Ofgem to act over consumer protection for micro businesses

Ofgem has opened its strategic review of the microbusiness market.

As New Power reported on 3 April, Ofgem will launch a strategic review of consumer protection for microbusinesses. The launch document is here.

The review was welcomed by Gillian Guy, chief executive of Citizens Advice, who said:  “This review is much needed, but long overdue. Microbusinesses face a number of challenges engaging with the energy market and often end up paying well over the odds. Comparing prices can be difficult. The problem is made worse by the sharp practice of some brokers who mislead customers or engage in outright fraud.

“The lack of protections or redress for those who’ve been misled leaves microbusinesses out of pocket, undermines trust and reduces future engagement in the market. Ofgem’s review must lead to fundamental changes in the way that microbusinesses are protected.”

Matthew Vickers, Energy Ombudsman chief executive, said: “We think it’s right that microbusinesses have the same opportunities, rights and protections in the energy market as domestic customers.

Lorraine Oldham, head of enterprise at Inenco, said:  “This is a very welcome and, some may argue, a long overdue review into the microbusiness energy market.  While some measures were put in place to better protect the UK’s microbusinesses following the CMA review in 2016 – with a certain level of success – these have clearly not gone far enough, as Ofgem has stated that microbusinesses are still not able to easily access information about prices. … a review to ensure bad practice is stopped, and customers get the service they deserve, is not an option, it is a necessity.”

From New Power on 3 April:

Ofgem will launch a strategic review of consumer protection for microbusinesses.

Speaking at an industry meeting organised by Electralink, where attendees said that the regulator should take action on the issue in the next six to 12 months, Ofgem’s Jonathan Blagrove said the regulator had ‘suspicions’ that issues identified by the Competition and Markets Authority (CMA) “have not gone away”. Preliminary engagement by the regulator had seen “a consistent message that more needs to be done”.

Micro-businesses can be as large as ten employees, but Elizabeth Errington, principal policy manager at Citizens Advice, noted that many were self-employed or sole traders, often working from home.  There was a ‘protection gap,’ because micro businesses often acted like domestic consumers – and may have domestic issues such as running a business from the family home. That raised important issues around, for example, disconnection.

The sector is growing very fast as new businesses are starting up. David Pilling, policy officer at Ombudsman Services, noted some of the differences from domestic customers – they have a large number of billing issues, as with the domestic sector, but a quarter of microbusiness complaints are over selling, compared to just 2% in the domestic sector.

Blagrove said the first phase of the Ofgem review would be to work out what the problems are, to focus the regulator’s resources where action will have most impact. It has plans for transformational change over the next 5-10 years but aims to take initial action within 18 months.

A second phase will look at solutions. There may be various options for action, including: more information provision; mandatory or optional codes of conduct to combat third party intermediary (TPI) bad practices (one is under discussion; Citizens Advice would like to see it made mandatory, and Pilling said the Ombudsman Service ‘would not object’ to that) or new powers for Ofgem to impose penalties on TPIs.

Pilling also noted that action should be taken in concert with other new protections for microbusinesses across industries like financial service and telecoms.