“We know the growing amount of debt in the energy system is a significant challenge – for those that are living with the significant stress of being in debt, for households that ultimately face higher costs on their bills to cover the debt that can’t be recovered, and for the industry that is limited in its ability to innovate and invest because of the costs of debt,” she said.
“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.”
Ofgem hasn’t yet set out exactly how the scheme will work in practice or how suppliers will be required to take part. Details on implementation and funding are expected in the consultation to be published in the coming weeks.
Debt charity StepChange has welcomed Ofgem’s plan – but warned it won’t fix the wider issue of how expensive energy remains.
“Intervention to address energy debt is long overdue, and we welcome Ofgem’s proposals for a Debt Relief Scheme,” said Adam Butler, public policy manager at StepChange.
“However, households have seen another price cap rise this month, and while writing off historic debt is vital, it doesn’t address how expensive bills are now. Alongside the scheme, we need targeted, long-term measures that properly protect people in vulnerable circumstances from high energy costs and poor debt collection practices.”
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The average energy bill is now £1,755 a year, almost £500 higher than it was in October 2021.
Polling by StepChange shows just how widespread the problem has become. More than 12 million people across the UK are worried about being able to pay their energy bills over the next six months, while average energy arrears have risen by 34% in the past two years.
Last month, when the price cap went up again, Big Issue spoke to pensioner Yvonne Bailey, who said her bills made her “feel sick”.
“I would do a wealth tax. You know, all this cobblers about, oh, well, all the millionaires will all leave the country – no they won’t,” she said.
“Meanwhile, most of us struggle. Politicians have no perception. I want to go into parliament and whack them all with a wet fish.”
According to recent polling by the charity National Energy Action (NEA), six in ten British adults (58%) say they’re likely to ration their heating this winter.
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NEA director of policy and advocacy Peter Smith said that Ofgem’s plan would need to come alongside additional government support.
“Reducing energy market debt must also go hand in hand with efforts to make ongoing costs more affordable for financially vulnerable households,” he said. “We welcomed the extension of current levels of support to more households this winter, but energy bills remain unaffordable.”
What else is in the Ofgem plan?
Alongside the debt relief scheme, Ofgem also wants to stop debt from building up in the first place. One idea is to change the way people set up their energy accounts when moving into a new home.
Right now, when someone moves house, the account is simply switched to “the occupier”. Bills start stacking up under that anonymous name until the new resident gets around to contacting the supplier. Sometimes, that debt is never recovered.
Suppliers estimate that this kind of “move-in” debt makes up between £1.1bn and £1.7bn of the total, roughly a third of the historic debt in the system. Ofgem plans to trial a new approach, similar to the one used in other European countries, where you must set up an energy account before supply begins. That way, debts are linked to real customers instead of empty properties.
For now, those unpaid balances are recovered through a “debt allowance” – a small charge built into everyone’s bills. Under the current price cap, that adds about £52 a year.
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“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,” Friel said.
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