Energy suppliers reviewed direct debit payments alongside increased energy prices in April 2022, and some customers saw increases far above the rise in the price cap, according to Which?1. In July 2022, energy regulator Ofgem announced it had conducted an urgent review into direct debits increasing at rates much higher than the price cap1. That review found "flawed" processes and a spectrum of weaknesses in companies' approaches to setting direct debits1.
"When providers reviewed payments in April 2022 with increased energy prices, we heard from people who saw startlingly high increases to their direct debits far above the increase to the price cap."
Direct debit is the most popular way to pay for energy, and almost all energy providers discount payments made this way1. A direct debit is not the same as a bill: the bill is the standing daily charge plus metered usage at the unit rate per kWh, which varies by month, while the direct debit is a fixed monthly or quarterly amount intended to keep the account in credit across the year1. Suppliers estimate annual use and divide it by 12, or by four for quarterly payers1. Energy companies will review a direct debit at least once a year to check it matches actual use, and this applies even on a fixed deal1.
Further increases took effect from 1 October 2022 for people on variable tariffs, who would pay an average 27% more over the next year, which Which? said meant suppliers would increase direct debits to cover the additional cost1. That increase, it said, should be proportionate to how much more the supplier believes a household's bills will be1.
| Point in time | What happened |
|---|---|
| April 2022 | Price cap rose; providers reviewed payments; some direct debits rose far above the cap increase1 |
| July 2022 | Ofgem announced an urgent review into direct debits rising faster than the price cap1 |
| 1 October 2022 | Variable tariff bills rose by an average 27% over the next year1 |
On credit balances, Which? said it is wise to aim to have no more than two to three months' worth of payments in a credit account, with a possible exception where credit is built up over summer to make winter payments more affordable1. If a customer asks for a credit refund, providers must do so unless they have a good reason not to, which they will need to justify1. Where a supplier stopped trading while a customer was in credit, the money can be claimed back from the new supplier, though there is no set period for that process1. Under Ofgem rules called the Back-Billing Principle, a supplier at fault for not billing correctly cannot charge for energy usage from more than 12 months ago1. The Direct Debit Guarantee requires a supplier to let a customer know about a payment increase before it happens1.
Why it matters for households
A direct debit is a forecast, not a meter reading, so it can move for reasons other than the unit rate. A household's energy bills and the price cap are set by unit rates and standing charges, but the amount leaving a bank account each month is set by a supplier's estimate of annual use. That gap is where disputes arise, and it is why a bill can look higher than the cap figure1. For a household's energy independence, the practical issue is control of cash flow: money held as credit is money not available elsewhere, and an inflated direct debit can build a balance that a household did not choose to hold. Which? reported that customers can ask a provider to explain how it chose the amount, and that it must tell them1. Where a complaint is not resolved, it can be escalated to the energy ombudsman1. Households unable to afford payments were told suppliers must treat customers fairly and agree a manageable payment plan, with options that might include a payment break, payment reduction, additional time to pay, access to hardship funds, and inclusion on a priority services register for vulnerable customers1. Which? also noted the Warm Home Discount, worth £140 a year, as a support to check eligibility for1.
What happens next
The October 2022 increase for variable tariff customers was already dated at the time of publication, with suppliers expected to raise direct debits to cover the average 27% rise over the following year1. No further dated steps are reported.
Sources1 cited
- Why are energy direct debits so high? - Which?, which.co.uk