Energy bills to soar to cover £2.7bn cost of suppliers going bust

Household energy bills are likely to increase by around £2.7bn to cover the costs of the 28 energy suppliers that have gone bust in the last year, it has emerged.

The National Audit Office (NAO) has said that, while the failures were caused by massive changes in the energy market, regulator Ofgem is also partly to blame.

Ofgem’s processes have been good at ensuring that households do not have their energy cut off when a supplier fails but the system has many potential pitfalls the NAO found.

For example, customers will often be moved to a more expensive deal with their new supplier – Citizens Advice estimates it adds about £30 per month to bills for the average customer.

Colin Mathieson, spokesperson for Advice Direct Scotland, said: “These latest figures will raise concerns about further rising costs in the months ahead.

“With food inflation soaring and energy bills increasing sharply, it is a challenging time for many households across Scotland.

“We urge everyone not to struggle alone – help is out there.”

The most widespread problem is the cost of transferring the customers, the NAO found. Instead of just affecting the customers of the failed supplier, it is spread over all households in Great Britain.

It will cost households a combined £2.7bn to cover the transfer of 2.4 million customers to a new supplier – around £94 each – Ofgem estimated.

It comes as the rate of inflation rose again in May, remaining at 40-year highs, the Office for National Statistics said.

The latest data from Kantar has revealed that grocery price inflation jumped to 8.3 per cent over the four weeks to June 12 to its highest level since April 2009.

That means the average annual shopping bill will increase by £380 in 2022.

“At Advice Direct Scotland, we have qualified advisers who can provide free, impartial and practical advice on money worries, including energy bills and debt, and help Scots ensure they are receiving all the benefits or financial assistance they are entitled to,” said Mr Mathieson.

Consumers in Scotland can receive free, practical and impartial advice on energy bills and debt concerns through Advice Direct Scotland at either www.energyadvice.scot or www.moneyadvice.scot.

Ofgem said it accepted the NAO’s findings, and is working to fix the problems raised.

“While the once-in-a-generation global energy price shock would have resulted in market exits under any regulatory framework, we’ve already been clear that suppliers and Ofgem’s financial resilience regime were not robust enough,” it said.

“While no regulator can, or should, guarantee companies will not fail in the future, we will continue to take a whole-market approach to further strengthen the regulatory regime, ensuring a fair and robust market for consumers which keeps costs fair as we move away from fossil fuels and towards affordable, green, home-grown energy.”

The Government pointed out the report’s endorsement of its steps to ensure that customers were not cut off. It said it would consider the NAO’s recommendations.