Households face a £70m windfall after Ofgem launches automatic compensation scheme

More than £70m is likely to be paid to customers each year as Ofgem announced an automatic compensation scheme in a bid to shore up confidence in the process of switching suppliers.

From tomorrow, customers will be given at least £30 to compensate them for “erroneous switches”, and delays to refunds of their credit balances.

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The new policy, which consumer group Which estimates would have paid out around £70m last year, will be a “wakeup call” for suppliers to improve their customer experience, the regulator claimed.

Rob Salter-Church, director of retail systems transformation at Ofgem, said: “When a switch goes wrong, it can cause inconvenience, and in some cases, real worry and stress for those affected.”

However, this could add to the burden faced by small energy companies, a string of which have gone out of business in the last year. 

Robert Buckley head of retail and relationship development at Cornwall Insight said the policy “might not necessarily help matters. However, with larger issues at play, this is another potential risk, but it is unlikely to have a major impact on these suppliers.”

Others said the policy did not stretch far enough. Andrew Long, the chief executive of switching service Switchcraft, called for compensation to be applied to other customers who have been inconvenienced.

“‘Erroneous switches’ are already rare, but every month there are thousands more switches that don’t go through smoothly and punctually,” he said.

And Moneysavingexpert founder Martin Lewis said companies could take advantage of loopholes in the new rules.

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“The new rules are progress, but there is still a big hole. While telling firms they must give credit within 10 days of the final bill, Ofgem hasn’t told them how quickly the final bill must be sent, and we know in some cases it can be a year after customers have left.

“This is farcical, and Ofgem must urgently address this, or providers have a very easy loophole to continue delaying paying people money back, and depriving people of their hard earned cash.”