Microbusinesses need more protections in the energy market and the government and Ofgem needs to close the “gap” they face, Citizens Advice has warned.
According to the watchdog, 1.5 million businesses face a greater risk of having their energy supply disconnected than the average domestic property, and of exploitation by “unscrupulous” energy brokers.
This is due to a lack of protection for the microbusiness market, according to its latest report Closing the Protection Gap.
A microbusiness is defined as a business which consumes no more than 293,000kWh of gas or 100,000kWh of electricity each year or has fewer than ten employees and an annual turnover not exceeding €2 million.
Ofgem has previously cited concerns with the £3.5 billion microbusiness energy sector and launched a strategic review in May this year.
Between June 2018 and May 2019 the Citizens Advice Consumer Service and Extra Help Unit received 3,480 complaints from microbusinesses about debt related issues.
The report highlights the stark contrast between the way domestic customers are protected compared to microbusinesses.
For example, suppliers must exhaust all other options before disconnecting their domestic customers if they fall behind on debt. The same rules do not apply to microbusinesses meaning their supply can be cut much more quickly.
Citizens Advice says this can be particularly problematic for microbusinesses where a home is attached to a business and using the same energy supply.
Furthermore energy brokers, which microbusinesses often use to navigate the non-domestic energy market, have been accused of pressuring them into agreeing contracts. Other issues reported to Citizens Advice include limited transparency on fees and brokers misrepresenting how many suppliers they speak to.
The report calls for a number of measures to close the protection gap, including:
- The government should introduce stricter regulation of energy brokers and other third party intermediaries (TPIs).
- Energy brokers and TPIs should be transparent on commission, market coverage and any fees should appear on bills.
- Industry should improve debt and disconnection processes for microbusinesses.
- Ofgem should protect microbusinesses’ credit balances if their suppliers fail.
Gillian Guy, chief executive of Citizens Advice, said: “Microbusinesses should not face the prospect of being cut off or ripped off because of a lack of consumer protections.
“The regulator, industry and government needs to do more to support the shopkeepers, sole traders and entrepreneurs who make up a large number of UK businesses and close this protection gap.”
A spokesperson for Ofgem said: “(We) launched the strategic review of microbusinesses in summer to consider how best to improve market processes and strengthen consumer protections, so that small businesses can access competitive deals and engage confidently in the market.
“Since then we have been engaging extensively with consumer groups and industry on the issues that impact small businesses.
“We will be consulting on our action plan this winter and look forward to continued engagement with Citizen Advice.”