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?”