Businesses across the UK have been forced to pay an extra 10% on average for their gas and electricity because suppliers routinely add third-party broker commissions to their bills, according to a leading litigation law firm.
Thousands of small businesses have joined a group legal action, led by the law firm Harcus Parker, to claw back up to £2bn in undisclosed broker fees added to their energy bills.
The commissions, which can in the most extreme cases be 60% of the energy costs, have heaped pressure on small companies already struggling to cope with the surge in energy prices caused by Russia throttling gas supplies to Europe after the invasion of Ukraine.
The law firm claims that more than a million small businesses may have been forced to pay inflated prices over the past decade because suppliers include in the bill the “secret” fees or commissions charged by the energy brokers that market their deals. Customer bills often do not disclose that a fee has been added or the level at which it has been charged.
Damon Parker, a partner at Harcus Parker, said: “We’ve examined thousands of bills for customers joining our claim and it’s been quite shocking, in percentage terms, how much these secret commissions have added to their bills.”
The fees piled on to energy bills to pay broker commissions are typically about 1.7p per unit of energy, which often costs around 10p per unit, according to Harcus Parker. On average, the law firm claims, broker fees add about 10% to the total energy bill for small businesses using a broker service.
Energy suppliers are under increased scrutiny over their relationship with unregulated third-party brokers that target small business owners. Business groups have said that brokers have been free to “rip off” companies, charities, care homes and faith groups by piling billions of pounds in hidden commission fees on to bills.
The Federation of Small Businesses has also claimed that brokers have locked thousands of companies into poor-value long-term energy deals fixed when global market prices were at their peak, meaning they will be forced to pay above the odds even as energy market prices have come down.
Harcus Parker has called on the energy regulator to force suppliers to come clean on the fees they pass on to their customers. Since October 2022, it has been mandatory for suppliers to disclose these charges to all “microbusiness” customers – those with a turnover of less than £1.8m or fewer than 10 employees – but small businesses that are slightly larger do not have the same protections.
“People see a figure of 1p or 2p per unit and think nothing of it, but if this amounts to thousands of pounds over the course of a fixed contract, that [would] really help open customers’ eye,” Parker said.
“We’ve been calling on Ofgem to make these broker costs transparent for all non-domestic energy customers for nearly a year, and we’re delighted that they’ve finally listened. That said, others were raising this issue of secret commissions 10 years ago, so I’m not sure why it has taken so long.
“It seems some brokers were more interested in getting themselves the highest amount of commission possible than getting the customer the best financial deal.”
“We think a lump sum amount of how much brokers’ commissions will cost companies and organisations will add another layer of transparency.”
The law firm’s findings come on the day that Ofgem closes a consultation on plans to force major energy companies to disclose the rates they add to bills to cover broker fees.
A spokesperson for Ofgem said: “After listening to concerns from businesses, Ofgem consulted on changes to supply licence conditions to require full transparency on how much is paid to energy brokers for securing a contract with the customer.
“Ofgem has asked government to introduce regulation of energy brokers, who fall outside our remit. While this is considered, we are working to ensure that customers are properly informed and protected with appropriate regulation on energy suppliers.”
