Energy customer debt more than doubles in five years

Energy customer debt and arrears have increased by more than 107% over the last five years, Ofgem’s latest figures show.

The total debt and arrears across electricity and gas existing for more than three months has soared to £2.25 billion in Q1 2023, up from just under £1.1 billion in the same period in 2018.

Ofgem explained that after “sustained increases” in 2021 and the first half of 2022, the value has “largely stabilised” since the second quarter of last year. This stabilisation, it added, was likely due to the government’s financial support for customers.

Despite this, 2022 saw a more than 13% increase in the total financial value of domestic customer debt and arrears, rising from £1.98 billion in Q1 2022 to £2.25 billion in the first three months of this year.

Elsewhere, there have been increases across both electricity and gas in the average level of debt owed by domestic customers in arrears who did not have a debt repayment arrangement set up.

Ofgem’s figures for this indicator go back more than a decade and show that in Q3 2012, the average level of debt for gas was £445, while electricity was £440. In Q1 2023 this had soared by 176% for electricity and almost 117% for gas.

There were significant increases in average arrears over 2022. Electricity arrears in Q1 2023 were up 40% on Q1 2022 at £1,214, while gas was up 34% at £965.

“The increase in average arrears in the last four quarters has presumably been driven by higher retail prices and increasingly difficult financial circumstances faced by some households. There has also been a noticeable decline in the number of customers in arrears in recent months reflecting the financial support available to customers,” Ofgem explained.

The regulator’s figures also point to a substantial increase in smart prepayment meter (PPM) customers self-disconnecting.

There were more than 3.4 million gas smart-PPM self-disconnections in Q1 2023, up by more than 102% compared to the same period the year previously. There was an increase of only 5% for electricity self-disconnections however, with 1.6 million in the first three months of this year.

Ofgem said this could possibly be down to both seasonal differences in use patterns and the impact of schemes such as the Energy Bills Support Scheme which was typically credited to the electricity meter.

“With the extra credit, electricity meters would be less likely to run out of credit, and therefore have fewer self-disconnections. Gas accounts on the other hand, have not had the same financial support so may be a more accurate reflection of affordability pressures,” the regulator added.

In response to the figures Energy UK deputy chief executive Dhara Vyas said with energy bills rising at the same time as other necessities, the increase in debt was “both expected and inevitable”. Vyas expressed support for measures such as looking into a social tariff – a core component of Utility Week’s Action On Bills Campaign, which is calling for more targeted measures for the most vulnerable customers as well as more support this winter in the meantime. 

She said: “Although the fall in the price cap this month is welcome news, the reduction in government support and the fact that bills are still far above what was previously considered normal means that millions of customers will continue to struggle to pay their bills – which risks increasing debt further.

“Suppliers will continue to help and support customers in this position but faced with a widespread affordability issue, there is limit to what they can do. Further support for some customers may well be required this winter otherwise debt levels could continue to increase. Beyond that we need to look at making bills more affordable for all customers over the longer-term and whether ideas like a social tariff might help prevent households getting into debt.

“Ultimately bad debt is recouped from other customers’ bills and suppliers have a duty to prevent customers falling further into arrears, so the industry, Ofgem and the government need to focus both on managing current debt levels as well as preventing increases in future.”

Also expressing support for the campaign is Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline.

She agreed with Vyas that the figures are unsurprising. She told Utility Week: “Ofgem’s figures, which highlight a significant rise in energy debt levels, are not surprising – our own findings show 2.1 million more UK adults are dealing with energy arrears compared to March 2022.

“Coupled with the sustained impact of prices rising across the board, high energy costs are taking a toll on many households with the impact even more acute for people on the lowest incomes.

“Measures that support low income and vulnerable households with bills are therefore welcome. Government, regulators and providers need to act now to ensure struggling households aren’t left with unmanageable energy debts as we enter the winter months.”

Tully said support measures should include repayment matching and the option of debt write offs “where appropriate”.

“That’s why we are calling for a ‘Help To Repay’ scheme, now with the support of 13 other charities and organisations, which would provide just that,” she added.