Ofgem’s plan to write off £500m of energy debt is welcome – but it’s not enough to solve the crisis

The end of energy debt may not exactly be in sight, but there’s at least a glimmer of light ahead for those who’ve been struggling with debt originally built up during the worst point of the energy crisis a few years ago.

The energy regulator Ofgem has today announced more details about its proposed “debt relief scheme”, saying the first phase of its rollout could write off up to £500 million in historic debt built up during the energy crisis. This amount is not insignificant – with total debt levels peaking recently at £4.4 billion. Under current plans, this initial phase would begin early next year and Ofgem predict it could help almost 200,000 customers across Britain.

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The scheme will potentially write off unaffordable debt arrears for eligible households that were accrued during the worst of the energy price crisis period. Initially, it is likely to be aimed at people on means-tested benefits, with further rollout to others anticipated later.

These are all welcome steps. At StepChange we know all too well the impact of energy debt, and we have been campaigning hard for such a scheme – having seen firsthand the damaging effects of the energy crisis. As it stands, two in five of our new clients in 2024 are in energy arrears, at an average level of £2,340. More than half of our clients in this position were spending more than 10% of their total income on energy. This simply isn’t sustainable, as there is little prospect of them ever being able to repay their energy debt over a reasonable period.

So, we very much welcome the proposed new scheme. However, we are concerned that the proposals could make eligibility dependant on customers engaging in very specific ways with their energy providers. Although we absolutely favour and support the need for engagement, we worry that some of the households in the greatest need may not get support through the scheme as a result. We would also urge speedy implementation, given that the cutoff date for eligible arrears relief is already more than a year and a half ago.

More fundamentally, we’re concerned that the relief scheme is just one part of what’s needed to tackle the problem of people simply not being able to afford their energy bills. Alongside much-needed debt write-off, we also need to see a driving up of debt collection standards, as well as an appropriate form of social tariff for low-income households to prevent debt from building up in the same way in the future. Without these, the debt relief scheme alone is like relying on a sticking plaster to heal a broken bone.

We’ll be looking in more detail at utilities arrears and affordability in our new policy research, just getting under way. By examining the evidence and experiences of our clients across energy, water and telecoms bills, we will build a holistic picture of households’ struggles to meet the cost of essentials. We think it’s important that all of these necessities are considered together in terms of how they contribute to overall debt problems – this will help to identify the most effective combined steps that can be taken to address them.

In the meantime, a cautious two cheers for Ofgem for the proposed new scheme, with the third to come if and when we see a more robust set of support measures in place – ones that not only help to tackle historic unaffordable energy debt, but also make its future accrual less likely as well.

Vikki Brownridge is the CEO of StepChange Debt Charity.

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