finance

Brace yourselves for an energy bills shock


Millions of British households and small businesses are in for a nasty price shock when they roll off fixed-term energy deals or suffer the misfortune of their supplier going bust.

A year ago, the best value domestic energy deals on the market were 40 per cent cheaper than they are now, according to research by MoneySavingExpert. Industry experts have warned that average bills could rise by £550 in the space of a year.

For small businesses, which are not protected by Ofgem’s energy price cap, the cost increases can be even more crippling. I’ve spoken to two on LBC Radio this week who have seen bills triple.

The gas crisis has switched the entire nation on to the idea of using price comparison websites only for the model to fail when it is most needed. Hundreds of deals have been withdrawn; some sites are temporarily offline and others warn of the current paucity of options.

So much for competition! In days gone by, the UK’s 50-plus energy providers offered deals priced well below the price cap, in effect paying to acquire customers. Yet as wholesale prices spiral, this strategy is sending many smaller companies to the wall.

In today’s energy market, it’s impossible to save money by switching. Instead, shopping around is a damage limitation exercise. If you’re stunned at the potential bill increases ahead, here are some points to consider:

What happens if my provider goes bust?

With some predictions that only 10 UK suppliers will be left standing one year from now, this is a huge concern — especially if you have a fixed-price deal. While energy regulator Ofgem guarantees to continue supply, protect consumer credit balances and transfer orphaned customers to a new provider, it cannot guarantee this will be on an equivalent tariff.

Savvy switchers who fixed at advantageous rates will now have their prudence rewarded with a huge price hike. The best you can hope for is a tariff in line with the energy price cap, which is set to rise by 12 per cent on October 1. Even so, this still shields consumers from the full horror, as it is based on wholesale price calculations in the six months to August. When it is next tested in April, analysts expect a similar-sized increase.

Should I grab a fixed-rate deal before prices rise further?

Defaulting on to the standard variable rate (SVR) at the end of a fixed-rate contract used to be a bum deal for consumers but in today’s energy market, it’s the best option. This is because default tariffs can be no higher than the price cap — but the price cap is highly likely to rise.

Alternatively, if you choose to fix for one, two or three years, the price cap doesn’t apply (the same goes for pricier “green” tariffs). These deals will immediately be more expensive, and carry exit penalties of up to £100, but the gamble is they could shield you from further price rises down the line.

I have a high credit balance — can I get it refunded? 

At this time of year, customers typically have hundreds of pounds in credit as the level of monthly direct debits doesn’t change but summer energy use is lighter. The natural instinct of consumers fearing supplier collapse is to ask for this to be refunded — as is their right — although this will put even more pressure on struggling energy companies.

Ofgem’s rules state that suppliers must refund customers promptly unless they can offer “reasonable grounds” why not. Assuming you can get through to your energy provider, you’ll need to supply an up-to-date meter reading before this can happen.

Although balances are protected if your supplier goes bust, I note that many orphaned customers report that it is taking a few months for the money to show up. Taking photos of meters, screenshots of balances and downloading online bills is a sensible precaution.

What about small businesses customers?

Non-domestic customers are not protected by Ofgem’s energy price cap and, as a result, will immediately face soaring increases if suppliers fail or fixed-term contracts expire.

Worse, credit balances are only protected for domestic customers. Ofgem says business balances have been honoured in “most” recent energy company collapses, but not all. Yet it can also be tricky to get high balances refunded — much depends on the terms and conditions of individual contracts.

Micro-businesses (fewer than 10 employees and annual turnover below €2m) may have additional protections, so make sure your supplier knows.

Ofgem will find a new supplier, but they won’t honour previous tariffs. Before companies agree to a new contract, they have the opportunity to shop around and switch, and cannot be charged exit fees. However, some small business owners tell me that their bills have trebled after supplier failure.

“Micro-businesses have always had more in common with consumers than corporates, and yet they don’t have the same transparency and legal protections, which we’ve argued for years that they should have,” says Craig Beaumont, chief of external affairs at the Federation of Small Businesses.

What further help might the government provide?

Regardless of their income, everyone of state pension age automatically qualifies for Winter Fuel Payments (worth £100 to £300 per year), but increasing the payout of a non means-tested benefit would be politically controversial.

Those on pensions credit or means-tested benefits will qualify for an extra cold weather payment if the mercury dips, and can also apply for the Warm Home Discount scheme offered by some — but not all — energy providers. This has been set at £140 for nine years, prompting calls for the amount to be upped.

Those who qualify need to apply via energy company websites from October (some are already open for applications) and discounts to bills will be applied in early 2022. If your current supplier goes bust, you will need to reapply with the new one.

Anyone who has worked from home can apply online to claim tax relief of up to £125 (note this is per adult, not per household).

Some providers offer grants to pay off energy debts for those in severe financial hardship — but demand is likely to be off the scale this winter.

Having promised to protect the most vulnerable consumers, surely the most sensible thing ministers could do is to extend the £20 universal credit top-up until early 2022? A means-tested benefit, the triple whammy of its removal, rising energy bills and food price inflation will be a budget wrecker for millions of low-income families.

The government is resolute that it won’t bail out thinly capitalised small energy companies. To take such a cold-hearted view about people forced to choose between heating and eating this winter could ignite a dangerous political fuse.

Claer Barrett is the FT’s consumer editor: claer.barrett@ft.com; Twitter @Claerb; Instagram @Claerb





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