6 million microbusinesses are expected to benefit from Ofgem’s new proposals – many of which bring the business deals closer in line with the protections afforded to domestic customers.
“Providing greater transparency and tackling unscrupulous brokers will help microbusinesses get a better, fairer energy deal,” said Philippa Pickford, Ofgem’s director of future retail markets, consumers and markets.
“This is more important than ever as microbusinesses emerge from the challenges posed by the Covid-19 pandemic.
“These proposals are part of Ofgem’s wider work to improve the energy retail market through smart metering, extra support for vulnerable customers, plus faster and more reliable switching.”
The new suggestions, which will go to consultation, include plans to introduce a dispute resolution service to mediate between brokers and unhappy customers.
It will also introduce a two-week cooling-off period for businesses which have signed up to a new supplier, in line with the time that households have to reconsider.
Bills and contracts will also have to include information on how much commission is going to the brokers.