Ofgem under fire for delaying plans to fight energy giants’ cash grab: Wait two years to end £2.5bn charge on customers not using levies automatic
Energy watchdog Ofgem is dragging its feet over a £2.5billion scam by power giants that charge customers extra fees if they don’t pay by direct debit.
The regulator, led by Jonathan Brearley, has come under pressure to stop businesses from charging customers extra fees if they choose to pay their bill by cash, check or over the phone using a bank card.
But he says he won’t crack down on the practice for at least two years, which means customers – many older or less well-off – will continue to pay through their noses.
Some prefer not to pay by direct debit because they fear that energy companies will set a monthly amount that is too high. Companies have been accused of hoarding billions of pounds of cash from customers and setting up their direct debits even when they have large credit balances.
Those who choose another payment method pay a hefty penalty. The scale of the additional costs, which can reach £254 a year, was first revealed by The Mail on Sunday earlier this month.
With around five million homes affected, the levy is expected to raise around £1.25billion in 2023. That’s the same amount in one year as in the previous three years.
The charges were widely condemned by activists. Many customers are unaware that they are being hit with hefty penalties due to their payment method.
The surcharge was previously capped at £79 per year. Since 2021, however, the maximum that suppliers can charge customers has quietly been increased to more than three times that figure. The increase is calculated using an algorithm based on energy prices, which have risen rapidly due to the war in Ukraine.
Businesses try to defend their money grabbing by arguing that it costs them more to process cash, check or phone payments compared to direct debits. Ofgem agrees. However, this has nothing to do with the price of energy and therefore there is no justification for an increase in the surcharge.
Tory MP Craig Mackinlay, a former member of the influential Works and Pensions Committee, said he was “appalled” by the scale of the accusation. He said: “Ofgem is best placed to tackle this problem. But the energy giants themselves should not charge these excessive amounts, and I would ask them to keep administrative premiums to a bare minimum.
‘Appalled’: Tory MP Craig Mackinlay
Consumer champion and former pensions minister Baroness Altmann, who campaigned on stealth energy charges, has called for a review. She said: “There is definitely a regulatory failure here.”
Most affected customers are unaware they are paying the fee, according to a survey by energy company Octopus. It is one of a series of sneaky energy levies highlighted by The Mail on Sunday.
A separate ongoing fee, intended to cover the cost of running the network, also exploded. Octopus, the UK’s third-largest supplier, said it had refused to pass on the full increase to its customers – keeping it at £80.
Octopus chief executive Greg Jackson said Ofgem should do “everything in its power to reduce the grim hidden costs to pensioners”. He added: “This surcharge has gotten out of control. We urge Ofgem to look into it urgently.
Ofgem said the levy for those who do not pay by direct debit was being reviewed as part of a “draft work programme” on charging policies. However, the regulator added that no changes would be made until “winter 2024-25”.