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.
A final consultation on the first phase of the debt relief scheme will be published in the coming weeks, and is expected to launch in 2026.
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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.
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While the scheme is set to drive down energy debt for the households that need the most support, households across the country will feel the benefits too.
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.
This is especially inconvenient for households on a variable tariff after the energy price cap rose 2% in the final quarter of 2025.
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.
“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.
“This is a challenge that requires us all to work together across industry and government to deliver a fairer system that works for current and future consumers.”
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.
