Ofgem published a consultation on 12 December 2024 on whether to introduce a debt relief scheme for households that accrued debt on energy bills during the energy crisis and may struggle to repay1. The regulator said the scheme would form part of a wider package to reform its approach to energy debt, and it was published alongside a separate consultation on debt standards and an overarching debt strategy document1. Both consultations close on 6 February 2025, and Ofgem said decisions are expected in late spring 20251.
The proposal covers a scheme that Ofgem says could provide direct debt support to up to 2.3 million customers and write off between £0.5 billion and £1 billion1. Ofgem states that £1.29 billion is the total debt and arrears accumulated during the proposed definition of the energy crisis period1. It is considering two options for the administration and delivery of the scheme, and says its proposed mechanism is supplier delivery with Ofgem administration1. The regulator describes the scheme as cost neutral against a counterfactual of continuing to use the debt allowance through the price cap to fund bad debt costs1.
"In this document, we are consulting on whether we should introduce a debt relief scheme as part of this new approach."
The consultation sets out the scale of the problem. Ofgem's separate debt standards consultation reports that debt and arrears reached £3.82 billion in September 2024, a 91% (£1.82 billion) increase in two years2. It says energy debt is now the single most common type of debt that Citizens Advice deals with, and that energy arrears are the most common type of priority debt StepChange clients face, with 42% of clients who pay an energy bill in arrears2. In Q3 2024, the value of arrears accounted for 75% of the total value of debt and arrears, and 57% of domestic accounts in debt or arrears were not on a repayment plan2. Ofgem also reports around 66,000 failed electricity debt repayment arrangements in Q3 2024 across all payment methods, the most since it started collecting these data in 20162.
On the cost of debt to all households, Ofgem says the average consumer contribution toward the socialised cost of debt is around £70 per year, and that the amount varies by payment method1. The total differential in the October to December 2024 price cap was £112 for standard credit to direct debit, and £160 for standard credit to pre-payment meter, at typical domestic consumption values for a dual fuel GB average post levelisation1. Ofgem says it has announced the bad debt allowance within the price cap and is committing to keep this under review1.
Existing support is limited by comparison. Ofgem says small amounts of debt write-off are provided through Warm Home Discount Industry Initiatives, and that debt write-off is capped in the legislation for the scheme at £6 million, and in Scotland at £600,0001. Data from suppliers 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.
Why it matters for households
Energy debt is socialised: the costs suppliers cannot recover from the households that owe them are recovered through the price cap, so they are spread across all bill payers. Ofgem puts the average contribution toward the socialised cost of debt at around £70 per year1. A debt relief scheme funded through the price cap, rather than through a separate levy, would in principle replace part of that allowance rather than add to it, which is what Ofgem means when it describes the scheme as cost neutral1. For a household carrying arrears, the practical question is whether some of that balance is written off, and on what conditions. For a household not in debt, the question is whether the scheme lowers the debt-related share of the cap over time or simply shifts how it is collected. Ofgem has not reported final eligibility criteria or a confirmed funding route; those are the subject of the consultation1.
The parallel consultation on debt standards covers how suppliers treat customers who fall behind, including ability to pay assessments and repayment arrangements2. Ofgem reports that 18% of customers falling behind on bills or running out of credit said they were proactively contacted by their supplier about support, 53% said they contacted their supplier, and 27% said they had no contact about help with paying bills2. Of those falling behind for affordability reasons, 69% were satisfied with the support received and 18% were dissatisfied2.
What happens next
The response deadline for both consultations is 6 February 20251. Ofgem says it will publish non-confidential responses alongside a decision on next steps1. The consultation document proposes summer/autumn 2025 to spring 2026 as the scheme period1. Decisions are expected in late spring 20251.