Ofgem announced in July 2022 that it had conducted an urgent review into direct debits increasing at rates much higher than the price cap1. The review found "flawed" processes and a spectrum of weaknesses in companies' approaches to setting direct debits1.
The review followed the April 2022 price cap increase, when providers reviewed payments against higher energy prices. Which? reported hearing from people who saw "startlingly high increases to their direct debits far above the increase to the price cap"1.
"In July, energy regulator Ofgem announced that it had conducted an urgent review into direct debits increasing at rates much higher than the price cap."
Under the price cap, a direct debit is not the same as a bill. The bill is the standing daily charge plus metered energy use, which varies month to month; the direct debit is a fixed monthly or quarterly amount based on the supplier's estimate of annual use, divided by 12 or four1. Suppliers must take reasonable steps to ensure the amount is fair and based on the best information they hold about a household's gas and electricity use1. Energy companies review a direct debit at least once a year, and this applies even on a fixed deal1.
From 1 October 2022, bills for people on variable tariffs were to rise by an average of 27% over the next year, which suppliers said would be covered by higher direct debits1. That increase, Which? said, should be proportionate to how much more the supplier believes a household's bills will be1. The Energy Price Guarantee was in place at the time, but Which? reported that bills would still increase on 1 October 2022 for variable tariff customers1.
| Point in the direct debit cycle | What applies |
|---|---|
| Review frequency | At least once a year, even on a fixed deal1 |
| Notice of an increase | Supplier must tell you before it happens, under the Direct Debit Guarantee1 |
| Credit balance | Which? suggests aiming for no more than two to three months' worth of payments in credit1 |
| Refunds | Providers must refund credit on request unless they have a good reason not to, which they must justify1 |
| Back-billing | Under Ofgem's Back-Billing Principle, a supplier at fault cannot charge for usage from more than 12 months ago1 |
Why it matters for households
A direct debit is a forecast, not a meter reading, so an increase above the price cap rise points to the supplier's estimate rather than to the unit rate alone. For a household, the practical effect is on cash flow and on how much of its own money sits with the supplier as credit. A growing credit balance can indicate payments are set too high for actual use1. Where a supplier stopped trading while a household was in credit, that money can be claimed back from the new supplier, though there is no set period for the process to complete1. The Direct Debit Guarantee requires notice before an increase, and a supplier must explain how it reached the figure and give the meter readings used1. Where a household cannot afford payments, suppliers must treat customers fairly and agree a manageable plan; options reported include a payment break, payment reduction, additional time to pay, access to hardship funds and the priority services register1. The Warm Home Discount was worth £140 a year at the time1.
What happens next
Ofgem's review findings were published, and Which? advised contacting a supplier to have payments reduced where direct debits are too high and too much credit is building up1. Complaints that a supplier cannot justify can be escalated to the energy ombudsman1. No further Ofgem timetable beyond the review has been reported.
Sources1 cited
- Why are energy direct debits so high? - Which?, which.co.uk