Ofgem published a consultation on 12 December 2024 on whether to introduce a debt relief scheme for households that built up arrears during the energy crisis and may struggle to repay1. The document, Resetting the energy debt landscape: the case for a debt relief scheme, sets out delivery, audit, funding and eligibility options and closes for responses on 6 February 20251. It sits alongside a separate consultation on debt standards and an overarching debt strategy document1.
The regulator states the scheme would target historical debt accrued during the energy crisis by customers facing the most severe affordability challenges, and that it has discussed the proposal with debt charities, consumer groups, government and suppliers, receiving broad support1. Ofgem estimates the scheme could provide direct debt support to up to 2.3 million customers and write off between £0.5 billion and £1 billion1. It puts total debt and arrears accumulated during the proposed definition of the energy crisis period at £1.29 billion1.
"In this document, we are consulting on whether we should introduce a debt relief scheme as part of this new approach."
On delivery, Ofgem says it is considering two options for administration and delivery, with a proposed mechanism of supplier delivery under Ofgem administration1. It also sets out two audit options: administration prior to initial disbursement to customer accounts, and ex-post audit after scheme implementation1. On funding, the consultation examines recovery through network charges or through a price cap allowance, alongside design factors including netting off scheme costs against existing price cap allowances, supplier voluntary contributions and debt matching through customer contributions1. Ofgem states its expectation that the scheme will be cost neutral against a counterfactual of continuing to use the debt allowance through the price cap to fund bad debt costs1.
The consultation gives figures for the socialised cost of debt already carried by billpayers. Ofgem states the average consumer contribution toward the socialised cost of debt is around £70 per year, varying by payment method1. It reports that the total differential in the October to December 2024 price cap was £112 for standard credit against direct debit, and £160 for standard credit against pre-payment meter, at typical domestic consumption values for dual fuel Great Britain average post levelisation1. On existing support, Ofgem says supplier data shows around £277 million has been provided in discretionary debt support for domestic customers, such as debt write-off, since 2019, with an additional £72 million provided by suppliers in the same period to debt advice and consumer organisations1. It notes that small amounts of debt write-off are provided through Warm Home Discount Industry Initiatives, capped in the legislation for the scheme at £6 million and in Scotland at £600,0001.
| Item | Figure |
|---|---|
| Potential customers receiving direct debt support | Up to 2.3 million |
| Potential debt write-off | £0.5 billion to £1 billion |
| Debt and arrears in the proposed crisis period | £1.29 billion |
| Average annual consumer contribution to socialised debt cost | Around £70 |
| Oct to Dec 2024 price cap differential, standard credit to direct debit | £112 |
| Oct to Dec 2024 price cap differential, standard credit to pre-payment meter | £160 |
Why it matters for households
Debt and arrears are recovered through the price cap, so the cost of unpaid bills is spread across all billpayers rather than falling only on the households that owe money. Ofgem states that higher debt and arrears lead to higher prices for all customers, and that unsustainable levels risk destabilising the market1. That is the link between arrears elsewhere in the system and the standing charges and unit rates a household pays, which are covered in standing charges and in energy bills and energy independence.
For a household already in arrears, the consultation concerns whether part of that historical debt would be written off rather than repaid, and who ultimately pays for it. The funding choice matters to every bill: recovery through network charges would appear in the network component of bills, while recovery through a price cap allowance would sit within the capped unit rates and standing charges set by Ofgem. Ofgem's stated expectation is that the scheme would be cost neutral against continuing to fund bad debt through the price cap allowance1. The consultation also notes that the bad debt allowance within the price cap has been announced today and will be kept under review, and refers to a related workstream paused earlier this year1.
The eligibility criteria are proposed in three arms, covering primary eligibility, data proxies and affordability criteria, with an application route and customer journey still under design1. The level of debt within the eligible pool is also being consulted on1. Existing routes for households in difficulty, including crisis and hardship funds, energy debt and repayment plans and the British Gas Energy Trust, continue separately from this proposal. The consultation document does not set out final eligibility rules, funding source or delivery body; those remain undecided pending responses.
What happens next
The response deadline is 6 February 20251. Ofgem states it will publish the non-confidential responses it receives alongside a decision on next steps on its website1. The document proposes a scheme period of summer or autumn 2025 to spring 20261. The consultation is numbered OFG1164, with contact Dan Norton in the Retail Pricing Strategy team at DebtConsultations@ofgem.gov.uk1.