Price cap hike mooted to tackle £3bn debt pile

Energy debt levels have risen to a record high of almost £3 billion, Ofgem has announced.

The regulator has released the updated figures as part of proposals to reduce the growing debt pile via a price cap adjustment.

Ofgem said the record high debt level was due to a combination of sustained high wholesale energy prices, and wider cost of living pressures, which have led to unpaid energy bills.

As reported earlier this year, the moratorium on forced prepayment meter installations has also added around £25 million a month to the bad debt levels since it was enforced in February.

To tackle the debt pile, Ofgem is proposing a one-off price cap adjustment of £16 – equivalent to around £1.33 a month – to be paid between April 2024 and March 2025.

Tim Jarvis, Ofgem director general for markets, said: “We know that cost of living pressure is hitting people hard and this is evident in the increase in energy debt reaching record levels.

“We have taken steps to ensure energy firms are taking better care of customers and treating people struggling with debt fairly, through our robust consumer standards, and that companies are getting in touch to offer support, such as affordable payment plans, where needed.

“However, the record level of debt in the system means we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient, and suppliers are offering consumers support in managing their debts.

“The proposals set out today are not something we take lightly. However, we feel that they are necessary to address this issue. This approach will ensure the costs are recovered fairly, without penalising a particular group of customers.

“The price cap has helped to protect consumers from a volatile gas market. However, it remains a blunt instrument in a changing energy sector, and the way it works may need to change in the future, so customers continue to be protected.”

Under the proposals, any extra costs would not be passed onto customers who use prepayment meters (PPMs) for their energy. Ofgem said this “reflects the fact that many PPM customers do not build up the same level of debt as credit customers because they top up as they go”.

However, campaigners have slammed the proposals as unfair.

Simon Francis, coordinator of the End Fuel Poverty Coalition, labelled the plans as “outrageous” and “simply not fair”.

“Energy suppliers have posted billions in profits already this year while millions of people struggle in cold damp homes,” he said. “The record levels of energy debt are due to Britain’s broken energy system, not the fault of the hard-pressed public.

“We have called for the government to introduce a help to repay scheme for homes in energy debt. But ministers have refused to listen and now customers will pay the price of their inaction.”

Matt Copeland, head of policy and public affairs at fuel poverty charity National Energy Action added: “Energy bills continue to spiral and now the amount householders owe has reached record levels – almost £3 billion. Sadly, this is no surprise, with the chancellor failing to protect low-income households from high energy bills in his Autumn Statement. Ofgem’s response, to increase prices further, may well be necessary. But it will only serve to increase debts and does not address the underlying issues.

“There is now a desperate need for the UK Government to step in and to help low-income households clear their debts and make sure bills are affordable. People are already going without energy, heat and light and it’s not enough to stop their debt rising. It’s going to be a bleak and cold Christmas for millions.”

Gillian Cooper, director of energy at Citizens Advice, added: “Winter is setting in and we’re already seeing record numbers of people unable to pay their energy bills. This is fast becoming a problem people face all year round, not just in winter. It is unsustainable.

“As we continue to see higher levels of energy debt, the government must urgently look at bringing in additional targeted support for those who are struggling to afford their bills. Without action we’ll remain stuck in a cycle where rising levels of energy debt slowly pushes up the price cap and leads to higher bills for all.”

Ofgem is also looking at alternative policy responses to the debt issues, beyond the price cap, and will seek views from stakeholders in 2024 on approaches for dealing with bad debt.