Kwasi Kwarteng announced in a tweet that Ofgem had launched a crackdown into direct debit pricing.

He said: “I can confirm Ofgem has today issued Compliance Reviews. Suppliers have three weeks to respond.

“The regulator will not hesitate to swiftly enforce compliance, including issuing substantial fines.”

It comes as billpayers face record price rises for gas and electricity, after the regulator increased the energy price cap from £1,277 to £1,971 on 1 April.

The energy price cap is in place to regulate pricing and it applies to the 22 million billpayers on variable rate tariffs. Yet, these bills increased 54% in April and are expected to rise again in October.

For those with a prepayment energy meter, prices were hiked further, from £1,309 to £2,017, a yearly rise of £708.

The increase to bills was blamed on rising global gas prices and the war in Ukraine has also impacted prices of fuel. 

Many major energy providers have hiked direct debit payments sparking controversy among campaigners and consumer champions, including Martin Lewis.

The founder of Moneysavingexpert.com told the business select committee in March that suppliers should face a crackdown over direct debit increases. He said some price hikes were unjustified and were a move by providers to improve their cash flow at the expense of customers.  

Along with price hikes, over 4.3 million customers have been moved automatically with their credit balances to alternative energy providers when their supplier failed. 

‘Troubling signs’ from energy firms

Ofgem said in April it was seeing ‘troubling signs’ that some companies were reacting to the market by allowing levels of customer service to deteriorate.

Jonathan Brearley, Ofgem chief executive, said at the time: “Concerns have been raised that some suppliers may have been increasing direct debit payments by more than is necessary, or directing customers to tariffs that may not be in their best interest. 

“We have also seen troubling stories about the way some vulnerable customers are being treated when they fall into difficulties.”

Ofgem has commissioned a series of market compliance reviews to make sure energy providers are ‘fulfilling the licence conditions they require to operate’. 

These include stricter supervision of how direct debits are handled, investigating how much firms are able to hold in credit balances, and making sure companies are adhering to high standards of customer service. 

“Where they fail to do so, we will not hesitate to take swift action to enforce compliance, including issuing substantial fines,” Brearley said.