Ofgem has proposed a debt relief scheme to support households that accrued energy bill debt during the energy crisis, setting out the plan in a consultation published on 12 December 2024 with a response deadline of 6 February 20251. The regulator said it was consulting on whether to introduce the scheme as part of a wider reset of its approach to energy debt1.
The consultation proposes the scheme remain open for a limited period, from summer or autumn 2025 to spring 20261. 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 states that £1.29 billion is the total debt and arrears accumulated during the proposed definition of the energy crisis period1.
Ofgem is considering two options for the administration and delivery of a debt relief scheme, and its proposed mechanism is supplier delivery with Ofgem administration1. The regulator expects the scheme to be cost neutral against a counterfactual of continuing to use the debt allowance through the price cap to fund bad debt costs1. It has also announced the bad debt allowance within the price cap and committed to keep this under review1.
"In this document, we are consulting on whether we should introduce a debt relief scheme as part of this new approach."
On the cost to households, Ofgem states the average consumer contribution toward the socialised cost of debt is around £70 per year, with the amount varying by payment method1. 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.
Existing support is limited. Ofgem states that debt write-off is capped in the legislation for the scheme at £6 million, and in Scotland at £600,000, with small amounts of debt write-off provided through Warm Home Discount Industry Initiatives1. Data from suppliers shows around £277 million has been provided in discretionary debt support for domestic customers, such as debt write-off, since 2019, and an additional £72 million has been provided by suppliers in the same period to debt advice and consumer organisations1.
| Item | Figure |
|---|---|
| Customers who could receive direct debt support | Up to 2.3 million |
| Debt that could be written off | £0.5 billion to £1 billion |
| Total debt and arrears in the energy crisis period | £1.29 billion |
| Average annual consumer contribution to socialised debt cost | Around £70 |
| Standard credit against direct debit differential, Oct to Dec 2024 | £112 |
| Standard credit against pre-payment meter differential, Oct to Dec 2024 | £160 |
Why it matters for households
Energy debt is not only a problem for the households that owe it. Ofgem states that higher debt and arrears lead to higher prices for all customers, and that unsustainable levels risk destabilising the market1. The cost of debt is recovered through the price cap, so the level of arrears across the market feeds into what every household pays. The energy debt relief scheme as proposed would target support at historical debt accrued during the energy crisis by those facing the most severe affordability challenges, rather than at ongoing bills1.
For a household carrying arrears, the practical effect of a scheme of this kind would be a reduction in what it owes, subject to eligibility and conditionality rules that the consultation sets out but does not finalise1. For households not in debt, the question is whether the scheme lowers the debt-related costs built into bills over time, which is what Ofgem's cost-neutral expectation implies1. The regulator's wider work on energy debt and repayment plans and on crisis funds and hardship grants sits alongside this proposal, and the Ofgem consultation process is where the detail will be settled.
What happens next
The response deadline was 6 February 20251. Ofgem states that once the response period is closed it will consider all responses and publish the non-confidential responses alongside a decision on next steps on its website1. The consultation proposes the scheme would run from summer or autumn 2025 to spring 20261. No decision on whether to proceed had been reported at the time of publication.