£500million set to be written off UK’s household energy debt bill
Energy regulator Ofgem has announced a new aid scheme to write off up to £500 million of household energy bill debt.
The watchdog announced the country’s intention to “reset and reform” its mounting energy debt; This is a burden that contributes to increased pressure on domestic finances.
Under the current price cap, an allowance of £52 is included in annual household energy bills designed to cover outstanding energy debts that must ultimately be written off.
This initiative is expected to address up to £500 million of historical debt accumulated during the last energy crisis, potentially benefiting around 195,000 people.
The regulator confirmed that the final consultation on the first phase of the debt relief plan will be published shortly.
Figures published by Ofgem last month showed that the money owed to suppliers by households in England, Scotland and Wales reached a new record of £4.4bn at the end of June.
The average debt for people without a repayment plan with their provider currently stands at around £1,716 per household.
Ofgem said supplier estimates suggest that in a worst-case scenario, between £1.1bn and £1.7bn of historic debt has never been paid and will be written off.
It comes just a day after MPs called on the regulator to pay some of the energy debt bill through windfall profits from suppliers.
However, the cost of unpaid debts will continue to be covered by collecting them from the bills of all households.
Ofgem said it was moving forward with proposals to reduce debt and reform the way these debts are managed to prevent them from rising so high in the future, thereby reducing the cost to all households.
Ofgem’s other recommendations include plans to trial changes to the process households should follow when moving to a new property.
Charlotte Friel, director of retail pricing and systems at Ofgem, said: “We know that the increasing amount of debt in the energy system is a significant challenge.
“We must protect consumers by striking the right balance between ensuring those who can pay are supported and targeting support to those who need it most.
“These suggestions will both alleviate the unmanageable debt burden by reaching households directly and make changes in the way debts are managed in the sector.”
The first phase of the programme, set to launch early next year, will focus on people on means-tested benefits with debts of more than £100, accumulated during the energy crisis.
Eligible households will be expected to contribute something towards their debt and current energy use, or work with debt advice charities if they can’t make payments, it added.
