Nearly 200,000 households on benefits could have energy debt written off

Up to £500m of energy debt could be written off under a new scheme being proposed by Ofgem.

According to the watchdog, households currently owe more than £4bn to energy companies.

But Ofgem says the cost of recovering this debt or writing it off is being spread across everybody’s bills.

As a result, Ofgem wants to bring down existing debt and change how energy debt is managed, so it can stop it from building again and protect the most vulnerable.

Estimates from Ofgem suggest that the proposed debt relief scheme could help about 195,000 customers.

Who’d be eligible for debt relief?

Ofgem’s debt relief scheme would start by focusing on people who:

• are getting means-tested benefits
• have more than £100 of debt built up between April 2022 and March 2024

Eligible households would be expected to make some contribution towards their debt or ongoing energy use.

And if they’re unable to do so, they’d have to speak to a debt advice charity to get help managing their debts. 

Households who’d benefit from the scheme would be identified automatically and contacted by suppliers.  

The first phase of the scheme is set to launch early next year.

New process when you move to a new home

Ofgem has also proposed changing the process that people must follow when they move into a new property.

At the moment, energy accounts are switched to “occupier” when someone moves into a new home.

Bills then build up under these anonymous accounts until the new resident registers with an energy supplier.

Ofgem says this is very different to how it works in other European countries, where people have to set up energy accounts to get on supply.

This debt is often never paid or written off, yet accounts for an estimated £1.1bn to £1.7bn of historic debt currently in the system.

It’s then recovered through the debt allowance that’s included in everyone’s bills - and this adds £52 under the current price cap.  

Protections for vulnerable households

Ofgem is also keen to make sure vulnerable consumers are protected and that support is targeted towards those who need it most.

Among its proposals are adding credit to smart meters when they’re moved to prepayment mode for new tenants or homeowners.

This, it said, would ensure they remain on supply while they’re setting up an account with a supplier.  

The regulator is also preparing a new “Know Your Rights” guide, which will explain what energy suppliers must do to support households struggling with debt.

Alongside this, a new Code of Practice will be introduced to help suppliers and debt advice charities work more closely together and improve how customers in financial difficulty are treated.

“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,” said Charlotte 
Friel of Ofgem.

“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.” 

What help can I get if I’m struggling with energy bills?

If you're struggling to pay your energy bills, here are some things you might be able to do:

• get emergency credit if you’re on a prepayment meter
• apply for a grant or hardship fund from your supplier
• join the Priority Services Register for extra support

To save on energy and reduce your bills, have a read of our 50 smart energy-saving tips.

Also, find out what happens when you have energy arrears and how to deal with the situation.

We can check you’re getting all the benefits you’re entitled to and help you create a realistic budget.