Ofgem closed its consultation on establishing a debt relief scheme on Thursday 6 February 2025, the same date on which its separate consultation on improving debt standards in the domestic retail market closed1. The regulator said it is working through the responses, and that the intent is that any changes made would be in place for next winter2.
The debt relief scheme would form part of a wider package of measures. Under the plans, suppliers would use the scheme to either write off debt that is so significant it will never be paid back, or help pay off debt by "debt matching" customer payments2. Ofgem said the aim is to reduce debt to levels seen before the energy crisis, reducing costs to all consumers by £25 to £30 per year2. The government said it would work closely with Ofgem to accelerate proposals on a potential debt relief scheme, first consulted on last year, to target unsustainable debt built up during the energy crisis1.
The debt standards consultation, published on 12 December 2024, covered the debt pathway from prevention through support to recovery, including a consumer debt outcome, standardisation of ability to pay assessments, and improved working between suppliers and consumer groups and charities3. It stated that debt and arrears reached £3.82 billion in September 2024, a 91 per cent (£1.82 billion) increase in two years, and that around 66,000 failed electricity debt repayment arrangements were recorded in Q3 2024 across all payment methods, the most since data collection began in 20163. It also found that 18 per cent of customers falling behind on bills or running out of credit reported being proactively contacted by their supplier about support, while 53 per cent said they contacted their supplier and 27 per cent said they had no contact about help with paying bills3.
Ofgem's price cap announcement on 25 February 2025 set out a 6.4 per cent increase for April to June 2025, equating to £1,849 per year for an average household paying by Direct Debit for dual fuel, a rise of £111 per year or around £9.25 a month2. Ofgem said debts have hit record levels of £3.8 billion2. The government said the proposed debt support scheme, alongside the Warm Home Discount, is an important first step to cut the costs of servicing bad debt, which it said is currently contributing to higher bills for all billpayers1.
"Energy debts that began during the energy crisis have reached record levels and without intervention will continue to grow. This puts families under huge stress and increases costs for all customers."
Why it matters for households
Energy debt is socialised: the costs suppliers incur from unpaid bills are recovered through the price cap, so the debt allowance sits inside every household's bill. Ofgem said the debt allowance was approximately 2.5 per cent of the total bill before the energy crisis, which at recent cap levels would translate to £40 to £45, roughly £25 to £30 below the current level in the cap2. Reducing that allowance is the mechanism by which the scheme is expected to lower costs for all consumers2.
For a household carrying arrears, the scheme as described would not be automatic relief. Ofgem's description is of a scheme suppliers would use to write off debt that will never be paid back, or to match customer payments2. The separate debt standards consultation addressed how customers are treated before that point, including proactive contact, ability to pay assessments and referrals to charities and debt agencies3. Ofgem's own research found most customers falling behind were not proactively contacted by their supplier3.
The wider context is a price cap that rises on 1 April 2025, with standing charges reducing for most households but some regional variation remaining, and some households seeing a small increase of up to £20 per year for a typical dual fuel consumer2. Ofgem said 11 million people are on a fixed deal and will not be affected by the change in the price cap2.
What happens next
Ofgem said it is working through the responses to the debt standards and debt relief consultation, with the intent that any changes would be in place for next winter2. The government said it is consulting on expanding the Warm Home Discount, which would bring around 2.7 million households into the scheme and push the total receiving the £150 discount next winter to an estimated 6.1 million1. No decision date for the debt relief scheme has been reported.