Welcome to this second panel in today’s Business and Trade Committee hearings on small business policy. Thank you very much indeed for joining us to give us some perspectives on energy bills.

We will start with Chris and move our way along. This Committee has heard that many small businesses think that they are cash cows for the energy companies because the bills are so high. I know, from speaking to many small businesses in my constituency, that energy bills are absolutely crushing them. Can I ask why that is and what you are doing to fix it?

Thank you for the opportunity to appear before the Committee in this important inquiry. It is true to say that energy bills are 70% higher than they were before the energy crisis. Certainly, many of the 350,000 small businesses that we serve tell us every day that they are struggling with the cost of energy. The bulk of the cost is important, perhaps, in terms of the breakdown of a standard electricity bill. The retailers’ costs are roughly 15% of that bill, which has remained stable over a number of years now. Two things are driving energy prices. One is the wholesale price of energy and, in particular, the marginal pricing. Second is the increase in non-commodity costs. Non-commodity costs are made up of two things: network charges and, in particular, policy costs. We have seen increases in policy costs. Wholesale price makes up nearly 30% of the bill. Non-commodity costs make up around 45% of the bill, of which 25% is made up of policy costs. That is where, to bring bills down for small businesses that are struggling, we need the support of policymakers. At E.ON, we are not an upstream power generator. We are a retailer. To bring energy prices down for small businesses, we need to work with policymakers to address marginal pricing, bring the wholesale cost down and move some of the legacy policy costs off the energy bill into general taxation.

Am right in saying that you are saying that you are responsible for 15%, compared to 85%? What are you doing with that 15%?

On the 15%, the average profitability on a small business account for us, in our book, is £269 per annum. Some 20% to 25% of our small business accounts are loss-making. We have £400 million worth of energy debt in our SME segment on our books today. To support small businesses, we wrote off £114 million worth of energy debt in 2024. We invest nearly £20 million a year in a dedicated support team that is there to support small businesses and connect them with third parties where they are struggling with energy costs. In terms of the ability to affect the 15% and bring that margin down, we offer, for free, all small businesses that are with us a product called Optimum, which enables them to visualise their energy consumption to help them reduce their energy consumption, where that is possible. Where we are improving but we have to get better is in the risk premiums that we apply in our contracts, to make those more bespoke and focused on the individual business, rather than overweight on a sectoral view of credit risk, so that we are rewarding those small businesses that are well run and well managed with the best price that we possibly can.

When can we expect to see these changes come in? Some of these small businesses say that this is life or death for them.

We continue to make these changes. The product that I described that helps small businesses visualise their energy bills and reduce their consumption is available today. We are one of the businesses in the sector where we assess credit risk based on the individual business’s circumstances and that plays into the tariff that we are able to offer. We are using, and continue to improve the way we use, our hedging capability to offer small businesses contracts over two or three years, where we are hedging and taking significant risk in the wholesale market on behalf of those businesses. We need help—and we would welcome the support of this Committee—on the role that commercial landlords play. We actively bring small businesses off expensive deemed rates on to fixed products. Only 9% of our customers are on a deemed rate versus an industry average of 13%. We continue to do that, but the role that a commercial landlord plays in the change of tenancy there is really important. The average time it takes us to get change of tenancy data is 120 days. That is one of the reasons why you see small businesses sitting on more expensive deemed rates for longer than they should, because we simply do not know who the new occupant of the building is.

Moving down the table on that, bills are high. What can we do to fix it?

There are a number of things that can be done with the non-domestic market. Specifically with billing, a number of the complaints that Citizens Advice receives from small businesses come from inaccurate billing but also not understanding their bills. We found that 75% of small and microbusinesses say that they experienced some sort of billing issue in the past 12 months. From that, 41% struggle to understand the breakdown of even the bill. That should be a priority, because, even if you are looking at high cost, if you have small businesses with limited capacity and limited resources to understand what they are being charged for, that is an issue that should be resolved quite quickly.

I would echo a lot of what Chris said. He articulated really well the wholesale costs and the levies—the non-commodity costs. We are also going to be seeing more of those being added to bills. We have an opportunity right now to have an honest conversation with Government about how we spread the cost of that. We will be seeing a hydrogen levy and a nuclear funding levy. The nuclear RAB, the network charging compensation and the hydrogen levy will all be coming on to business bills as well, pushing prices up further. Among all this, we have to recognise the essential role energy plays in the economy. At the height of the crisis, when inflation topped 10%, energy costs directly caused about a third of that rise. I think that the impact was close to a 40% to 45% increase in the prices people paid because of the cost of energy. We have to recognise that our reliance on volatile gas sets the marginal price. We need to be moving towards a clean energy system. While a clean energy system is of course the goal and will, in the long term, bring down prices, we have to pay for that somehow, and that is why we are having all these extra costs put on. It comes down to that big-picture conversation about what is fairest on taxes versus what is on bills. In terms of that pot of levies and different costs that are on bills and make up half of the bill, there are a few things that could be considered. One would be removing some of the legacy policy costs. The renewables obligation and the feed-in tariff still sit on energy bills. Those could be moved into either general taxation or another structure. As the grid decarbonises, they are quite expensive. You could also lower the climate change levy. You would need to pay for it, right? There are things that could be done particularly around hypothecating the carbon border adjustment mechanism or the emissions trading scheme, where you will be getting money in so you could hypothecate that to trade off the saving. The reason that I put these things to you is that I think there are things that can be done to bring bills down now while still aiming for a clean power system. In the long term, clean power will deliver cheaper bills more consistently.

Walk us through what has happened to the profitability of energy companies among your membership.

Energy UK represents generators of all sorts. We are tech-agnostic. We have gas, nuclear, onshore wind, offshore wind and solar. We have the retailers as well. On the domestic retail side, for over four years over £4 billion of losses were made. It is not a very attractive investment proposition on the retail side. On the non-domestic retail side, the latest data that I have seen show that it is not a hugely profitable part of the energy market. As an industry as a whole, non-domestic energy suppliers make between 1% and 4% of profits. It is not huge. It is not a hugely attractive part of the market.

How has changed over the last three or four years?

It has become more complex since the energy crisis.

Do you mean in terms of the margins?

No, not really.

As in, they have not changed.

No. I will double-check and come back to you. The latest figures that I have seen are from some analysis done last year. I will come back to you and confirm. I will put that in writing to you, Chair.

Dhara, if I can stick with you, is this the dirty little secret at the heart of the green, clean energy system? In fact, it is not really wholesale gas prices that are hitting people in the pocket; it is all these levies that are being loaded on. Is that not really the case? We can argue the toss about whether or not we have to go down this route, but in the short term that is the problem, is it not?

We have to invest in our system. I would not characterise it in the same way as you, but we need to have an honest conversation about the impact that these costs have on bills and the fairest way to pay for them. There are pros and cons for things being on taxation versus on bills. Ultimately, it is very regressive having it on household bills in particular, of course, but it is also regressive to have it on business bills. On the other hand, politics can change many of these big decisions. When we are investing in clean power infrastructure and in power generation, investment has long-term horizons and you need a multi-Parliament view. Sometimes paying for things via bills is the fairest because you get the longevity. As a good example—forgive my language, please, Chair—when we “cut the green crap” it had a huge impact because it was a Government decision. ECO, the energy company obligation that sits on bills, continued. It has been the only part of the energy efficiency story that we can be proud of as a country. It has continued to deliver because it was in some way shielded from political intervention. All the other support for households to decarbonise was not. That is just a really good example of how we need to get it right between bills and taxes. It is complicated. No one pretended it was easy, but we do need to invest.

If it was easy, it would be done by now—it is the hard things that we are here for. Chris, I will come to you. You did a very good job of outlining the impact of non-commodity costs. Standing charges are another part of that. Do we need a big conversation about this whole question of these non-commodity charges in all their shapes and forms?

As I said earlier, non-commodity costs are a significant and increasing part of the bill. As Dhara says, as we invest in the energy infrastructure that we need in this country, those non-commodity costs will continue to grow. As Dhara has outlined very eloquently, there is optionality in terms of whether you carry those non-commodity costs on the energy bill or whether you move them into general taxation. In other markets where we operate—we operate in most European markets—many of the policy costs, particularly the type of legacy policy costs that Dhara is referring to there, are not necessarily carried on the energy bill. If they are, they are not carried on business energy bills. There is good reason to have a debate about what these costs are for, how they are borne and where the best place to allocate these costs in the various funding mechanisms is.

Are you able to give us a cross-country breakdown of those bills for, say, a typical business in the different European markets that you operate in?

If it is okay, Chairman, I will write to the Committee with that. Yes, absolutely. It would be wrong to try to do it off the top of my head today.

It would be very helpful just to help us understand what is going on.

I will write to you.

If I can come to Venus, you talked about the difficulties that businesses face understanding their bills. Could more be done with bills? When HMRC tells you how much you have paid, you could get a breakdown of what your money is going to or something like that. Would it be helpful if that was simplified? Would that better communication help businesses understand what is going on with their bills?

Yes, it is a mix of the two. First, we need a standard explanation. Every supplier has different bills and a different process for how it lays out those bills. Having something more standardised would definitely be helpful. Secondly, yes, it is about communication. A lot of small businesses and microbusinesses navigate the energy market in the way that normal domestic consumers do again because of that limited resource and limited capacity. Having more support, even from the Government, to clarify what their rights are, especially around billing, would be tremendously helpful. Just going back on the net zero point, if we are to have a quick or an easy transition, small businesses need to be able to trust their suppliers. If they are not getting accurate bills, that can also lead to mistrust in the market and in some suppliers. There is a trickle-down effect in why the billing issue is so massive.

It seems to be that domestic customers are better treated than commercial customers. Domestic customers have several checks, balances and safety nets in place, whereas the commercial people are just out there on their own.

Yes, absolutely. There is definitely a lot more protection for domestic consumers than for non-domestic or small businesses. Yes, there is definitely a lot more that Ofgem needs in terms of capabilities and powers to protect small businesses.

Is it that Ofgem does not have sufficient powers? We have heard a lot about that in this Committee about paper tigers, where powers look great on paper, but they are not being enforced. Where is Ofgem? Does it need more powers or does it just need to use what it has?

It is a combination of both. More has to be done with the powers that are there. We need more clarity and more standardisation. That could be done, especially through SLCs. However, yes, the Government could give more to Ofgem to better regulate the industry.

We conducted a whole series of roundtables back in December last year. We went around the country to talked to all sizes of business. What was striking really for small businesses, particularly in the hospitality sector, was that they felt they were paying too much for their energy bills. The market was not working for them. In hospitality, you have the bar side; you have food preparation and so on. They really do face significant costs. Perhaps starting with you, Ms Galarza-Mullins, what could be done to make the market fairer for SME sector businesses?

I cannot speak to hospitality directly, but making the market fairer is going to have to start with better regulations around what it is currently. I am sorry to go back to billing, but that is one of the things that a lot of small businesses face, even with repayment options. Many of them are not given enough information about their rights or how they can have repayment plans. Knowing that information and knowing their rights and options would go a long way. What we hear from clients in the cases that we get across is that current costs for them are so high. The repayment plans that they are given are not fair enough to get through and make ends meet, essentially.

They are not flexible.

They are not flexible enough.

It is very difficult to access to change them.

Yes, that is correct.

There are a couple of points worth making. One is around risk. I completely agree: microbusinesses in particular and small businesses more generally operate more like a domestic customer, which is where third-party intermediaries or brokers come into the conversation. They play a really important role in this bit of the market. Where that works well, it works really well for the customer, the supplier and the broker. Where it does not work well, there can often be mistrust and issues. When it comes to regulation, closer regulation of third-party intermediaries and brokers would give everyone a better outcome. There is mis-selling, bad practices and pressure tactics. There is no regulation in this space other than some voluntary commitments. A broker has a lot of power in terms of the deal that a small business ultimately takes up. My first response is that proper regulation of third-party intermediaries and brokers would be really welcome. Frankly, industry and consumer groups have been calling for that for well over a decade now. That is one point. Coming back to business-to-business transactions, this differs from the domestic market. If I think of my high street, you might have a hairdresser, a bakery and a hardware store right next to one another. It is literally like that where I live. They might have a similar footprint, but they use energy very differently. They have a different risk appetite. You need to have a tailored conversation to make sure you are getting it right for that business. It is different from the conversation you might have with a household. It is worth noting that. Managing risk and making sure you are thinking carefully about how you do that is really important. Lastly, you raised hospitality. My team is working with UKHospitality on things such as the way energy suppliers approach trade credit insurance. We know that there are things we could do differently and better to give a better service to the small businesses that we supply. We are trying to improve and learn from other business interactions that small businesses have.

In terms of helping small businesses navigate the market and making the market fairer, there are a number of things that could be done. Dhara has touched on the point about the regulation of TPIs. We operate our own voluntary code of conduct for brokers. The commission that we pay to brokers is limited in the small business segment to 2p per kilowatt hour. We conduct proper background checks on the directors of TPIs and brokers. We retain the right to be able to contact the business directly to make sure that relationship cannot be circumvented, if the small business needs to contact us. Dhara’s point about the proper licensing and regulation of TPIs would be a positive. As my colleague from Citizens Advice was referring to, we voluntarily apply back-billing protection to all small businesses, not just microbusinesses, where we are obliged to do it. We would certainly support the application of back-billing protection across the whole small business segment. Back-billing protection applies over a 12-month period. Where a small business or any other customer has a smart meter, we would support a reduction in that window of time to prevent back-billing beyond six months. That would benefit many of the micro and small businesses that we serve. I want to come back to this point about the role of commercial landlords in this space. I touched on the importance of receiving timely and accurate change of tenancy information. The lack of that information is the primary reason, certainly in our book, why small businesses remain on deemed rates for longer than is necessary. We simply do not have the information as to who is in the building and who we are supplying. Therefore, we cannot make an assessment of credit risk or wholesale market risk and we cannot offer a contract. Equally, while I welcome the position that the Government have set out in their consultation around the future of the smart roll-out and I agree that for residential customers it should continue to be customer-led, I see no reason why smart cannot be mandated for commercially leased properties. That would significantly improve the accuracy of billing. Most of the billing issues that I described earlier ultimately stem back to the use of estimated reading. Mandating smart in commercially leased properties is a simple step that would cost the landlord nothing, would cost the small business nothing, would improve the experience that a small business has and would enable it to access better products and services, as you are starting to see in the residential market.

I have one question to each of you very quickly, if that is all right. Venus, the Energy Ombudsman does not seem to have enough powers to make changes here. I am wondering whether that is a factor not just in the energy market but across the country. Would we be better off if we had one macro ombudsman with real powers and teeth as opposed to this cottage industry of ombudsmen that lack teeth? Is that on target or off target?

Citizens Advice does not really have an opinion specifically on what format that should take and whether having multiple bodies or just having one massive body would help. A lot of the issues could be resolved within the bodies that are there now. They could be granted more powers to do things a lot better and to regulate. Our colleagues just mentioned regulating TPIs. Some of that, as I mentioned earlier, has to do with being able to regulate and to go through that properly, but they also need to have new powers granted to them.

If you were to say one power that they particularly should have, what would it be?

It would be better regulating TPIs.

Chris, is it appropriate to threaten to send debt collectors to businesses while a case is being investigated by the ombudsman?

No, if the case is being investigated by the ombudsman and is live with the ombudsman. There is a time window for the customer to go to the ombudsman, which is 14 days from the point at which we have determined that we could not resolve the complaint. Providing that the customer has done that, we should pause all debt collecting activity. We do. If there is an instance where we have failed to do that that is on your mind, please do let me know outside of this hearing and we will absolutely look into it. We will put it right and compensate the customer, if we have got it wrong.

Dhara, Energy UK is very keen to have the UK more linked to the European single market of electrons. It makes it cheaper, more efficient and greener. You are proposing putting us back inside single day-ahead coupling, SDAC, on a contractual basis, which apparently does not require the jurisdiction of the ECJ. That is good news, I am sure, to some. What is stopping it happening?

It is down to the negotiations between Government and the European Union. There is complexity within it. There are decisions that need to be made. The May summit was a really good starting point to begin that conversation. We are really hopeful that it will happen before the beginning of January, when it is supposed to come in. Otherwise, we will see a disconnect and it will leave UK businesses out of pocket. We need to be on track for market coupling and linkage as soon as possible.

Chris, on 1 July, the Federation of Small Businesses told us that 19% of small businesses admit to signing an energy contract so the broker or the supplier would leave them alone and stop hassling them. As an industry, have energy companies done enough to challenge the practices of bad brokers?

As I said earlier, we have implemented our own code of conduct for TPIs. There are about 3,000 brokers or TPIs in the market. We work with only 182 of them as a consequence of the application of that code of conduct. Ultimately, it is not for individual suppliers to regulate the TPI market. If you took that to its conclusion, you would have different standards of practice among TPIs depending on which supplier was contracting with them. As Dhara mentioned earlier, the TPI market should be properly licensed and properly regulated by Ofgem.

Your code of practice—I have a copy of it in front of me—mentions brokers acting in a professional manner but does not make any comment about brokers badgering or harassing potential customers. That is the experience that I have personally had setting up my constituency office using one of the brokers that is approved on your website. I had three phone calls a day from the broker, for three months, asking me to sign a contract. Why does your code of practice not specify that brokers that hassle potential customers do not deserve a place on your roll?

Thank you for pointing it out. It is certainly what is intended in that code of practice. If there is an example that you have, please do share it with me and we will make sure that we take the appropriate action.

One potential way to stop those bad brokers in the market would be to implement a 14-day cooling-off period for small businesses, like you do in a domestic energy contract. Should small businesses be able to have that as well?

That is something that we would support, yes.

Do you voluntarily, as E.ON, do that 14-day cooling-off period?

In the broker market? I would need to come back to you and write to you on that.

It is something that you would support.

It is something that we would support, yes.

If you are not doing that at the moment, you think E.ON would potentially voluntarily start to do it.

It is something that we would support. I will come back to you in writing.

It seems like you are taking quite a hands-off approach to TPIs. You are saying that it is somebody else’s job to regulate them without necessarily taking some responsibility for the behaviour of the partners that you work with.

Respectfully, I do not agree that it is a hands-off approach. We are one of the few suppliers in the market to have introduced our own code of conduct. We cap the commission that we pay to TPIs, as I mentioned earlier, at 2p per kilowatt hour in the small business market. We conduct thorough due diligence and background checks on the directors and proprietors of TPIs to make sure that we understand the previous trading history of the partners we are doing business with. We ensure that in any contract we have with a TPI we retain the right within that contract to engage with the customer directly, which is not always the case. I do not necessarily agree that the approach that we are taking is a hands-off approach, but there is a limit to the extent to which individual energy suppliers can take the place of the regulator in regulating the TPI market. Ultimately, you have to have a common standard across the whole market that is enforced through regulation to ensure that the type of bad practice we heard about earlier is addressed on a market-wide basis.

You would presumably tell us you are at the more virtuous end of the supplier market in terms of the way that you ask for certain behaviours and standards among your TPI partners. Do you think the behaviour that you ask for is the generally accepted norm across the sector or is there in fact quite a wide range of bad practice?

I would not pretend that we get everything right. I am pleased with the improvement in performance that we have seen. We are the No. 1 large supplier in the Citizens Advice microbusiness league tables. There is more that we can do. I would not want to pretend that we get absolutely everything right. Do I believe that we are at the right end of the spectrum when it comes to the management and behaviour of TPIs? Yes, I do. Do I believe that there is bad practice in the TPI market? Do we see evidence of bad practice in the TPI market? Are there TPIs with which we will not do business? Are there TPIs with which we are involved in a litigation process related to some of those bad practices? The answer to all that is yes. There is more that is required to properly license and regulate the TPI market. One of the practices that I personally feel very strongly about is where TPIs are approaching small businesses, effectively to try to extract money, either from the small business or the sector as a whole, for services that can be provided to the small business for free by the Energy Ombudsman. In particular, that practice should be stamped out.

My question is to each of you, but I will start with Dhara, if I may. What further action would you like to see to bring down small business energy costs and improve their overall experience of the market?

Thank you for the question. If you will permit me, I will just add a slight point to Chris’s really well-articulated points about brokers. I understand that there are more than 2,000 brokers active in this space. It is really important for the Committee to recognise just how fragmented that market is. There are so many of them, which makes it really challenging to raise standards. It makes it really challenging to cohesively monitor performance across that space, which is another reason why a sector-wide approach would be really welcome. Forgive me and thank you. To answer your question directly, the first thing is about reducing electricity bills for businesses largely through policy cost rebalancing. That would help businesses also look to electrify heating and it would mean that we as a country would continue to contribute to reducing our exposure to international gas prices. It is about business decarbonisation as well as reducing bills. The second is to expediate the way that we regulate TPIs. That would be a huge help for businesses across the country. The third is more consistent support for small businesses. The reason that I say that is that there has been support for large industrial and commercial users. There are 7,000 commercial users that will get extra help through the supercharger scheme. That is really important. It makes us competitive internationally. This is not to diminish the importance of supporting larger businesses, but the help that small businesses have had in recent years has been contingent on crisis. It has been intervening to support because of the cost of energy and the energy crisis. We need more consistent support for small businesses, and that has to be something that we work closely with Government on.

I have a few things. First, Ofgem needs to investigate billing practices for small businesses to understand why there are such high levels of inaccurate billing in the market. We need a continuation of the Government’s plan for non-domestic smart roll-out as the current target ends at the end of the year. We would also be calling on Ofgem to work with suppliers to improve complaint handling. We should include debt and disconnection in the designated activities of SLC 0, which would encourage suppliers to treat businesses fairly when they are dealing with debt. Lastly, we need more support for small businesses, especially with the net zero transition, to help with costs and create trust in the market.

We touched on it earlier: we need to address the role of marginal pricing in the wholesale price of energy. We need move some of the legacy policy costs off the electricity bill in particular into general taxation. We need to address the roles and responsibilities that commercial landlords have. Some 60% of our small businesses are tenants in their property. There is an opportunity there as well. There is an opportunity to use the VAT system, for example. VAT is taxed up to 20% on a business energy bill. There is the opportunity there to provide tax incentives for a small business to invest in some of the energy solutions, such as solar and storage, that we see bringing bills down significantly for the residential customers that can access them.

That would put up their business rates.

I cannot comment on that, but I believe there is an opportunity to provide an incentive. Just to give you an example, we have a product through a partner called Ilum, which enables solar sharing on midsize buildings. You can put that product in simply behind the meter. You have solar on the roof. It shares the solar output equitably with all the tenants in that building. It allows the landlord to retain the export value of the solar while the businesses potentially in that building benefit from reduced bills. That is the type of product that I am talking about that, which you could incentivise through the use of the VAT that is applied to business energy bills.

Just to be clear, now that gas supplies about a quarter of the UK’s electricity generation, what is the logic for tying the electricity price to the marginal price of gas?

We would like to see that addressed. We would like to see that changed.

What is the logic of persisting with that wholesale pricing model today?

You would have to ask somebody else. We believe it is the wrong thing to do. For example, a report by the consultant Stonehaven, which we would absolutely support, says that by taking gas assets out of the wholesale market into a strategic reserve or a regulated asset base you could save residential and business energy customers in the UK up to £2 billion per year. There is no reason to my mind as to why we should persist with marginal pricing, where the most expensive molecule sets the price for the whole market and customers do not benefit from what is normally cheaper renewable power.

Is that a shared view across your industry?

I do not believe so, but that is our view.

Could I just follow up on that, Chris? E.ON operates across Europe. I do not expect you necessarily to have a perfect answer on this, but is there a regulatory environment in Europe that you think has got it right, that does not use the marginal price of gas to price electricity and that you have heard of as a sensible model?

It would be better to help the Committee with your inquiry for me to write to you with a full comparison of the individual European markets in which we operate and what is driving bills. We will definitely do that.

That is very helpful.

Finally, Mr Norbury, on the TPI element of the business and SMEs, I am just interested to know—because this is something that I have obviously missed a trick on—what proportion of your business to SMEs, 10 or maybe even 20 years ago, would have been fed through a TPI.

I would have to come back to you in writing on 10 or 20 years ago.

What is your gut feel?

Today, our relationship with 20% of the small businesses with which we contract is through a TPI.

This is SMEs.

Yes, 20% of SMEs. It has reduced over time. I could not go back 10 or 20 years.

Ms Vyas, do you have a feel for it?

I do not, but, in my personal experience, I used to work at Citizens Advice. In 2010 and onwards, we were calling for regulation of the brokers market because we could see then what an impact that relationship was having on customers getting the best deal or not. It has been an issue for quite some time.

Thank you very much indeed. That has been extremely helpful. We are very grateful to you. That concludes this panel.