Key Highlights
- Nearly 200,000 people on benefits could have their debts to energy suppliers cancelled.
- Energy debt in England, Wales, and Scotland rose by £750m last year, totaling £4.4bn.
- The plans would require an extra £5 added to everyone’s gas and electricity bill.
- A committee of MPs has called for energy network companies’ excess profits to fund a debt relief scheme.
The Growing Energy Debt Crisis
The increasing cost of living, particularly in the realm of energy bills, has left many households facing significant financial stress. According to recent data from Ofgem, the regulator overseeing the UK’s energy market, the total debt and arrears among households in England, Wales, and Scotland have surged by a staggering £750 million over the past year, reaching an eye-popping £4.4 billion.
Ofgem’s Plan to Tackle Energy Debt
In response to this growing crisis, Ofgem is proposing a scheme that could potentially benefit nearly 200,000 people on benefits. Under the plans, anyone who built up energy debt of more than £100 between April 2022 and March 2024 would be eligible for help to write off their debts, provided they make some effort to pay what is owed.
According to Charlotte Friel from Ofgem, this growing amount of energy debt poses a significant challenge. “It’s not only a financial burden on those in debt but also impacts households that face higher bills due to unrecoverable debt,” she said. The plans aim to reduce the rate of increase in customer debt but may fall short of reversing it entirely.
Financial Implications and Public Reaction
The proposed plan would come with a cost, as up to £500 million could be knocked off the total energy debt if implemented. However, this would require an additional £5 added to everyone’s gas and electricity bill. Households on price cap tariffs already pay around £5 annually towards historic debt, which is part of their annual bill of approximately £1,755.
While some stakeholders believe that the industry should bear more responsibility for repaying these debts, others argue that the cost should be shared. Ned Hammond from Energy UK, representing energy suppliers, described the scheme as an “important first step,” but emphasized that it would need to be expanded to meaningfully address the debt problem and reach a wider group of customers.
Other Initiatives Aimed at Reducing Energy Debt
In addition to the proposed cancellation plans, Ofgem is also considering other measures to tackle energy debt. One such initiative involves requiring new tenants and homeowners to ensure they are paying for their gas and electricity supply when moving into a property. Currently, bills built up under anonymous accounts until the individual contacts a supplier, which has been estimated to account for between £1.1 billion and £1.7 billion of historic debt in the system.
Ofgem wants a system similar to that used in other countries, where customers must sign up when moving into a new home.
This would involve smart meters being switched to prepayment mode with some available credit, ensuring residents eventually have to top-up or sign up to the supplier. However, such schemes are only applicable to properties where a smart meter has been installed.
Conclusion
A Step Forward but Room for Improvement
The proposed plans from Ofgem represent a significant step towards addressing the energy debt crisis faced by many UK households. While the initiative is designed to provide financial relief, it also highlights the broader issues surrounding high energy costs and the need for more comprehensive solutions.
As Charlotte Friel noted, “This growing amount of energy debt is a challenge for those in debt as well as for households that face higher bills due to unrecoverable debt.” The success of these plans will depend on their implementation and whether they can effectively reduce the burden on vulnerable consumers without unduly impacting other billpayers.
