Businesses across hospitality sector the have called on the UK’s competition watchdog to investigate the energy market amid fears that small businesses may have been overcharged.
In a letter to Sarah Cardell, the Chief Executive of the Competition and Markets Authority (CMA), UKHospitality said the criteria for a Market Investigation Reference (MIR) had been “undoubtedly met”, including reasonable grounds for suspecting competition is not effective and the scale of the problem.
A market investigation would be conducted by the CMA to consider whether the features of a market – the non-domestic energy market in this instance – have an adverse effect on competition and, if so, what remedies are available to address the issue.
In March 2023, Ofgem made a commitment to the then Chancellor to consider recommending a market investigation by the CMA if it had reasonable grounds to suspect that competition in the market was not effective. In July 2023, Ofgem’s own review confirmed a lack of effective competition but there was no mention of the promised recommendation of a market investigation.
Hospitality businesses continue to report issues with the energy market, including being treated as high risk and therefore charged premiums or denied supply. The CMA found in 2016 that a lack of competition in the energy market was causing SMEs to pay 18% too much for energy – estimated at £500m per year.
The letter said: “In our view, an MIR is the only way to address the entrenched competition problems in this market. The criteria for an MIR are undoubtedly met, given the reasonable grounds for suspecting that competition is not effective; the scale of the problem; and the reasonable chance that appropriate remedies will be available.”
Kate Nicholls, Chief Executive of UKHospitality, said:
“The business energy market remains one of the biggest millstones around hospitality’s neck.
“Over decades, it has been proven that it is not fit-for-purpose. It has unscrupulously excluded businesses from accessing energy, charged them extortionately when they do offer contracts and treated operators with contempt when they come to suppliers for help.
“All of the conditions have been met to justify a thorough investigation and both the CMA and Ofgem have recognised independently that the market is not working effectively.
“With the Government rightly looking at how regulators operate, a swift investigation into the non-domestic energy market would be a prime example of a good regulator acting to the benefit of the market and investment.
“After all, there is nothing more detrimental to business investment in the UK than having to pay an excessive amount for energy and potentially not even being able to access it at all.”
This proposal for a MIR was developed by David Osmon of Ideal Economics.
David, a former economist at Ofgem, the Competition Commission and the Office of Fair Trading, said:
“The energy market is completely broken as far as many businesses are concerned. A fresh market investigation would deliver a significant boost to economic growth at virtually no cost to the government.”