Small Talk: Slow progress in overcoming unpopular energy rollovers

 

One down, five to go. British Gas last week announced it would unilaterally abolish automatic rollover of energy contracts for small business customers in September. So will the rest of the Big Six gas and electricity providers follow its lead?

Not necessarily. E.On responded with a call for an industry-wide ban on automatic rollovers, but said it would not follow its rival’s lead until everyone else promised to do the same. The other four energy giants – EDF, nPower, Scottish Power and SSE – have yet to show their hands.

Automatic rollover clauses kick in as a small business’s energy contract is coming to an end and enable the supplier to automatically move the firm on to a new contract unless it objects within an often narrow time period. Since contracts are usually for very lengthy terms – a year or even longer in some cases – the effect is to lock all but the most efficient of small and medium-sized enterprises into what may be deeply uncompetitive prices.

The Big Six know these arrangements are hugely unpopular with SMEs, for which energy bills have become an increasingly difficult overhead as prices have risen in recent years. Until now, however, they’ve insisted on retaining their right to operate this way. As a result, rollovers continue to affect many small companies – the Federation of Small Businesses says one in four SMEs has been rolled over at least once.

The energy industry regulator, Ofgem, has been dithering on this issue for at least three years, having first mooted a straightforward ban on automatic contract rollovers in 2010. At the time it decided against it, but is now reconsidering, though it doesn’t expect to make a decision before the winter.

What’s concerned Ofgem in the past is that some SMEs might lose out if automatic rollovers disappear. Energy providers sometimes eschew rollovers, opting instead to transfer SME customers who do nothing on to new tariffs once their contract has come to an end; these are invariably more expensive than the plans on to which these firms would otherwise be rolled over. If that became standard practice, SMEs’ energy bills might go up, Ofgem fears.

The counter-argument is that SMEs would at least have greater control of their energy supplier options if rollovers were banned – if they failed to exercise that control and paid more as a consequence, they would have only themselves to blame. In any case, there’s nothing to stop Ofgem imposing additional regulation on the sector to address the specific issue it is concerned about.

Without intervention from regulators, the pace of improvement in the SME energy supply market is likely to remain slow – which is frustrating, given the way in which the Government has made it a priority to improve the deals on offer to consumers.

Still, there are a few encouraging signs. As well as British Gas’s initiative last week, EDF has recently announced a new flexible energy tariff for SME customers, thought to be the first time one of the Big Six has offered small businesses a deal that doesn’t require them to pay penalties to switch supplier while under contract. Several suppliers are also offering trials of smart meter technology to SMEs, which may be one key to cutting bills in the future.

All of which is good news. But there’s no point in the energy industry improving its practices – or being forced to do so – unless more small businesses put some work into taking advantage. For many SMEs, that will require a conscious effort to consider the way in which they use energy – and to spend some time looking into whether they’re on the best possible contract.

UK firms struggle to get follow-on funds

Despite a healthy seed capital sector, growing British companies are struggling to access follow-on funding, new research shows, with France now able for the first time to boast higher numbers of large venture capital investments.

There were 28 venture capital deals worth more than $5m (£3.2m) in France in the first half of 2013 according to a study by venture-capital firm DFJ Esprit and Go4Venture Advisers, compared to only 25 in the UK. Germany, with 18 deals during the first half, is also catching up.

The UK remains the dominant European country for venture-capital activity, with $656m worth of deals in the first half of the year.

But Simon Cook, the chief executive of DFJ Esprit, warned the UK’s failure to do more big deals could stymie the development of smaller companies into much larger businesses.

Co-op launches service for social enterprises

Small businesses continue to campaign for better treatment by their banks, and the Office of Fair Trading market study into competition in the sector comes not a moment too soon for many of the small and medium-sized enterprises (SMEs) who are convinced they’re getting a raw deal.

Included among those SMEs are a growing number of social enterprises, businesses that are run for the good of a community rather than with profit as  the priority.

Now the Co-operative Bank has launched a free banking service for social enterprises with an annual turnover below £1m – there are no transaction fees to pay, online banking is free and the account even pays interest on balances above £2,000 (though at pretty miserly rates, even on large sums).

Co-operative Bank director Richard France says the deal reflects the fact that his organisation’s “values and goals are closely aligned with those of the social enterprise sector”.

Still, social enterprises will want to keep a close eye on those values and goals, with part of the bank due to be floated on the stock market in order to shore up its finances.

Small Business Man of the Week: Recession? Customers are still loving our ethical goods

We got going in 1999 – I’d always been fascinated by interiors and the idea of reclamation and I began looking into how to source sustainable teak from Indonesia, where they are recycling the teak they used to build houses.

It was difficult to find the right partners, so we paid for the Forest Stewardship Council to go out there and help us find suppliers it could certify as meeting the highest social and environmental standards. Today, we work with 280 carpenters in Indonesia.

The business was doing brilliantly, but when the recession came along, we expected customers to stop focusing on the ethical and green issues when buying furniture and concentrate on price – that didn’t happen.

We’ve opened a factory in north London, making sofas, chairs and so on from European materials and we’re now expanding using a franchise model. It’s all part of the growth story – our turnover was about £2.5m in 2008 and we’re now up to £3.2m a year.

Our London factory is avoiding the problem of the euro, which is really hurting rivals who produce in Europe. As for demand, that’s there too – I reckon we could go  to 50 shops without running out of customers.

Mick Quinn, founder,  Raft Furniture

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