Thousands on benefits could have energy debt cancelled by Ofgem

Nearly 200,000 people on social benefits could have their debts to energy suppliers canceled if they made some effort to repay their debts.

Unpaid bills and charges have soared in recent years with energy prices so high, leaving suppliers with a record debt of £4.4bn.

In total, up to £500 million could be cut under plans that regulator Ofgem wants to introduce early next year.

But this would also require the cost to be covered by the extra £5 added to everyone’s gas and electricity bill. Households subject to a price cap are currently paying £52 a year to deal with historic debts as part of a £1,755 annual bill.

According to the plans:

• Anyone eligible for means-tested benefits who has accumulated more than £100 of energy debt between April 2022 and March 2024 will be eligible to receive help to have this debt erased. Suppliers will identify these customers
• They will need to contribute something to pay off debt or cover ongoing energy usage costs.
• If they can’t pay they will need to accept help from a debt charity to help manage their finances

Energy debt and arrears in England, Wales and Scotland have risen by £750 million in a year to £4.4 billion, according to the latest Ofgem data.

figuresData covering the period from April to June shows that a record high of more than a million households have no arrangements for repaying their debts.

The regulator is working on various projects to reduce debt from the beginning of next year following consultations.

However, through recovery or write-off of up to £500 million, the first phase can only reduce the rate of increase in customer debt rather than reverse it.

This debt should be paid off using “excess” profits from energy network companies, a committee of MPs said on Wednesday.

The Energy Security and Net Zero (ESNZ) Committee called it “completely inexcusable” that households were forced to choose between eating and heating while the companies behind the UK’s gas pipes and power lines were making huge profits in a report. Those profits should fund a debt relief plan, he said.

The windfall profits were partly the result of high inflation, but Ofgem said renegotiating price controls would impose extra costs on consumers that would outweigh the benefits.

Ofgem’s Charlotte Friel said the rising amount of energy debt was a “significant challenge” for those in debt and households facing higher bills to meet their irrecoverable debts. He said this also meant the industry was able to invest less due to debt costs.

Ned Hammond of Energy UK, which represents suppliers, said the scheme was an “important first step” but needed to be expanded to meaningfully address the debt issue and reach a wider group of customers.

Charities have said the move is long overdue as families still face high energy bills, but some campaigners believe the industry should pay.

Adam Scorer, chief executive of the charity National Energy Action, welcomed the plans, telling the BBC’s Today programme: “We have long awaited serious action to tackle these staggering levels of household energy debt.

“This is not enough,” he added, “but it is so wonderful that we can see that a serious attempt is being made to throw this terrible burden off the shoulders of people who cannot bear the weight.”

Other plans considered by Ofgem to tackle debt include requiring new tenants and landlords to make sure they pay for their gas and electricity supplies.

It was stated that when someone moves into a new house, energy accounts are transferred to the “occupier”. Invoices would accumulate under these anonymous accounts until the person contacted a supplier to sign up.

Suppliers estimate this represents £1.1bn to £1.7bn of historic debt in the system that is in danger of never being paid.

Ofgem wants a system similar to that used in other countries where customers would need to register.

In practical terms, to prevent customers from being completely cut off, smart meters in these properties will be put into prepayment mode and have some available credit. This will result in residents eventually having to top up or register with the provider.

The regulator’s plans would only cover properties where smart meters have been installed.

Ofgem said such schemes could eventually help reduce debt, protect vulnerable people and ease the cost burden on other ratepayers.

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