Ofgem said it is planning to “reset and reform” the UK’s growing pile of energy debt, which has added pressure to all household bills
Up to £500 million of household energy bill debt is set to be wiped clean as part of a new relief scheme, announced by the energy regulator. Ofgem, the watchdog, has plans to “reset and reform” the UK’s mounting pile of energy debt, which has been piling pressure on all household bills.
At present, an extra £52 is tacked onto annual household energy bills under the current price cap via a debt allowance to cover energy debts that are never paid and have to be written off. Ofgem revealed it expects to write off up to £500 million of historic debt accumulated during the recent energy crisis, in a move which could aid around 195,000 people.
The regulator confirmed that a final consultation on the first phase of its debt relief scheme is due to be published imminently. Figures released by Ofgem last month showed that the money owed to suppliers by households in England, Scotland and Wales rocketed to a new record high of £4.4 billion by the end of June.
The average debt for those who do not have a repayment plan with their provider currently stands at about £1,716 per household. Ofgem stated that in a worst-case scenario, between £1.1 billion and £1.7 billion of historic debt, according to supplier estimates, is never paid and will be written off.
This comes just a day after MPs urged the regulator to pay down some of the energy debt bill through windfall profits on suppliers. However, the cost of unpaid debts will continue to be covered by being reclaimed across all households’ bills.
Ofgem has announced that it is moving forward with proposals to reduce the debt and reform how these debts are managed, in order to prevent such high levels of debt in the future, thereby reducing the cost to all households. The regulator also has other plans in the pipeline, including trialling changes to the process households must follow when they move into a new property.
Charlotte Friel, director for retail pricing and systems at Ofgem, said: “We know the growing amount of debt in the energy system is a significant challenge. We must protect consumers by striking the right balance between making sure those that can pay are supported to do so, and targeting support at those who need it most. These proposals will both directly reach households and relieve the burden of unmanageable debt, while also making changes to the way that debt is managed in the sector.”
The first phase of the scheme, set to kick off early next year, will focus on individuals receiving means-tested benefits who have accumulated more than £100 of debt during the energy crisis. It was further added that eligible households will be expected to make some contribution towards debts and current energy use, or liaise with debt advice charities if unable to make payments.