Is my energy supplier allowed to increase my direct debit payments?

Some households may be overpaying on their direct debit bills because suppliers had been preparing for Ofgem’s £3,500 increase in energy bills.

This will now rise by around £1,000 less for the average household from October after prime minister Liz Truss announced that energy prices will be frozen at averages of £2,500 a year. So it’s crucial to take a meter reading to ensure your usage is in line with what you pay.

In this article we will cover:

• Can my supplier increase my bills?
• Ofgem is currently investigating unfair direct debit increases
• Is my energy supplier allowed to raise my direct debit payments?
• Why has my direct debit increased when I’m on a fixed tariff?
• How much notice will I get if my bills are rising?
• Should I withdraw any credit I have?
• My direct debit payments have risen by more than the price cap, what should I do?

Can my supplier increase my direct debit payments?

While the next energy price cap, which was meant to come into effect on 1 October, will be frozen until mid-2023, some suppliers may already have upped customers’ direct debits.

This is allowed – but entirely at your discretion.

Ofgem says direct debits are usually charged in a way so that customers build up “credit” during the summer months when usage is lower, to spread out the cost of using more energy in the colder months.

“It’s therefore possible for direct debits to increase ahead of a price cap rise or even when a customer’s use has remained constant,” an Ofgem spokesperson said.

Suppliers such as British Gas are writing to some customers asking them for meter readings. The company has said some people will see their direct debits rise before the cap kicks in.

If you pay for more than you use, that money will go into your account as credit.

You can request this money back at any time and your supplier cannot deny you a refund without good reason.

But for some, these overpayments will actually benefit them, as the money will be held to cover your future bills. Some households may even ask to overpay now, to take some pressure off the coming months.

Ofgem is also investigating unfair direct debit increases

Earlier this year, Ofgem launched a review into direct debit increases.

At the moment, when a firm goes bust, its customers are moved over to another supplier chosen by Ofgem. Any credit on the customer’s account does not get switched over too, meaning the new supplier has to foot the bill.

Ofgem found that customers of that supplier – whether they were affected or not – were paying £94 each to cover this bill.

It led to concerns that firms were putting direct debits up to accommodate these costs, while other suppliers were accused of using customers’ accumulated credit like an “interest-free company credit card” to fund their business.

The investigation has so far found that on average, direct debit levels for customers on an standard variable tariffs (SVT) increased by 62% between February and April this year. Around 500,000 customers experienced an increase of more than 100%. SVTs are the tariffs covered by the price cap.

It warned that some of these direct debits may have been miscalculated.

Ofgem has instructed suppliers to:

• Review the accounts of all customers whose direct debit was increased by 100% or more between 1 February and 30 April 2022, to assess whether the uplift was appropriate.
• Adjust any miscalculations and consider whether a goodwill payment is warranted in the circumstances.
• Address any process issues which may have incorrectly led to significant increases or other poor consumer outcomes, such as systemic over- or underpayment.

Find out more: How to control your energy bills as cost of living crisis spirals

Bulb, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse were all identified as having ‘minor weaknesses’ on direct debit charges. That means staff may have been poorly trained on the direct debit rules and some household bills may have not been appropriately reviewed.

Ofgem identified ‘moderate to severe weaknesses’ with Ecotricity, Good Energy, Green Energy UK, Utilita Energy, TruEnergy and UK Energy Incubator Hub (UKEIH). It said in some cases, direct debits could have been set incorrectly, or not evaluated at all. This risked the build-up of either unnecessarily large credit balances or debt, depending on whether the customer was under-or overpaying.

Is my energy supplier allowed to raise my direct debit payments?

If you are on a standard variable tariff, your supplier is legally allowed to increase it to the level of the price cap – the maximum amount that households can be charged for their energy usage.

This is currently £1,971 a year, 54% higher than you paid before the new cap came into effect on 1 April. It will be around £2,500 a year from 1 October – see the new rates here.

You must be told beforehand if your payments are rising, and this should also include a full explanation as to why. It may be because of the higher price cap but it could also be due to estimates of your energy consumption by the supplier – and these can be challenged using meter readings if you think you are overpaying.

Contact your supplier about this as soon as possible, as you should if your bills are unaffordable and you are trying to avoid getting into debt (we have a guide on debt help here).

Of course, any built-up credit can be refunded at your request; so if your payments have gone up already in line with the previous price cap of £3,500, you can ask for a readjustment. Your supplier is not allowed to withhold your credit.

So can they raise my bill to the full price cap?

Yes, but suppliers will assess direct debits based on how much credit balance you have (i.e if you have lots built up, your payment might be lower) and also usage (ie, if you’ve used more or less than expected).

So the price cap change doesn’t translate neatly to your direct debit level.

It also depends on whether you’re on a fixed tariff or a SVT. SVTs are the ones affected by the cap, so these are the energy bills we’re talking about here.

Find out more: All the grants you can claim during the cost of living crisis

Why has my direct debit gone up when I’m on a fixed tariff?

A fixed tariff means that your unit rates and standard charge won’t change for the duration of your contract. But your payments can change if your consumption increases or isn’t in line with the estimates – the amount of energy you will use over a year – provided at the time you signed up with that supplier.

Even if your usage is in line with what’s expected, though, mistakes do happen and we have heard of fixed-tariff customers whose energy bills have risen. This can be for a variety of reasons, from computer errors to providers making incorrect estimates of energy consumption.

If you don’t have a smart meter, which can provide automatic and up-to-date readings of usage to your supplier, aim to do your own regular meter readings and provide them to the energy firm. This will help it track your use and then your direct debits may decrease in future.

If you feel that your supplier has increased your direct debit unfairly, you can challenge it.

You won’t be affected by the price cap if you are on a fixed tariff and your usage hasn’t changed dramatically, or you are on a standard variable green tariff, which Ofgem has not included in the cap.

What are energy suppliers not allowed to do?

Your supplier cannot raise your direct debit payments simply for the purpose of raising funds.

They must take all reasonable steps to set direct debit payments based on current and accurate information about a customer’s consumption and tariff, as well as other factors including credit balances. Ofgem said it expects suppliers to regularly evaluate their customers’ direct debit amounts to ensure they are appropriate.

Energy providers are also not allowed to hold onto your credit without a good reason.

How much notice will I get if my bills are rising?

You should be told 10 to 30 days before the increase.

The direct debit guarantee, which covers all payments and is governed by Pay.UK, states: “If there are any changes to the amount, date or frequency of your Direct Debit the organisation will notify you (normally 10 working days) in advance of your account being debited or as otherwise agreed.

“If you request the organisation to collect a payment, confirmation of the amount and date will be given to you at the time of the request.”

Should I withdraw any credit I have?

In normal times, it’s usually advised that you claim this money back before the summer when your energy use will be low and so your credit is likely to increase further – but given that bills have risen by another 27% in line with the Energy Price Guarantee, there is a case for leaving the money there as a buffer.

Nevertheless, customers can ask their supplier to refund their credit balance.

Suppliers must do so promptly unless there are reasonable grounds not to and they must explain to the customer why.

My direct debit payments have risen by more than the price cap. What should I do?

If you believe your direct debit payments have exceeded the price cap and your consumption, tariff and credit balance, contact the company and ask for a breakdown of the extra charge.

If you are unhappy with the outcome, and it’s been eight weeks since you raised your concerns, you can escalate the matter to the energy ombudsman.

The ombudsman can make a company correct a problem, apologise and explain what happened. It can also make a company pay compensation.

Have you got a question about rising energy bills? Get in touch: questions@timesmoneymentor.co.uk