Up to £500 million worth of energy debt could soon be written off thanks to a new Debt Relief Scheme proposed by Ofgem, as the regulator attempts to bring down £4.4 billion of debt in the energy system.
If implemented, Ofgem says the scheme could help around 195,000 customers deal with historical debt built up during the 2022 energy crisis and its aftermath.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This phase will focus on helping people in receipt of means-tested benefits with more than £100 of energy debt built up between April 2022 and March 2024.
The £4.4 billion of energy debt in the UK, mostly accumulated from the energy crisis, impacts every billpayer in the country, even those who have never been behind on payments, as the cost of recovering debt or writing it off is added to the price cap.
Currently, Ofgem says the average household on a standard variable tariff, paying by direct debit, is £52 a year worse off because of the scale of energy debt in the UK.
The regulator’s broader proposals for the Debt Relief Scheme include more safeguards to ensure vulnerable households are more protected and less likely to build up significant energy debt again.
Charlotte Friel, director for retail pricing and systems at Ofgem, called the growing amount of debt in the energy system a “significant challenge”, adding that beyond the stress and higher energy costs it causes, it also limits the industry’s ability to innovate and invest.
Increasing energy debt driven by anonymous home movers
A significant part of the UK’s overall energy debt also comes from consumers not properly setting up their energy accounts when they move home.
Currently, when you move home the energy account is switched to ‘occupier’. Bills then build up under this anonymous account until you contact a supplier to register.
However, these anonymous accounts can sometimes be left unregistered and large amounts of energy debt can start to be associated with them. It then costs money to track down the owners of these accounts and recover the money owed – in the worst case scenario, the debt is never recovered and is simply written off.
In contrast, the process works differently in many other countries across Europe, as consumers are required to set up energy accounts to get on supply.
Who could be eligible for Ofgem’s Debt Relief Scheme?
The measures proposed in the first phase of the Debt Relief Scheme are expected to launch in early 2026 and will focus on people on means-tested benefits with more than £100 of energy debt accumulated during the energy crisis.
Households that are eligible for this support will be expected to make some contribution towards their debt or ongoing energy use, or if they are unable to do so at this time, be willing to work with a debt advice charity to seek help managing their debts.
Ofgem says eligible households would be identified automatically and contacted by their energy suppliers about the scheme.
For more information on how to keep the cost of your energy down, read our guide to 14 ways to save on your energy bill.
-
Magnificent Seven earnings previewA busy week for Magnificent Seven earnings kicks off with three big tech companies announcing results on one night. What should investors expect?
-
Nvidia becomes world’s first $5 trillion companyLess than four months after becoming the world’s first $4 trillion company, Nvidia has hit the next big milestone. Is Nvidia’s giant valuation justified?
