Energy firms are facing a £2b legal challenge from thousands of businesses over claims they inflated customers' bills to pay "secret commissions" to third-party brokers.
Law firm Harcus Parker has written to multiple energy companies in the first step in a group litigation.
It has accused gas and electricity suppliers of offering undisclosed payments to incentivise brokers to sign up customers who may not be receiving the best-value deal.
In some cases, the secret payments have inflated energy bills by more than 50%. The practice has become more common over the past 20 years, Harcus Parker said.
Hospitality businesses are understood to form a large part of the legal claim, alongside schools, charities, care homes and numerous small and medium-sized businesses.
Operators "bombarded" by calls
Roland Birks (pictured), landlord at the Ship Centurion pub in Whitstable, Kent, said he took out his current electricity contract after being "hounded" by calls from brokers many times a day. "You're getting bombarded and it's very confusing," he added.
Birks paid between £900 and £1,200 a month under his previous energy contract, which expired in November, but he fears the cost could more than double under his new deal.
He was shocked to discover the unit price for his electricity had jumped from the 15p per kWh he previously paid to 63p per kWh when he signed his new contract.
Birks said his broker did not mention how much commission they would receive, only that they would be paid by the energy supplier, but fears he will ultimately bear the cost.
"Another £3,000 or £4,000 [rise in bills] a month would not be sustainable. I'd have to look at getting rid of staff, closing the kitchen and doing more myself," he said.
Harcus Parker estimates that if commissions were not properly disclosed, Birks could be eligible to claim back up to £16,500.
The law firm has already signed up several hundred businesses as part of its group litigation to reclaim undisclosed commissions. It said that the average claim is currently around £20,000 per customer, while long-term contracts for heavy energy users could give rise to claims of well over £1m.
Damon Parker, senior partner at Harkus Parker, said: "Thousands of pubs across the country will unknowingly be paying more for their energy than they should because many suppliers increased the cost of their gas and electricity bills to pay secret commissions to the rogue brokers that introduced them.
"From next month many will be paying a higher amount to brokers in undisclosed commission than they will be receiving from the Government's latest energy subsidy."
Energy industry reaction
Ofgem said energy companies had been required to clearly set out any money paid to third parties in the terms and conditions of contracts since October 2022.
Since December any energy suppliers securing new small business contracts through brokers have been required to only work with brokers accredited to an Alternative Resolution Scheme, which allows customers to resolve any issues.
"We recognise the harm that can be caused to small businesses when they are not made fully aware of how much they could pay within their energy bill to a third-party energy broker," said an Ofgem spokesperson.
A British Gas spokesperson said it expected "all brokers operating in the market…to ensure that their terms and conditions comply with the relevant regulatory obligations on transparency."
"Customers can also ask their broker at any time regarding the commission they are charging and we would encourage them to do that," the British Gas spokesperson said.
Harcus Parker has in excess of £10m of litigation funding to fight the case and believes the total amount owed by the energy companies for failing to disclose commission paid could top £2bn.
Alongside legal firm Leigh Day, it is urging any businesses who feel they may have a claim to come forward.
"The claims are fully funded and insured and, as a result, we are able to act for clients who ordinarily would not have the resources to access justice in a claim of this kind, on a ‘no-win, no-fee' basis," said Parker.
"I would urge all non-domestic energy customers who have used a broker to source their energy supply and were not told how much and how their broker would be paid to see if they are eligible to claim."
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