Small businesses are being conned out of £2 billion a year by rogue energy brokers, according to documents submitted to the energy regulator, Ofgem.
Charities, churches and care homes are amongst the victims being locked into poor value gas and electricity contracts.
The report submitted to Ofgem claims that rogue brokers offer small businesses the promise of a good deal — when in reality, the offer is selected from a small panel of suppliers who pay a generous commission to the broker.
Currently, energy brokers are able to make billions of pounds in commission, with this sort of information often hidden in the details of the deal itself.
To make matters worse, these deals can often stretch between three and five years, locking small businesses into bad deals for the long term.
Of the £25 billion small businesses spend on energy bills every year, Ofgem estimates that around half of this relates to a contract sold by a broker.
Callum Thompson, former energy broker and founder of Business Energy Claims (BEC), estimates that £2.25 billion of this amounts to sales commissions obtained by brokers.
Thompson believes that around 90 per cent of small businesses may have been mis-sold to “in at least some form” as there's a lack of regulation in place to protect them. He said: “This won’t come as a surprise to Ofgem, they are very aware of the mis-selling in this industry.”
Thompson also said that it’s not unusual for small businesses to make verbal agreements with energy brokers — which are legally binding under the current regulations.
Ofgem has stated that the report will be used to “help understand the issues faced by micro-business consumers and ensure the market is meeting their needs.”
Ofgem is under pressure to introduce further regulation to the industry, following an increase in the number of legal cases brought against energy brokers. Previously, Ofgem has refused to bow to pressure to further regulate the industry.
The number of energy brokers in the UK has risen to 3,000, due to the fact it’s cheap to set one up, they face minimal regulation, and have the potential to make millions.
Callum Thompson said: “We hope that now is the time that they start to take action on this.”
Thompson warned that without regulation, the situation is only going to get worse for small businesses. “The responsibility has to fall on Ofgem because ultimately the brokers aren’t going to improve their own behaviour.”
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