Thousands on benefits could have energy debt cancelled by Ofgem

Nearly 200,000 people on benefits could have their debts to their energy supplier cancelled, if they make some effort to pay what is owed.

Unpaid bills and fees have soared in recent years with energy prices so high, leaving a record £4.4bn owed to suppliers.

Up to £500m could be knocked off the total under plans that regulator Ofgem wants to take effect early next year.

But that will also require the cost to be covered through an extra £5 added to everyone’s gas and electricity bill. Households on a price cap tariff already typically pay £52 a year to deal with historic debt as part of the £1,755 annual bill.

Under the plans:

• Anyone on means-tested benefits, who built up energy debt of more than £100 between April 2022 and March 2024, will be eligible for help to write it off. Suppliers would identify these customers
• They would need to make some contribution to paying off the debt or covering the cost of their ongoing energy use
• If they are unable to pay, they would need to accept help from a debt charity to help manage their finances

Energy debt and arrears in England, Wales and Scotland rose by £750m in a year to £4.4bn, the latest Ofgem data shows.

The figures, which cover the period from April to June, show that a record high of more than one million households have no arrangement to repay their debt.

The regulator has been working on various projects to bring down the debt, starting early next year following consultation.

However, by recovering or cancelling up to £500m, the first phase may only reduce the rate of increase in customer debt, rather than reverse it.

On Wednesday, a committee of MPs said this debt should be cleared using energy network companies’ “excess” profits.

In a report, the Energy Security and Net Zero (ESNZ) Committee called it “completely inexcusable” that households were forced to choose between eating and heating while companies behind Britain’s gas pipes and power lines amassed huge profits. It said these profits should fund a debt relief scheme.

Those windfall profits were partly the result of high inflation, but Ofgem said that renegotiating price controls would bring extra costs to consumers that would outweigh the benefits.

Charlotte Friel, from Ofgem, said the growing amount of energy debt was a “significant challenge” for those in debt as well as for households that face higher bills to cover debt that can’t be recovered. She said it also meant the industry was less able to invest because of the costs of debt.

Ned Hammond, from Energy UK, which represents suppliers, said the scheme was an “important first step” but would need to be expanded to meaningfully address the debt problem and reach a wider group of customers.

Charities said the move was long overdue, as families were still facing high energy bills, although some campaigners believe the industry should pay.

Adam Scorer, chief executive of charity National Energy Action, welcomed the plans, telling the BBC’s Today programme: “We’ve been waiting a long time for some serious action to intervene on this astonishing level of household energy debt.

“It’s not enough,” he added, “but it’s so great that we can see some serious attempt to shift this horrific burden off the shoulders of people who just cannot bear the weight”.

Among the other schemes to tackle debt being considered by Ofgem is a requirement on new tenants and homeowners to ensure they are paying for their gas and electricity supply.

It said that when someone moves into a new home, energy accounts were switched to the “occupier”. Bills built up under these anonymous accounts until the individual contacted a supplier to register.

Suppliers estimate this accounted for £1.1bn to £1.7bn of the historic debt in the system, which was in danger of never being paid.

Ofgem wants a system similar to that used in other countries, where customers must sign up.

In practical terms, to avoid customers being cut off entirely, smart meters in these properties would be switched to prepayment mode and have some available credit. This would leave residents eventually having to top-up or sign up to the supplier.

The regulator’s plans would only cover properties where a smart meter had been fitted.

Ofgem said such schemes could eventually help bring down debt, protect vulnerable people and ease the cost burden on other billpayers.

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