Energy Suppliers: Customer Credit

Wednesday 22nd February 2023 Westminster Hall

09:30

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

I beg to move,

That this House has considered regulation of customer credit retained by energy suppliers.

It is a pleasure to serve under your chairmanship, Mr Betts. In this debate, I am not going to focus on what I have focused on many times in the Chamber, which is the myriad failures of the UK Government in dealing with the energy cost crisis for people in their homes and the cost of living crisis. That is well documented, and it was underlined by a poll yesterday showing that nearly 70% of people across the nations of the UK feel that the Government are failing on this. That is not what this debate is about. The issue that I want to highlight is something that affects many people in their homes and is manifestly unjust.

I want to start by saying that I am grateful to the Minister for graciously taking the time to discuss this with me before the debate; it says a lot that she was willing to be informed about the perspective that I want to bring to this. I am hopeful that she will work with us to try to sort this and that we will be able to work together to aid people.

I have been asked to feel sorry for energy suppliers. I have been asked by energy suppliers to think of them and their financial position, as they are keeping customers’ money in their bank accounts that they are not due through bills because it aids their business. I do not feel sorry for energy companies. I cannot imagine any other industry where companies are allowed to keep customers’ money without any accountability and think that that is okay or, indeed, that we should feel for them. I understand their wish to protect themselves. For example, Octopus told me that it holds £660 million of customers’ money in credit, but because of the outstanding balances, only £150 million of that is a cushion for them. I am sorry, but that does not cut it—it is not the company’s money to do that with.

I am more concerned about people facing the fear of the cost of living crisis. I am more concerned about people’s frustration over their household incomes and the hardship that they are expected to face in these times. People are turning off appliances and heating when it is cold to save money, because that is what they have been told they have to do, when all the time, energy companies are keeping vast amounts of their money in their bank accounts while people struggle.

[Patrick Grady (Glasgow North) (SNP)]

I congratulate my hon. Friend on securing the debate. Does this not speak to a need for wholesale reform of how people are charged for and pay for their electricity? He is right that customers who pay by direct debit build up significant credit balances, and the energy companies can earn interest on that, but customers who pay by prepayment meters are paying up front for energy that they have not used, and they often pay a higher premium and higher standing charges. The people who can least afford it, which is often customers on prepayment meters, are paying the most. This is another injustice that has to be resolved.

[Drew Hendry]

My hon. Friend is exactly right. It speaks to the way the cards are stacked against consumers and users in favour of the energy companies. The position that people find themselves in does not seem to be met with any sympathy across the industry—it is just a fact of life; they are collateral in the game of business. That is not the way we should look at people. As I said, people are turning appliances off even when they are in credit with the energy companies.

[Margaret Ferrier (Rutherglen and Hamilton West) (Ind)]

Customers have reported being made to jump through hoops to get their credit back, and the only rules for timescales implemented by Ofgem apply when accounts are closed. Does the hon. Member agree that Ofgem should have the power to be stricter with suppliers, in line with its purpose to protect customers?

[Drew Hendry]

The hon. Lady is absolutely right. I will spend a bit of time later talking about Ofgem and powers that the Government might take forward in relation to working with Ofgem.

As I said, people are turning things off even when they are in credit. I believe every Member of this House should be more concerned that the property of customers of energy companies is being held hostage, without the explicit permission of those customers; the money does not belong to the energy companies. Things should and must change.

I started this campaign in January. By coincidence, Alex Lawson, a Guardian journalist, did some research into the subject and uncovered the fact that

“suppliers had hoarded an estimated £9 billion of customer cash by November last year”.

In his investigation, he pointed out that Centrica had £400 million of customer deposits; Octopus Energy had £660 million; and E.ON, OVO Energy, EDF and ScottishPower refused to say how much money they had from customers whose accounts were in credit. It is not the energy companies’ money.

I contacted the suppliers in preparation for the debate. The response I received from Utilita about high credit balances defended its customer service and the way it looks after its customers, but I was struck by a paragraph in which it said:

“Other companies such as Ovo, Octopus and Bulb have significant customer credit balances in their accounts. Indeed Octopus recently published its accounts for the year ending March 2022 in which it shows £221 million—strange to have such high credit balances at the end of winter! Perhaps their ‘innovative practices’ are not working as intended. The article by George Nixon that appeared in the Times on Saturday 28th January 2023, ‘How to get your money back from your energy supplier’ mentioned virtually all the larger suppliers (all of which had either minor or no weaknesses in their direct debit processes according to Ofgem).”

I am not giving Utilita a free pass, but it is telling that it is willing to make that comment.

In the highlands and islands, a great number of people subscribe to what used to be called the hydro board. When Scottish and Southern Electricity Networks took that over, many accounts simply transferred, and OVO Energy recently took over all those accounts. Because of that, I may receive a particularly high number of complaints about practices at OVO, so I state that at the outset. At the start of the pandemic, OVO received an £8.9 million fine for communication and billing issues. As mentioned, OVO has declined to give an average customer credit balance. Again I state: that is not its money and it is refusing to tell us how much it has.

My inbox shows that constituents’ problems with OVO are manifest regarding billing and metering. I have picked a sample of messages from people who have come to me, one of whom has allowed me to use their name and details, for which I am grateful. To get through to OVO, many of my constituents have had to spend up to

“4.5 hours on hold on the telephone.”

This is a company that says there are simple things people can do to sort their accounts.

OVO will not send some customers monthly bills, insisting that “Total Heating with Total Control” bills are provided quarterly. One constituent received three bills in one month: one showed that they owed £680, which they paid; one showed £300 in credit; and another in the same month said that they owed £1,000. I will return to this issue, because it is an important factor in the way these companies work with people’s money. They have consistently failed to fix faulty meters, with 18 months of changed dates and timeframes in one case.

The constituent I mentioned, to whom I am very grateful, is Mrs Frances Raw, who is a widow on a state pension. The Minister will be aware that the state pension is £611.64 per month. She has been asked to pay more than £236 a month, and the company wants to raise her direct debit. It thinks that she is going to use more energy, which is the justification for putting up her direct debit, but Mrs Raw is sitting on a credit balance of £1,796.36.

By any measure, it is a disgrace to put somebody under that kind of pressure. It is a failure in a duty to care, and a failure to do good business; and it is a failure that it is not being properly regulated, as we need to prevent that happening to people such as Mrs Raw. She has been brave enough to allow me to use her name, and I thank her one more time. I know how difficult it is for constituents to come forward and say they have an issue, and that it is okay to talk about it. It is very rare for people to do that, and I am extremely grateful to her.

Mrs Raw’s problems do not stop there. OVO keeps delaying changing her Total Heating with Total Control meter as well. This is destined to continue. I met Mrs Raw and she asked me if it would be possible to get some of her money back. I said, “No, Mrs Raw, you are entitled to all of your money back.” That is what everybody should get in these circumstances. It should not be a matter of someone begging to get their money back; it should happen automatically.

[Patrick Grady]

I thank my hon. Friend for giving way. The £,1000 or more credit balance on his constituent’s account is not just sitting there doing nothing. It is sitting in a company’s bank account earning interest, and contributing to the profits of that company. I wonder how the companies would feel if they were required to apply interest to customers’ credit accounts. Perhaps they would suddenly be incentivised to support the customers.

[Drew Hendry]

My hon. Friend makes a terrific point, which has been running through my mind. When these companies hold customers’ money, they are using it for whatever purpose they might have, rather than the customers being able to earn interest or pay their bills. These companies may well be using it for gaining their own interest. Some people might consider that theft. Some people might consider that using other people’s money to benefit themselves, without the permission of the people who own the money. That is not good enough. It is not their money; it is the customers’ money and it belongs with them.

[Margaret Ferrier]

The hon. Member makes a very good point. These companies are using that customer credit as spending capital. Does he agree that it could be propping up unstable or unsuitable business models? That is why they are reliant on that money, but at the end of the day it belongs to the consumer.

[Drew Hendry]

The hon. Lady makes a good point. There has been a great deal of debate in the industry about the practice of ringfencing, and whether that should be carried forward. I might touch on that shortly. The fact is that this money is being used in an incorrect way, whether it is propping up a company or aiding a company that needs it to survive, in a way that is not normal in business.

Notwithstanding the good point made by the hon. Lady, it is almost beside the point. The fact is that this money should not be used by companies, without the explicit permission of the people who have that money with them. Do not forget, they are not offering a shareholding to those customers. They are not saying, “Because you have a credit, as other people might have a credit with our company and have bought shares, we will give you back a dividend.” They are not applying any dividend. They are just keeping the money, and it is not their money.

I have some personal experience with OVO because, having started this campaign and looked into what was happening, I studied my own account, and lo and behold, I had a credit sitting on my account that I was not aware of, so I did some digging around. I have a smart meter that was installed and, despite several complaints and even a change of meter, OVO has still not been able to rectify the issue, so I have some sympathy for people who are not getting correct readings and are getting incorrect bills.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

My hon. Friend is making an excellent speech. The absolute crux of this is, as he says, protecting customers’ credit. I have an example of the opposite thing. I went to switch supplier, then I got a bill for £1,000 because I had been inaccurately billed for so long. That could have tied me to that supplier for a long time, because I might not have been able to afford to switch. It shows another failure in the market and failure in the billing process. Does my hon. Friend agree?

[Drew Hendry]

My hon. Friend is absolutely right. It gives me absolutely no pleasure to say this, but the point that he makes underlines the fact that in certain parts of this industry, these companies are behaving like it is the wild west. Almost anything goes; almost anything is okay for them to get away with regarding customer service, accuracy and the errors that they make. By the way, undercharging is not uncommon. It is something that constituents have brought to me. People suddenly finding that they have been undercharged is also an issue and it is just as unfair. However, I want to get back to the main thrust of the debate, which is the fact that companies are holding on to money.

Part of the problem is the confusion around billing. I mentioned my own experience. I wanted to check what was happening, because some of my constituents were saying that they were getting email bills and they did not tally with what was coming through on the apps that they were being encouraged to use. I want to touch on apps and other things in a moment, but I looked at my 15 January bill and, according to the email bill that I received, I was due £181.95 for electricity. That is fair enough, but I looked it up on the app for the same period, and I was due £215.03 for electricity. What chance do people have if that is the kind of information that we are allowing energy companies to deal with? I did not come as a constituent with a complaint; I did this after investigation on my own account. There are lots of people out there who are seeing this on a monthly basis or, as I said, on a quarterly basis sometimes; they are seeing that their bills are inaccurate or confusing. That confusion is a key point, because if there is a wish to avoid paying back money that people have paid into the account and is too much, in certain quarters it might be considered convenient that people might be confused about what they actually owe and what is actually in credit.

Centrica’s response was that it wanted to see customers’ funds that are paid in ringfenced and it was disappointed that Ofgem had rowed back on that requirement. It mentioned that customers can request a refund from companies, but again, I come back to the main point—it is not their money. Why should customers have to go begging for a refund? They should be entitled to get that money back as a matter of course.

ScottishPower does not pay back, but at least it adjusts direct debits downwards where customers have a credit balance. It says:

“Some…companies, while claiming that they provide credit back at the click of a button, may not be taking account of a customer’s credit balance when setting that customer’s monthly charge. If they had a customer whose credit was £500 and their annual energy bill was projected to be £2,000, they set their monthly payment at £167. This results in a £42 a month higher charge or £504 extra per year. This means the credit doesn’t go down and the supplier keeps it on their balance sheet”.

I am grateful to Scottish Power for that comment, but it is also guilty of keeping people’s money.

E.ON has also talked about favouring ringfencing, which means that customers’ money is kept in a separate place in their business, not in the main account, so there is some protection in case of bankruptcy, for example. E.ON says it refunds on request, and that it can flex direct debits by 10%. I am sorry—that is not enough. E.ON goes on to say:

“We are aware that a number of companies have used balances in the past to fund their own commercial activities.”

That should just simply not be allowed. They are using customers’ money.

Shell Energy says that all requests are triggered so it will pay them back; it talks about the licence conditions

“that ensure we don’t allow a customer to build up debt which guides us to set an appropriate DD to cover usage across the year and adjust if it won't cover usage”,

and about the option to choose a variable direct debit. There are some meagre attempts out there to try to smooth out this situation for people, but it is simply not enough.

We have to look at how Ofgem regulates. Ofgem was happy to respond to me on this issue, but its letter said:

“Unfortunately, Ofgem does not advise on or get involved in individual cases.”

It is my belief that Ofgem does not look at individual cases; it is not looking at the real lived experience of people in the energy market at the moment. It is just not doing that, and that is a view backed up by Christine Farnish, a former Ofgem board member, who says firms are collecting more than they absolutely need.

Ofgem suggests that customers who believe suppliers have amassed too much of their money contact the firm to ask for their money back—to ask for their money back! It is not good enough. The response from Ofgem is weak, and not good enough.

I hope I have laid out clearly today some of the problems out there. I am only scratching the surface of customer issues; I have not mentioned a number of people who have been in touch with us. We need a mechanism for returning automatically overpaid amounts. The energy companies should print credit balances in green at the top of bills, with a notice advising customers of their rights; there should be a mandate for direct debits to account for credits when being sent out; and there should be a duty on suppliers to declare their total credit balances openly to the public.

Finally, I repeat this point: this money is not the energy companies’ money. I tell everybody out there to check their bills: look at them carefully. If they do not understand them, make a call, or get in touch with an MP or anybody else—Citizens Advice, or anybody who can help. Check the bills. If there is a credit amount, the bill payer should alert the company to the fact that they want every penny of that back, because that money is not the energy company’s money. I say to all those people: it is your money.

09:53

[Patrick Grady (Glasgow North) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Betts. I am grateful to be called at relatively short notice. I echo a lot of what my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) has said and I congratulate him on securing the debate.

Many people nowadays are used to paying subscription models for services or products, for mobile phones or the use of the gym, or for online streaming services, but, by and large, what you pay for is what you get. The energy model is slightly more uncommon.

Of course it is very helpful for customers’ budgeting and planning to know that if they are on a direct debit and paying into that model, a regular amount will come out of their bank account over the course of the year. Yes, perhaps there will be a small credit balance, because generally energy usage during the summer will be slightly less than during the winter, but over the course of the year we would expect that to balance out. But what my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey has demonstrated—and what many of our own inboxes will demonstrate as customers start to pay close attention to their bills because of the high cost of energy and the other increasing costs of living—is that people are starting to discover a very significant failure in that model. Perhaps, as the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) has suggested, they are even discovering failures more widely in the energy market and system as a whole.

What is particularly disappointing is the number of issues that people seem to be having with their smart meters. By the sound of things, several of us here have personal experience of these matters, let alone the cases that come to our surgeries and our inboxes. Smart meters were supposed to make all these issues a thing of the past; people would know exactly what their usage was and would pay exactly for what they had used, and as a result would be incentivised to be more efficient with their energy use, which is better for their own personal finances—and, of course, much better for the environment, if we can reduce energy consumption and emissions.

Instead, people are getting readings that make no sense—that do not appear to match with their own perceived usage, at least—and the energy companies, for whatever reason, are using the opportunity to adjust direct debits, sometimes without any say-so; people sign up in advance for an adjustment of a direct debit and suddenly find that it has gone up, or maybe gone down. That negates the whole point of smart meters enabling them to budget. Smart meters were supposed to avoid such problems entirely, but in fact those problems seem to be increasing.

I heard from a gas engineer that some models of smart meter were designed to operate in climates that are very different from ours, so if they have been installed outside that can be a reason why readings do not make an awful lot of sense or do not appear to match up.

As I said in an intervention on my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey, although we are largely talking about people who pay by direct debit or in arrears, this situation is also affecting customers who pay by prepayment meters. The issue of prepayment meters has been discussed at great length, so I know the Government are aware of it and are trying to take action, but we have all argued repeatedly that there is more that they can do, which comes back to my hon. Friend’s recommendations.

For people who use prepayment meters in the way that they are designed to be used, the companies are getting that money up front—when the energy has not even been used. That is one of the key questions that the energy companies ought to answer and perhaps ought to be required to answer, either by the Government or Ofgem, or by any other mechanism by which they can be held to account. What are they doing with that money? I ask that question because, as I said in my intervention on my hon. Friend, it is not a balance just sitting there on an account; it is clearly not there for a customer to draw down as they see fit. It is clearly being used for other purposes: either to prop up the company elsewhere in its operations, or to earn very tidy interest because of course interest rates are going up. It is either contributing to the vast profits of the company or it is being used to shore up other parts of the company that may be having difficulties.

If the energy companies were required, as we suggested, to consider what benefit they gain from maintaining that money in their accounts, and had to recognise that in the form of discounts or an interest payment back to the customer, perhaps they would suddenly start moving a lot faster.

I agree with all the recommendations that my hon. Friend has made about how bills should be published and presented to consumers, so that they know exactly what their balance is and have the opportunity to draw that money down as quickly and on demand as they want. The company should have an obligation to do that. If they do not have such an obligation, we should look at how they can be incentivised to do so, or penalised if they are not going to respect their consumers. We want an energy market that functions effectively and well. We want to encourage people to reduce their demand on the system, which helps the environment, the ageing infrastructure, and the bank balances of our constituents—the consumers. The energy companies have to realise that they have got away with a lot of these things for too long, and the wider market now needs to be scrutinised in serious detail.

I end by quoting my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey, who said several times during the debate: this is not the energy companies’ money; this is money that our constituents—their consumers—have earned and have paid, expecting a service in return. It is not for companies to keep and profiteer from that money. If it is not being spent and does not reflect the consumer’s energy usage, it should be returned to the consumer so that they can use it to meet the increasing cost of living and other personal expenditure.

[Mr Clive Betts (in the Chair)]

We move on to the Front-Bench spokespeople. They have about 20 minutes each if they really want to take it, but that is entirely up to them.

10:00

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Betts. I reassure you that I will not take 20 minutes, which I am sure will please everybody.

I commend my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) for bringing forward this important debate. As he said, the debate is about people’s money and their legitimate access to it. As you alluded to, Mr Betts, it is surprising that we are hearing from the Front-Bench spokespeople at 10 o’clock in the morning in this important debate. Given how many of us have been contacted by constituents who feel that they have been fleeced, and who are worried about turning on their heating and being able to eat, that is surprising. I suppose we can deal only with who is here.

I commend my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey on how he set the tone for the debate. He said he would not list Government failures or attack the Government, and that he wanted to work with the Minister. That is commendable. I am not sure that I will be able to avoid criticising the Government, but we will come to that later. As my hon. Friend said, this debate is about people’s money; it is about people’s credit and what the companies do with it. I will turn to some of the examples he gave, particularly those in which people are in credit—effectively, companies owe them money—who should be secure, yet they are so frightened that they do not turn on their heating because they hear about the cost of living crisis. That struck me.

I pay tribute to the Wise Group, which works with vulnerable people. I was at an event last night, and heard an example of somebody the organisation engaged with. This individual was on a prepayment meter. They were so concerned about the cost of energy that they were scrimping on what they were eating so that they could put a £700 credit balance on their meter. They wanted to build up some form of insurance, as they saw it, by building up a £700 credit on their prepayment meter—a massive up-front payment. I cannot understand why that individual was not contacted by the energy company and asked why they had put so much money on their meter and whether everything was okay. It took engagement from the Wise Group to resolve the issue.

[Drew Hendry]

My hon. Friend’s point about fear is something that I perhaps did not cover enough in my remarks. The issue is not only that people fear not having enough to pay a bill. It has been in common parlance that we should be worried about energy costs, and people are really worrying. There is also the fear that, when people are struggling to get by—I do not know how many people in this room this will resonate with—and a bill comes in, they sometimes do not want to look at it or acknowledge that it is there; they put it away. People might panic about their bills without realising that they actually have money. My hon. Friend’s point about people’s fear is central to the fact that people should be getting their money back.

[Alan Brown]

I absolutely agree. That fear and the stress that comes with it were observed by the Wise Group in its report. Some 66% of people the group engaged with believe that their mental health has suffered because of the fear and concerns they have about dealing with the cost of energy. That has further detrimental impacts on individuals, but also consequential effects for the NHS and society.

In his fine contribution, my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey mentioned the struggle to get proper information about the companies’ credit balances and how that is not transparent. Why is that? Back in 2018, Ofgem estimated that companies would hold surplus credit balances of somewhere between £600 million and £1.4 billion. How can the regulator itself look into the matter and not get an accurate figure? It beggars belief. We are now nearly five years down the line, and we still have no idea how much money these companies are holding. It is outrageous. I call on Ofgem to fully get a grip of this matter.

As my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey said, there should be transparent reporting, because we need a clear understanding of what these companies are holding. Had we had that understanding previously, we would not have had so many retail companies going bust because they did not have sufficient money and capital. Just reporting customers’ credit balances would give an indication of that, as well. It is concerning to hear about these companies’ performances, particularly OVO. I also pay credit to Mrs Raw for allowing that example to be given. Imagine a customer who is £1,000 in credit being asked to increase their direct debits.

[Drew Hendry]

I just want to underline the point that it is £1,796—nearly £2,000. That is nearly a year’s worth of bills. It is an absolute scandal.

[Alan Brown]

I thank my hon. Friend for clarifying that. It brings me to the two points: first, the credit balances; and secondly, the direct debits being increased. As The Times reported in December 2022, there is a real fear that companies were basically gaming the system by massively increasing the direct debits. I know this from anecdotal evidence from constituents, and I have tried to raise this with Ministers. I was afraid that when companies saw the Government energy support coming down the line, they were increasing direct debits and putting people on higher tariffs, because that would give them a bigger subsidy back from the Government. I really hope that the Government will look at that. It is commendable to give energy support to each household, but we need to ensure that householders, taxpayers and bill payers get 100% of the benefit of that, instead of companies gaming the system. That is another aspect to consider.

I commend my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey for doing the work up front, and speaking with individual companies to try to get details about individual policies. It is certainly concerning that ScottishPower has said, “Yes, we’ll adjust the direct debit, but in doing so we are actually still keeping that credit balance,” which is the company keeping money for itself. I disagree slightly on Centrica and E.ON, because it is commendable, at least, that they want a system that ringfences and protects customers’ credit balances, although that should be the bare minimum. Why should customer credit not be protected? That should not even be up for debate. Some companies do automatic returns at year end, such as EDF, which is probably an acceptable way to work.

Returning to the key issue, this is the basic principle: credit is customers’ money that they have paid in advance to the energy company. It is logical that their money should be protected, and that they should be able to access it if needed. However, we also have to acknowledge that a system that allows customers to build up credit does allow smoother, equal payments over the calendar year, equalising payments over summer and winter. There are benefits in such a system: it allows steady, monthly payments, so that people can understand what they are paying and—in theory, if the smart meter and billing system work properly, which is unfortunately not always the case—will not get sudden increases in bills landing on their doorstep, causing further concern. We have to admit that allowing customers to build up credit is also to the customer’s advantage, because it smooths out their payments. We should not lose sight of that.

To be fair, if every single customer decided to access their credit at the end of the summer, the system would not work properly either. If customers withdraw all that credit, and then build up debit in the winter, companies will need to capitalise more, which means borrowing more, which means actual bills will go up. There needs to be some sort of balance overall, whereby we ensure customer balances are protected and accessed, otherwise bills will unfortunately end up going up in the long run anyway.

[Drew Hendry]

I am grateful to my hon. Friend for giving way again. I am taking advantage of the time that we have, Mr Betts—I apologise for the number of interventions, but this is an important point to clarify. The point he makes about having a fair mechanism in place to ensure that people are not being treated punitively over their credit balance is important. I hope the Minister will look at that to ensure that people are protected.

[Alan Brown]

I fully agree with my hon. Friend, and it will be good to hear the ministerial response. I said that I did not think I would be able to get through my speech without criticising the Government, so here it comes: companies using customer credit as working cash flow is what caused the market failure. That market failure was on the Government’s watch, and Ofgem was asleep at the wheel. Since the retail energy market has failed, we still have an inadequate response on how the Government and Ofgem will deal with this. It is outrageous that these companies went bust having used customers’ credit and then walked away, but then there is the double whammy of all the other bill payers paying the next company to restore the customers’ credit. We are paying twice, with other bill payers footing the bill.

I am also a member of the Business, Energy and Industrial Strategy Committee. Initially, we had a one-off hearing when companies started to go bust. The then Secretary of State and now former Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), appeared in front of the Committee. His attitude was that, “Companies come, companies go. It is a free market; that is what happens. We know that some companies tend to go bust when it is time to pay their renewables obligations.” That laissez-faire attitude that the free market knows best is just ridiculous, and it shows that he was unsuited to be the Chancellor. It is funny how he did not like how the free market operated when he saw the effects of his policies. That meant he was putting his hands up and saying, “It is okay. We don’t mind companies going bust, owing customers money or owing money for renewables obligations”. The renewables obligation is supposed to fund energy-efficiency upgrades, help us towards net zero and help lower people’s bills. It was a dereliction of duty, and what he said in front of the Committee genuinely shocked me.

It was crystal clear at that time that companies must have sufficient capital and a robust assessment must be in place for any new entrants to the market. There needs to be an ongoing assessment, especially as we have seen the cost of buying energy increase, and Ofgem needs to clearly and periodically check that companies still have access to enough capital. I am trying to be balanced, though. There is another benefit to companies having some customer credit on the books, and that helps in the advanced purchase or hedging of energy—for looking ahead—which smooths out risk. Again, as long as companies are not overly reliant on customer credit balances and there is a robust system in place that assesses how much customer credit is being used for that hedging and that look-ahead, that is okay but, again, this is unfortunately another failure of Government. When Bulb, the seventh biggest energy company, went bust, it was too big to go through the normal process of another company picking it up, so it was the first company to begin the supplier of last resort administration process. The Government did not allow them to hedge ahead, costing taxpayers up to £1 billion more. Companies must be able to operate and hedge ahead, but that comes back to having the right capital in place.

It is unfortunate that Ofgem has flip-flopped on customer credit and how to deal with this since 2018. Of course, in that period from 2018 to 2022 30 companies went bust, while Ofgem was still dithering and wondering what to do. It is time that Ofgem came up with a solution. I commend my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey for what he has proposed. As he says, this is customers’ money. I refer the Minister to the Business, Energy and Industrial Strategy Committee report published in July 2022 called “Energy pricing and the future of the energy market”. Key recommendations 117 and 118 address customer credit, particularly 118, which is about Ofgem coming up with a system that manages these complexities and reporting back to the Committee and Government to agree a way forward. I will be interested to hear the Minister’s response because there has not been a suitable Government response to the report as yet—I look forward to hearing more. The point is that customers’ money should be protected. To throw in one last request, it is high time we got a social tariff to protect those that need it most and a much fairer system of paying for our energy.

10:14

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I congratulate the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) on securing the debate. I share hon. Members’ disappointment that the Chamber is not more full this morning, because this issue is really important as regards the overall life of energy companies. Most importantly, as the hon. Member said—I am happy to repeat it—it is not the companies’ money but the customers’ money that is being used in such a way.

We know from the record what the large sum floating about in energy companies’ bank balances is used for—we cannot get an accurate picture, but £9 billion is probably not too far adrift—and we know how disastrous that is on occasion for the overall operation of those companies. Between the middle of 2021 and the summer of last year, we had the unfortunate experience of 28 energy companies going bust. Some research was done into what those bust companies had been doing with credit balances. A company called Oxera, commissioned by Ofgem, did a research project on seven failed energy suppliers that found that most of the companies did not just use credit balances, but were reliant on them for their business models.

Oxera stated that the companies,

“relied on receiving customer balances prior to the provision of services. Suppliers used these prepayments to fund the ongoing costs of the business and to act as a buffer against any short-term shocks. They then relied on growth in the customer base to keep ahead of future liabilities, making the strategy unsustainable in the long term during times when growth slows down”.

This was not just an accident of balances appearing in companies’ accounts because they had not accurately worked out what to do with direct debits. It was an integral part of the companies’ business model—or so they thought at the time—to accelerate their progress by using customers’ money to borrow ahead and fund their expansion, and of course they came horribly adrift as a result of the slowdown in the market.

The SNP spokesman, the hon. Member for Kilmarnock and Loudoun (Alan Brown), underlined the other part of that dreadful arrangement. When those companies went bust, the credit balances that they held had gone. The companies that took over through the supplier of last resort arrangement looked at the books and found that there were no credit balances in the books because the companies had borrowed and then gone bust, and they had to restore the balances to their new customers. That is what they did in most instances, but they then billed Ofgem for the work they had done to restore credit balances to those customers after the companies had gone bust, and they were paid for doing that. Guess who paid for those companies to restore the credit balances? The customer. It was socialised across their bills, so bills went up as a result of companies borrowing money, going bust and having to have those credit amounts restored.

The system is not just thoroughly rotten but systemically rotten. I do not want to resort to anecdotes, but I will talk about a recent experience I had—a small straw in the wind—when I changed my parliamentary flat. It is a one-bedroom flat that I inhabit now and again. I went to set up a direct debit, and the company quoted me £350 a month to start. I am sure it is a coincidence that it is exactly the sum that the Government have put up for the average household bills. I said, “This is just not right. You can’t start a direct debit at £350 on a small flat like that. I think I would prefer a smaller sum of £150.” We had a long argument on the phone, and the person eventually agreed, but I found when I went into my account that they had stuck with the £350. I had to have further phone calls to say, “I am not paying that amount of money in a direct debit per month. Can you put it down, please?”

[Drew Hendry]

I am grateful that the hon. Gentleman is talking about his personal experience. I looked into this on a personal basis and found that what my constituents were saying was true. What he has just relayed is the real difficulty in communicating with companies that are setting these arbitrary figures, and of course in the process building up credit balances. Does he agree that this poor communication and confusion is a far more common problem than perhaps even we in this Chamber expect?

[Dr Whitehead]

The hon. Gentleman is absolutely right. Had I not had a reasonably informed view of how direct debits work, I may well have just said, “Okay, I’ll go with that,” with the inevitable result that I would have built up a huge credit balance. That would have been good for the company’s working practices. I do not know whether it was an instruction from the company that the person should start with a high direct debit and then argue down, but it looked to me like they should not have been engaging in that practice.

After various companies went bust, Ofgem started looking at companies’ financial resilience, and that process is continuing. There have been a couple of reports and processes. Among them, Ofgem suggested a couple of arrangements that might help with this scandal of how much is in credit balances—money that is not for companies to use. It proposed that credit balances should be restored to nought at the end of each contract year, even if customers had not requested it. I take the point that, in general, it is often in the customer’s interest to smooth payments out over the year, so that higher bills in certain parts of the year are countered by lower bills at other times, and the overall account can be smoothed out, but there is no justification for a large ongoing credit balance in the company’s books after the end of the contract year.

That seemed a good plan from Ofgem, but it decided not to proceed, on the grounds that quite extraordinarily—guess what?—a number of companies responded to the consultation saying, “We would really like to keep the credit balances because it is very helpful to us.” Ofgem concluded that the proposal might be a bit complicated, so it has not been proceeded with, so the situation of rolling credit balances in companies’ books continues.

Another financial resilience proposal from Ofgem was that a company’s customer accounts should be ringfenced. The company might hold the credit balances on its books for the purposes of smoothing customers’ accounts, but they should be in a separate account, since that was not the company’s money; the money should not be usable for other purposes. The company may get some interest, but the money should not be used as working capital.

Ofgem consulted on that proposal. Again, a number of energy companies responded and said, “No, we don’t think that is a good idea, because that might cause us some problems with our working practices.” So Ofgem decided not to proceed with that proposal either, and there is no ringfenced money—except where, and I am finding it hard not to laugh, a company is thought by Ofgem to be in some financial distress. Then it might decide to ringfence the balances so that they could be rescued when the company went bust and not be used to pay further bills in cases such as those when the supplier of last resort took over the bust company only to find that all the money had gone. Presumably, thanks to Ofgem’s intervention, all the money would not be gone in these cases. That is perhaps a sort of progress, but it is not exactly the sort of progress anybody in this Chamber would see as a serious attempt to address the issue.

My concern is not that the matter has not been looked at by the regulator; it is that the regulator has failed to implement the more or less common-sense measures necessary to ensure that where there are credit balances, they are used for the purposes for which they are intended—smoothing over accounts and nothing else. After all, as the hon. Member for Inverness, Nairn, Badenoch and Strathspey said, this is not the companies’ money. The companies should use it on the basis that they have permission from the customer to keep it on trust for the customer, for their bills, and not for the company’s own purposes. That should be the central principle of this whole arrangement in the future.

I congratulate the Minister on her good practice in talking to the hon. Member for Inverness, Nairn, Badenoch and Strathspey. I hope that that good ministerial practice will wash over into good practice on energy companies. She might have a quiet-ish word with Ofgem and say, “Maybe your consultations and discussions on financial resilience did not work out quite as we all hoped. Could you reopen the matter and have another look?”

The principle on which we all agree is that people’s money is there in trust. It is not there for the companies to use; it is there only for the purpose of smoothing out bills. That is the principle that Ofgem ought to apply to protect customers, but I am sorry to say that in this instance that has not happened. It would be great if the Minister addressed that. I hope that she will respond positively and get on the phone to Ofgem to see what can be done.

10:31

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Amanda Solloway)]

It is a pleasure to be here. I thank the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) for securing the debate and for meeting me yesterday to discuss the matter. That was important for me, because I am new in the role and it is important to have our eyes wide open when we take such a role on. I want to make it clear that the customer has to be at the heart of all we do. If there is any point to which I am unable to respond, given my newness in the role, I am happy to write to hon. Members.

The Government welcome steps to increase customer awareness and engagement. We believe that energy suppliers need to ensure, now more than ever, that customers do not build up large credit balances. Suppliers should not be sitting on money that is not needed to pay for the energy that a customer is using. An account might move between credit and debit over the course of a year, in line with energy demand, but accounts should not build up an excessive credit balance. I concur with the hon. Member: it is the customers’ money.

The Secretary of State for Energy Security and Net Zero wrote to the energy suppliers in November and urged them to ensure that their IT systems are more responsive to changes. I note the point about the app; I had not heard about that, but we will look into it. The Secretary of State called on suppliers to ensure that direct debits are more accurate and that customers do not end up with large credit balances on their accounts. He has also urged Ofgem to ensure that suppliers are complying with the rules.

Ofgem requires energy suppliers to review their customers’ direct debit arrangements at least once a year. Most review them twice a year. As the hon. Member for Inverness, Nairn, Badenoch and Strathspey has mentioned and has noted in his campaign, it is important to have accurate and regular meter readings. That is easily done by having a smart meter fitted so that readings are sent automatically to the supplier and stored electronically. I note, and will look into, the comments about smart meters not always being fit for purpose.

With the combination of a smart meter and an online account, customers and suppliers both have an accurate and up-to-date record of energy usage to hand. That is one of the most effective ways of ensuring that direct debits are at the right level, but I note the examples of customers not finding it to be the easiest of things. I have been reflecting on my father, who will not like my admitting to his age of 88; it is certainly a problem for older customers and others who will not necessarily have access to the app or the IT, so I will look at that. Elderly customers and those who are less able to engage have a dedicated helpline run by the supplier or the citizens advice bureau. However, I understand from my conversation yesterday with the hon. Member for Inverness, Nairn, Badenoch and Strathspey that customers might not always know that, so we need to look into that.

In August 2022, Ofgem changed the licence conditions on suppliers to ensure that direct debits are based on the best and most current information available in all cases. The tightening of the licence conditions should reduce the likelihood of suppliers accruing excessive credit balances. Ofgem requires suppliers to explain the reasons for any changes that they make to a customer’s direct debit arrangement and to inform them of any change at least 10 days in advance. A customer may challenge a proposed increase and ask for a revised level. However, as has been acknowledged in today’s discussion, that option is not always readily available and the customer may not always recognise that it is there, so we need to reach out to ensure that they know how to ask for it.

A customer can ask their supplier to refund a credit balance at any time. Suppliers must do so promptly. If a supplier refuses to give the customer a refund, it must explain why it is unable to do so. If the customer is not happy with the situation, they should lodge a complaint with the supplier. I am aware that there are often complaints about suppliers increasing direct debit amounts; I have said as much to the Secretary of State, who has urged improvement. We must ensure that refusal by suppliers is not allowed. My understanding is that suppliers have so far not refused to refund a credit balance. I discussed the matter yesterday with the hon. Member for Inverness, Nairn, Badenoch and Strathspey, but I am happy to look into it more fully.

If a customer remains unhappy with the outcome of their complaint to their supplier, they can reach out to the energy ombudsman. Ombudsman Services, an independent body that provides dispute resolution and is free for customers, can investigate and where appropriate oblige the supplier to rectify the situation. Customers can also contact their supplier at any time to request a review of their direct debit arrangement. The review should be based on their annual consumption, using actual data or, where that is not available, estimated data. Customers can often change the direct debit themselves via the supplier’s website, over the phone or via their bank. However, it is much better for the supplier to get it right in the first instance, and that is what I want to see.

As has been acknowledged, the advantage for customers of paying for energy with a fixed direct debit or standing order is that they pay the supplier the same amount at regular intervals—usually monthly—irrespective of how much energy they have consumed. Customers typically build up a credit balance on their account over spring and summer because they use less energy for heating during those warmer periods. The credit balance is then drawn on during the colder autumn and winter periods, when more energy is consumed. Actual energy use will vary and is dependent on weather conditions. We must be mindful that this is the customer’s money we are talking about.

[Drew Hendry]

It is important to clarify one thing. There is no dispute that energy suppliers, if pushed, will return credit balances, but “if pushed” are the active words. Many of my constituents have told me that there are sometimes barriers to getting their money back. “You don’t want to do that, do you? You should really take a smaller amount”—that is the message. As I commented earlier, Ofgem seems to be missing on the issue.

[Amanda Solloway]

I noticed that point in the hon. Gentleman’s speech. Maybe we should look at whether there could be some automatic repayment. I believe that that has been looked into before, but I am certainly prepared to do so and to give an assurance on that.

[Alan Brown]

Everybody here welcomes what the Minister says about looking at automatic refunds. As my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) said, Ofgem does not currently require refund requests to be processed within a specific time. It is only if a customer closes their account to switch that there are stipulations on the time period in which their credit must be returned. The issue in the short term is that the companies are not obliged to keep to a timescale to return the credit, so I welcome the Minister’s comments about automatic refunds.

[Amanda Solloway]

I thank the hon. Member. This is an important debate, not only because it is on an important topic, but because it is important for me to listen and understand the issues.

Ofgem recently provided a progress update. It has opened formal compliance engagement with 12 suppliers and has required them to submit remedial action plans to address its concerns. To date, Ofgem has satisfactorily resolved 95% of the concerns and has secured several supplier improvements in relation to policies, processes and controls, credit balance arrangements and staff training.

Ofgem has proposed further measures to protect consumer credit balances. The reforms would require suppliers to have enough working capital to run without needing to rely on customer credit balances, about which concern has been illustrated today. The reforms should further ensure that suppliers do not gain a financial advantage from holding credit balances. Ofgem’s reforms will mean that when an energy supplier fails and Ofgem’s safety net quickly moves the customers to a new energy supplier, the customer credit balances with the failed supplier are limited in size and can, where necessary, be ringfenced.

I was unaware of the problem with smart meters, which I will certainly look into. I mentioned the app problem; I was unaware that there was an inconsistency between the reports from the app and from the website, but I am happy to look into that.

Once again, I thank the hon. Member for Inverness, Nairn, Badenoch and Strathspey for securing the debate and for his campaign to encourage customers to take more control over their energy account balances. I also thank him for noting that we must ensure that we are as helpful as possible. Customers must be at the heart of this, because it is the consumer who is affected.

The Government and Ofgem are taking clear and firm action to ensure that customers are treated fairly, are protected and receive good service. The Energy Security Secretary has written to energy suppliers about the importance of setting direct debit payments more accurately. He has also made it clear that protecting consumers is a top priority for this Government. Finally, one of the early meetings that I will have in my new role will be with the Ofgem CEO. I shall press him on what can be done to ensure that customers get their money back swiftly and easily, and to prevent suppliers from building up consumer credit balances.

10:43

[Drew Hendry]

Once again, it has been a pleasure to serve under your chairmanship, Mr Betts. I will not speak for long, but I want briefly to cover a few points from the debate.

I thank the Minister for the open and helpful way in which she responded. Such a response is a breath of fresh air in this place. I look forward to working with her to solve these problems for people who are struggling in their homes. I thank the Labour Front-Bench spokesperson, the hon. Member for Southampton, Test (Dr Whitehead), for his comments, which were spot on.

All hon. Members in this debate have shown—perhaps more diplomatically, in the Minister’s case—that Ofgem is not stepping up to the plate. I thank my hon. Friends the Members for Glasgow North (Patrick Grady) and for Kilmarnock and Loudoun (Alan Brown) for their comments, which were helpful in underlining the plight that people face. People’s money is being held captive. It is their money and they should have it back.

May I again be clear about some of the asks? An easy ask is for a clear, printed credit balance at the top of bills so that people can see their credit. That is easy to solve right away so that people can understand their bills. We need plain language billing. A click of a button is not the answer for everybody out there, because not everybody can do it. I have constituents who do not have email, let alone a computer or a smartphone, so that is not the answer for everybody.

The Minister talked about helplines. She is absolutely right that helplines should be available, but the problem is that often they are not. If they are available, they can be quite obstructive and there can be enormous delays getting through. There has to be a better system.

The Minister referred to having the best available information for direct debits. She is right that that is how it should be, but the system is clearly not working. There are many examples of information not being taken into account.

The debate has been helpful in raising the issue, and hon. Members’ contributions have been welcome. I hope we can go forward, working together as a group to ensure that we solve the problem and make it clear to people that the money that is being held by companies does not belong to those companies. I say to every consumer, “Check this out, because it is your money.”

Question put and agreed to.

Resolved,

That this House has considered regulation of customer credit retained by energy suppliers.

10:45

Sitting suspended.