Law firm says energy 'scandal' could see small businesses compensated

Bistro owner Masoud Farrahi warns his company is being crippled by energy bills of £10,000 per month

A Tyneside law firm says small businesses struggling with crippling energy costs could each be due thousands of pounds in compensation after being mis-sold deals with suppliers.

Energy Solicitors, based in Wallsend, says its group is currently pursuing more than 400 cases, but believes up to two million firms may have been victims and the eventual compensation bill could top £2bn.

The vast majority of claims centre on the commission paid to brokers, or middlemen, who most small businesses use to negotiate deals with energy suppliers.

Energy Solicitors says brokers frequently took commission from suppliers which were not disclosed to the customer.

The supplier then effectively recovered the commission from the small business by adding it to their bills.

The law firm believes a recent court judgement its group won in favour of a County Durham amusement arcade could open the floodgate to more claims.

In the case, a judge at Leeds County Court awarded Queenie's Casino Slots, in Crook, £14,000 in compensation because brokers' fees had not been made clear.

'Aggressive tactics'

Victoria Myers, senior partner at Energy Solicitors, said: "There are approximately two and a half million businesses that have used energy brokers and we think around two million have been mis-sold to, so it's a massive scandal.

"Brokers want to get commission. They are aggressive in their tactics. They pressure clients and cold call and it is so unregulated. It needs regulation to protect businesses."

Andrew Smith, from Queenie's Casino Slots, said the compensation "may not seem like a huge amount" but for a small business "it makes a big difference".

"Like many others, we are trying to operate in challenging economic circumstances," he added.

"Energy bills are big enough as it is without having to fork out more.

"No business wants to be ripped-off. Check your energy bill or get support. It's important to make sure you are not overpaying through hidden fees."

Queenie's Casino Slots, in Crook, won £14,000 in compensation over hidden brokers' fees

Another potential victim of mis-selling is Luciano's Bar and Bistro in Peterlee, County Durham.

Its energy bills increased from £2,000 to £10,000-a month in 2022 when a broker signed it up to a new deal. The broker also took a hidden commission that was passed on in bills.

Luciano's owner, Masoud Farrahi, says he was told charges would drop once energy prices began to fall, but that has not happened and he says the energy supplier told him he would have to pay about £75,000 to get out of the deal.

He describes paying £10,000-a-month as "unsustainable" for his business.

"It's impossible. You can't pass it on to the customer. You can't put your price up by five times. Nobody would come.

"I was expecting our bills to drop, as they have for some others, but no, the supplier told me there was nothing they could do."

Energy Solicitors is looking to get him a better deal and compensation from his supplier.

'Clarity' call

However, the umbrella organisation representing the majority of brokers, the Utilities Intermediaries Association, says most provide "a valuable and bona fide" service and that they have had to declare the level of commission since regulator Ofgem introduced extra safeguards in October 2022.

A spokeswoman pointed out it was in the interests of specialist claims firms to use publicity to attract more clients.

Pressure is growing, though, for stricter regulation with Ofgem asking the government to impose tighter controls.

Energy UK, the industry body representing most suppliers, also accepts more regulation is needed.

A spokesperson said: "The industry has long called for brokers to be regulated in the same way as the rest of the market.

"Energy UK and our supplier members have supported proposals from Ofgem for increasing the information, clarity and transparency of commissions.

"Ofgem having the legal powers to set out and enforce rules would increase regulatory oversight and establish higher standards for brokers, so business customers are properly protected."

That though may not stop more claims from small businesses that feel the deal they were offered was far from transparent or fair.