British Gas feels the heat for failing customers

The call for harsher deterrents to be put in place was accompanied by a plea for cash taken in fines from large companies to be handed back to wronged customers rather than given directly to the Treasury.

Consumer champions said it was time for energy companies to start taking customer relations more seriously at a time of growing anger over the way that large firms deal with complaints.

The energy watchdog Ofgem found "basic failures" in British Gas's customer service when it imposed the multi-million-pound fine yesterday.

But critics questioned whether a 2.5m fine would prove an adequate deterrent to a company that has just announced plans for massive gas and electricity prices rises and is expected to unveil a 293m profit today.

Deep dissatisfaction over the way large firms deal with complaints has led to regulators imposing multi-million-pound fines in other sectors.

Earlier this year the Bank of Scotland was fined 3.5m by the Financial Services Authority (FSA) for mishandling complaints about sales of investment plans.

The other publicly funded Scottish financial institution - RBS and its parent bank NatWest - were fined 2.8m in January for failings in their customer complaint department.

At about the same time, Barclays was fined 7.7m for investment advice failures relating to the sale of two high-risk funds.

In the energy sector, Ofgem is currently investigating Npower and EDF Energy for complaint handling.

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Allegations of mis-selling are being examined at ScottishPower, Scottish & Southern Energy, EDF Energy and Npower.

There is also an Ofgem investigation into ScottishPower for potentially misleading marketing and the difference between its Standard Credit and Direct Debit Tariffs.

The Ofgem investigation into British Gas - which trades as Scottish Gas north of the Border - found that the energy company had failed to re-open complaints when the customer had indicated that the complaint was not resolved.

It found that the company failed to provide customers whose complaints they could not resolve with some key details about the redress service provided by the Energy Ombudsman.

Finally, it failed to put in place adequate processes and practices for dealing with complaints from small businesses.

The investigation examined a sample of 60 complaints that were being dealt with on two separate days.

Sarah Harrison, Ofgem's Senior Partner for Sustainable Development, said: "Today's finding highlights basic failures in British Gas's customer service, particularly in dealing with some of its small business customers, and shows Ofgem's commitment to use its powers to ensure suppliers treat customers fairly and transparently.

"We warned the industry in March that we would be backing up our plans to reform the retail market with a tough approach to enforcement. This 2.5m fine against British Gas, and the other 10m of fines imposed on the energy industry so far this year, sends a clear message to energy companies that they must abide by the rules."Ofgem noted that British Gas had made efforts to improve its complaint-handling services.

British Gas claimed the punishment was "totally disproportionate" to the issue.

But among consumer groups there was concern that there was not enough action being taken against large companies.

Audrey Gallacher, of Consumer Focus, said: "In an ideal world Ofgem wouldn't need to make fines because suppliers wouldn't break the rules.

"But when they do get it wrong we would like to see more enforcement action taken. Ofgem has made some progress on that which is very welcome.

"We would also like to see money from fines - rather than going to the Treasury - being able to be given back to the people that have lost out as a result of mistakes.

"The people that lose out should get the benefit from the fines. Ofgem has proposed that, but there are still lots of problems in this market and it is still not working as well as it can on a lot of fronts. We need to see greater deterrents so that energy firms get it right first time and punishments when things go wrong."

The idea that the public should benefit from the money taken in fines was also suggested by the SNP's energy spokesman Mike Weir MP.

Mr Weir said: "Consumers, who are paying through the nose for energy, should expect nothing less than excellent customer service but all too often this isn't the case.

"British Gas and other major energy suppliers need to address the way they deal with complaints as a priority. This fine would have been better spent bringing down energy bills than being paid to the Treasury."

Colin Borland, head of external affairs at the Federation of Small Businesses (FSB) in Scotland, said: "The FSB has received a number of complaints from our members about how they are treated by their energy supplier. Time will tell whether this relatively small fine will make British Gas and its competitors improve the way they treat their small business customers, or whether we need a broader look at how the UK energy market is working."

A British Gas spokesman said: "At British Gas we look after half the homes in Britain and we take great pride in our customer service. Recently, Consumer Focus awarded British Gas the top 'four star' rating for complaint handling, and we've won European Call Centre of the year for the last two years."Therefore, Ofgem's finding us in breach on a minor point when we have 16 million accounts, is, we feel, totally disproportionate to the issue. However, specifically for our micro-business customers, we acknowledge our service fell short of what they should expect from British Gas, for which we apologise.

"We knew we had an issue here which is why we flagged it to Ofgem. After a 4m investment, we are now confident we meet all of our regulatory requirements."