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What Is The Microbusiness Strategic Review (MSR)?

The Microbusiness Strategic Review was a consultation and review process initiated by Ofgem, the UK’s independent energy regulator, from 2020 through 2022.

This review was motivated to address problems experienced by microbusinesses in the market. There was evidence that smaller businesses often got an unfair deal on their energy contracts due to a lack of transparency and other sharp practices.

We highlight the important changes that came out of the review and how microbusinesses, brokers, and suppliers are affected.

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What Is The Microbusiness Strategic Review?

Ofgem launched this strategic review to highlight and mitigate the adverse treatment of micro-enterprises in the retail energy market. Ofgem identified a number of key harms that prejudiced smaller businesses. These included inadequate advice, ‘hidden’ brokerage costs, and unsatisfactory dispute resolution procedures.

Microbusinesses make a significant contribution to the UK economy. Consider the figures:

  • There are over 5 million microbusinesses in the UK
  • They provide 21% of the country’s employment
  • They account for 14% of the nation’s turnover
  • Microbusinesses consumed £4.2bn with the major energy suppliers in 2021

We know Covid-19 knocked many microbusinesses hard. The ongoing volatility in the energy market has forced consumers to bear sharply increased prices. And many microbusiness contracts remain overly complex.

Through 2020 and 2021, Ofgem consulted widely and heard from stakeholders throughout the industry. These included suppliers, consumers, third-party intermediaries, Citizens Advice, and Ombudsman Services. There was consensus that existing supply licence obligations didn’t go far enough in mitigating the key harms affecting microbusinesses.

In March 2022, Ofgem announced new actions aimed at strengthening existing rules and improving protections for small enterprises.

Business Energy Comparison can fully support these measures as they align with our focus of making complex markets less confusing through informed business utility comparisons, together with expert guidance and support.

What Are MSR And ADR?

Let’s look at the important changes arising out of the MSR.

  1. Supply Licence conditions governing the provision of principal contractual terms are strengthened. This includes the requirement to disclose intermediary fees.
  2. Suppliers can now only work with brokers who abide by an agreed dispute resolution process.
  3. Customers no longer have to give their supplier prior notice if they plan to switch suppliers (with the exception of Evergreen Contracts).
  4. There is a commitment to better industry information and awareness. This includes improved transparency around market practices and customers’ rights.

Ofgem also considered including a compulsory cooling-off period from 1-14 days on new contracts. However, after extensive consultation, it decided against modifying existing supply licence obligations to incorporate this provision.

ADR Scheme – Going forward, suppliers can only work with brokers signed to the qualifying Alternative Dispute Resolution scheme. This scheme is facilitated by Ombudsman Services, a non-profit independent body with over twenty years of experience adjudicating industry disputes.

Besides overseeing the dispute resolution scheme, Ombudsman Services also hopes to assist brokers to improve their practices. The ADR is currently funded by an annual fee of £300 per member and a per-case fee of £340.

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What Changes Are Going To Be Made?

The four crucial changes are designed to address the following issues:

1. Principal contractual terms – The new rulings want to ensure that the consumer is made fully aware of and understands the Principal Terms of the contract, including brokerage costs. Suppliers are now explicitly obligated to:

  • Explain the Principal Terms pre-contract (in some form)
  • Formally bring the customer’s attention to the Principal Terms again post-contract (in writing)
  • Ensure that brokerage costs and other third-party costs that form part of the contract are clearly and transparently included in the Principal Terms and advised to the customer

2. Only brokers signed up to the ADR can contract– Going forward, brokers must be registered to this newly constituted dispute resolution scheme to continue to market and sell supplier’s energy contracts to microbusiness customers. This stipulation serves to:

  • Provide more protection to microbusinesses by helping them resolve disputes through a recognised independent party.
  • Assist brokers to continuously improve their practices.

3. Termination notices no longer required from customers – Removing the requirement for customers to give notice to switch suppliers is expected to:

  • Open more options for microbusinesses and make it easier to switch suppliers
  • Reduce administration and make the switching process smoother for businesses

Microbusinesses on Evergreen Contracts are still required to give notice in terms of their contract obligations.

4. Improving information and awareness – Ofgem believes that better information will help microbusinesses understand how the market operates and assist them to make suitable purchasing decisions.

Ofgem developed awareness and information materials together with Citizens Advice. Guidance and advice are shared on the Citizens Advice website. This information covers:

  • How the energy market operates
  • Supply companies’ obligation under their supply licences
  • Consumer rights
  • More awareness of brokerage cost transparency
Design Elements

Key Dates Governing The Microbusiness Strategic Review Implementation

The following key dates governed MSR implementation:

26 April 2022 – Registration to ADR opened.

31 August 2022 – Final day to guarantee registration to the ADR scheme before it goes live.

1 October 2022 – The requirement for suppliers to properly and clearly explain principal contractual terms, including transparency around brokerage costs, took effect.

1 October 2022 – Customer termination notices were no longer required after this date.

October/November 2022 – Confirming broker acceptance and recording them on the ADR register. Brokers were then invoiced.

1 December 2022 – Alternative Dispute Resolution goes live. After this date, suppliers were prohibited from working with brokers who weren’t members of the scheme (brokers can of course continue to register at any time).

What Is Classed As A Microbusiness?

In terms of Ofgem’s definition, a microbusiness is a business which:

  • employs fewer than 10 employees (or their full-time equivalent) and has an annual turnover or balance sheet not exceeding €2 million; or
  • uses no more than 100,000 kWh of electricity per year; or
  • uses no more than 293,000 kWh of gas per year

Typical microbusinesses can include:

  • Coffee shops and delis
  • Newsagents
  • Designers and print shops
  • GPs and vets
  • Electric and hardware stores
  • Small cab operators
  • Garages and repair workshops
  • Shoes stores and boutiques
  • Professional services- solicitors, accountants, financial brokers, consultants

Business Energy Comparison works with small businesses like these all over the country to find better energy deals. Ideally, our expert team of brokers and consultants like to work with you for up to six months prior to your contract expiry to fully explore and explain the best options. Timely arrangements also avoid expensive out-of-contract rates.

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Compare Business Energy With Business Energy Comparison

The Microbusiness Strategic Review is sure to have a largely positive impact in helping microbusinesses navigate the utility market. That said, picking the best utility supplier remains a time-consuming and often complex exercise. Business Energy Comparison has the tools, experience, and expertise to reduce the time and complexity drastically.

We understand that every business is different. Whether you’re a microbusiness or SME or large corporate, we can connect you to the right supplier and tailor an optimal energy package for you.

It’s all about comparison. It’s crucial to compare business energy suppliers by getting multiple quotes across the market. To ensure proper market coverage, Business Energy Comparison has working relationships with over 27 suppliers. These encompass big names and smaller specialists offering tailored sector offerings.

Start the process of securing better business gas and business electricity rates by initiating an invaluable comparison. The decision could save you up to 45% on your energy bills in the years ahead.

Start your journey and compare business gas and electricity rates with Business Energy Comparison today. Use our price comparison tool and in less time than it takes to make a brew, we’ll compile your best prices from the UK’ s best suppliers.

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Frequently Asked Questions

Why wasn't a cooling-off period included in the Microbusiness Strategic Review decision?

Ofgem considered including a cooling-off period in the final MSR decision but ultimately decided against it at this time. The cooling-off period as proposed would have been difficult to implement and possibly caused confusion and unhappiness-given that it differed from the domestic cooling-off provisions which business owners are likely familiar with.

How do Energy Brokers earn their money?

Energy brokers negotiate with utility suppliers to get good energy deals for customers. Energy brokers are typically paid by the supplier when a customer signs an energy supply contract.

Why was Ombudsman Services selected to run the Alternative Dispute Resolution (ADR) scheme decided by MSR?

Ombudsman Services worked closely with Ofgem throughout MSR and has been involved in independent dispute resolution in the energy industry since 2022.