Martin Lewis pleased Ofgem has listened to suggestions to test new energy suppliers as it announces new licensing proposals

Ofgem has proposed that energy companies would have to demonstrate they have adequate financial resources and can meet their customer service obligations before being awarded a licence to supply energy to consumers.

Martin Lewis, founder of and Cheap Energy Club said: "This is very welcome news. About 9 months ago the Head of Ofgem Dermot Nolan asked me what they could do to encourage switching to smaller firms. I explained the biggest problem was lack of trust due to poor service and other fears, so the regulator needs a better screening regime on who is allowed to run a new energy firm. The raft of small providers has actually risked damaging people’s confidence. They do a comparison and see a host of firms they’ve never heard of – which instantly makes people wary. Then they hear horror stories from the likes of Iresa and instead of scrolling down to find a supplier with decent service, they just give up.

"Encouraging competition is great, but it has to be effective competition and people need a level of quality assurance. The test I suggested Ofgem introduce was threefold. First, that a ‘fit and proper person’ test applies to those setting up energy firms. Second, that a company has the financial resources to run it – this seems like stating the bleeding obvious but setting up an energy firm is not a minor undertaking and so we need to ensure the finances are in place. And finally we need to ensure firms have the capacity to deal with the numbers of customers they are trying to attract – and if not, their numbers should be capped.

"And it seems Ofgem is doing something very similar. The end result should be when people ask if they can trust a small energy firm, they know that there is at least a minimum standard in effect in order for that supplier to have received the licence in the first place. Energy is a public good, we can’t play fast and loose with it."