Around £500 million of UK energy bill debt to be written off, says regulator

Up to £500 million of household energy bill debt is set to be written off as part of a new relief scheme, the energy regulator has announced.

Watchdog Ofgem said it is planning to “reset and reform” the UK’s growing pile of energy debt, which has added pressure to all household bills.

Currently £52 is added to annual household energy bills under the current price cap via a debt allowance to cover energy debts that are never paid and have to be written off.

Ofgem said it expects to write off up to £500 million of historic debt built up during the recent energy crisis, in a move which could help around 195,000 people.

The regulator confirmed that a final consultation on the first phase of its debt relief scheme is set to be published shortly.

Figures published by Ofgem last month showed that the money owed to suppliers by households in England, Scotland and Wales surged to a new record high of £4.4 billion by the end of June.

Worst case

The average debt for people who do not have a repayment plan with their provider currently stands at about £1,716 per household.

Ofgem said that in a worst case scenario, between £1.1 billion and £1.7 billion of historic debt, according to supplier estimates, is never paid and will be written off.

It comes only a day after MPs called on the regulator to pay down some of the energy debt bill through windfall profits on suppliers.

However, the cost of unpaid debts will continue to be covered by being reclaimed across all households’ bills.

Ofgem said it is pushing forward with proposals to bring the debt down and reform how these debts are managed in order to prevent it growing as high in future and therefore reducing the cost to all households.

Other proposals by Ofgem include plans to trial changes to the process households must follow when they move into a new property.

‘Challenge’

Charlotte Friel, director for retail pricing and systems at Ofgem, said: “We know the growing amount of debt in the energy system is a significant challenge.

“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.”

The first phase of the scheme, set to launch early next year, will focus on people in receipt of means-tested benefits with more than £100 of debt built up during the energy crisis.

It added that eligible households will be expected to make some contribution towards debts and current energy use, or work with debt advice charities if unable to make payments.