Ofgem has set the debt-related cost allowance in the default tariff cap at £71 per customer per year, on average, according to its decision on operating cost and debt allowances published on 23 May 20251. The regulator said it chose the bottom of the range it had consulted on, and that the figure represents a £2 increase versus current allowances1. The decision concludes a review of operating cost and debt allowances that Ofgem signalled in May 2023, its first holistic review of operating cost allowances since the cap was introduced on 1 January 20191.
The cap protects 22 million default tariff and standard variable tariff customers, and operating costs, including debt-related costs, currently account for around £300 of an annual household bill for a typical dual fuel customer1. The overall impact of the review is an average reduction of £8 per customer in the cap, with the new allowances implemented in the July 2025 cap period (14b)1. The decision also ends the "float" allowance in July 20251.
The table below sets out the total allowance by payment method as it would have been in the April 2025 cap period, in pounds per customer, with the change on the current approach1.
| Payment method | Decision values | Change on current approach |
|---|---|---|
| Direct debit | 280 | -15 |
| Standard Credit | 427 | 9 |
| Prepayment | 288 | -3 |
| Weighted Average | 312 | -8 |
Ofgem said it would retain the current differences between direct debit and standard credit customers, on the basis that one group should not disproportionately bear the costs of the minority who are in debt, and that there is no compelling evidence that recovering a greater proportion from standard credit customers would materially improve the distribution of under- and over-recovery across actual suppliers1. The debt allowance will vary over time with overall bill size, as it is set as a percentage of the cap level1. Ofgem also said it had included a small upwards adjustment for the increase in employer National Insurance Contributions implemented from April 2025, and that it had decided to set the core operating cost allowance using a weighted average benchmark1.
"After considering the latest data, we have decided to set the allowance at the bottom of the range consulted on, at £71 per customer per year, on average."
The decision follows Ofgem's December 2024 statutory consultation and a February 2025 decision on the extension to the additional debt-related costs adjustment allowance1. Ofgem said debt costs are inherently uncertain and may change with economic circumstances or broader policy interventions, and that it will keep them under close review1.
Why it matters for households
The debt allowance is one of the cost components inside the energy price cap, so it feeds into the maximum a supplier can charge a household on a default or standard variable tariff. At £71 per customer per year on average, the allowance is £2 above current allowances, but it sits within an overall review that Ofgem says reduces the cap by £8 per customer on average1. The effect differs by how a household pays: the decision values show a £15 reduction for direct debit, a £9 increase for standard credit and a £3 reduction for prepayment, against the current approach1.
For a household, the practical point is that unpaid bills across the market are recovered through the bills of paying customers, so the debt allowance is a visible line in what a supplier can recover. Ofgem's stated reason for retaining the differences between payment methods is that spreading debt costs more heavily onto one group would not protect default tariff customers as a whole1. The allowance is set as a percentage of the cap level, so it moves with bill size rather than staying fixed in cash terms1.
The decision sits within Ofgem's wider work on regulation and policy for the retail market, including its December 2024 debt strategy, which set out proposals for a debt relief scheme, a "Debt Guarantee" and standardised assessments of a customer's ability to pay1. Ofgem's role in setting and enforcing these rules is covered in our guide to what the energy regulator does. Households in payment difficulty can also raise unresolved problems through the complaints and redress routes.
What happens next
The new set of allowances will be implemented in the July 2025 cap period (14b)1. The allowance set as part of this decision is in place until October 20251. Ofgem said it will keep debt costs under close review and consider the case for further ex-ante changes if costs depart from allowances in a systematic and material way1.