From 1 April 2024, Ofgem has ruled that an additional £735m can be charged on energy bills to help suppliers recover bad debt, equivalent to £28 per household per year1. The allowance sits on top of the £842m a year suppliers were already able to charge for bad debt, and is offset by a £275m adjustment to bad debt charges incurred after the Covid pandemic1. Consumer Scotland said the £28 figure is "almost double the level that the regulator originally consulted on"2.
The combined impact varies by payment type. Prepayment meter customers pay the least, at £25.17 per household per year, direct debit customers pay £38.96, and standard credit customers pay £129.711. The charges form part of the price cap and sit within the wider make-up of an energy bill. The cap for a typical household stood at £1,690 from 1 April, down from £1,928 in the first quarter of 20242.
The Warm This Winter campaign, which published a report on the allowance in March 2024, said it is unclear whether bad debt write-offs come off customers' accounts or are written off on supplier income statements while the debt is sold to debt collection agencies1. The report says debt-related administrative costs and working capital include recouping the costs of the moratorium on involuntary prepayment meter installations1. Polling by Opinium of 2,000 people between 15 and 19 March 2024 found 55% oppose energy firms using money raised through the £28 charge on debt administrative costs, while 48% felt around half the money should be spent writing off household energy debt for those most in need1.
"Energy bill payers are quite rightly up in arms about these additional costs which look like they do nothing to reduce the debt of ordinary people but instead help energy companies pursue those who simply can't pay."
Consumer Scotland reported that energy debt and arrears in the GB domestic market exceed £3bn, a record high, and that 9% of households in Scotland are in energy debt on its broad definition, which includes borrowing from friends or family or taking out loans to pay energy bills2. Of those in debt, 20% reported debt recovery action in January and February 2024, against 10% in October 2023, and 17% reported being put on a prepayment meter as a result of their energy debt2. Ofgem figures cited by Consumer Scotland put average debts at £851 where a repayment plan is in place and average arrears at £1,761 where there is none2.
Why it matters for households
The charge is levied across all bill payers, so households that are up to date with their bills still contribute to the cost of debt owed by others. The amount differs by how a household pays: standard credit customers carry the largest share at £129.71 a year, more than five times the prepayment figure1. Because the allowance is built into the price cap, it is not a separate line a household can opt out of, and it applies whether or not the individual household has ever fallen behind. For homes already managing arrears, the charge adds to the cost of energy at the same time as recovery action is rising, with 20% of indebted households reporting such action in early 2024 against 10% in October 20232. Consumer Scotland found that households in energy debt are substantially more likely to say keeping up with bills affects their mental and physical health, and that disability, a health condition, or a child under five in the household are more strongly associated with energy indebtedness than low income itself2. The Energy Bills and Energy Independence guide sets out how these standing costs interact with a home's overall energy position.
What happens next
Ofgem published its Call for Input on affordability and debt in the domestic energy market in March 2024, which Consumer Scotland welcomed2. Consumer Scotland set out priorities for that work including greater visibility of energy debt statistics for Scotland, reform of tariff structures, steps towards an inclusive energy market, and solutions that improve affordability for all households2. No outcome or timetable for that work has been reported.