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Energy supplier failures will add an extra £94 to household bills next year, warns Citizens Advice

The recent collapse of many UK energy companies will add an extra £94 to household bills from next year as the firms left in the market look to pass on the costs of taking on stranded customers, according to a damning new report from Citizens Advice that is also highly critical of the regulator. 

The charity says a "catalogue of errors" by the industry watchdog Ofgem meant the energy market was more vulnerable to spiking wholesale costs than it should have been – with consumers ultimately left to foot the bill for firms going bust.

As part of its probe into the impact of the crisis, the charity also found that 40% of people who have heard about suppliers going bust are now less likely to switch supplier in future as a result.

The findings come after MoneySavingExpert.com founder Martin Lewis explained last week that households are still likely to be better off sticking with the price cap for now, despite the "horrendous" rise expected in April.

Ofgem failed to act against unfit energy suppliers

On multiple instances, the regulator failed to act on evidence of rule breaking by suppliers, scaled back its enforcement activity even as concerns grew and missed opportunities to reform the market, Citizens Advice claims in its report. It says poor practice was "rife" among some firms, with many companies showing clear evidence of financial unsustainability.

Dame Clare Moriarty, chief executive of Citizens Advice, said: "Recent wholesale price rises would have been hard to handle in any circumstances, but they need not have led to the collapse of a third of companies in the market."

Consumers must be protected from the fallout

In the conclusion to its report, Citizens Advice calls on Ofgem and the Government to act in order to shield customers from immediate bill hikes resulting from the recent supplier failures.

In addition, it says the regulator needs to fix the problems that have led to the current crisis, in order to restore consumer confidence in the market. In particular, the charity recommends that:

  • There should be an independent review of the causes of the market turmoil. This should investigate the role of delays in policy changes, as well as Ofgem's approach to compliance and enforcement, and propose improvements.

  • Ofgem should introduce a new consumer duty, similar to that being introduced in financial services. This would put the onus on companies to ensure good consumer outcomes in future.

  • Ofgem and the Government should develop clear strategies for the energy market. These should consider how the sector can support a shift to cleaner energy, how to keep consumers engaged and how to encourage innovation in a market that now has many fewer firms competing for business.

What do Ofgem and the Government say?

An Ofgem spokesperson said: "We accept that the energy market needs reform and quickly – the current system was not designed for this sort of extreme market event.

"In the next few weeks we will be announcing changes that will demonstrate the seriousness with which we are tackling the pace of change needed, the concerns around the financial resilience of the market, as well as ensuring that fair prices are reflected through the price cap."

A spokesperson for the Department for Business, Energy and Industrial Strategy added: "To help consumers, we've launched an extra £500m Household Support Fund for those most in need, on top of other schemes like the Warm Home Discount, which is being increased to £150 and extended to an extra 780,000 households, to support the most vulnerable."

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