Ofgem published its decision on energy price cap operating cost and debt allowances on 23 May 2025, concluding a review it began signalling in May 2023. The new set of allowances will be implemented in the July 2025 cap, cap period 14b1. The cap itself was introduced on 1 January 2019 under the Domestic Gas and Electricity (Tariff Cap) Act 2018 and protects 22 million default tariff and standard variable tariff customers1.
Operating costs cover the running of a supply business, including call centres, metering and IT systems, plus the costs of customers who fall behind on bills. Ofgem states these costs currently account for around £300 of an annual household bill for a typical dual fuel customer1. The review's impact is an average reduction of £8 per customer in the cap, with the allowances shown as they would have been in the April 2025 cap period1:
| Payment method | Decision values (£ per customer) | Change on current approach |
|---|---|---|
| Direct debit | 280 | -15 |
| Standard Credit | 427 | 9 |
| Prepayment | 288 | -3 |
| Weighted Average | 312 | -8 |
The figures are dual fuel at benchmark consumption of 3,100 kWh electricity and 12,000 kWh gas, pre-levelised, with the weighted average calculated using January 2025 standard variable tariff customer numbers1.
On core operating costs, Ofgem has decided to set the allowance using a weighted average benchmark based on 2023 supplier cost data, allocating costs across payment methods in a cost reflective manner and continuing to spread costs between the unit rate and standing charge while passing on savings from the review to the standing charge1. Two changes followed consultation: more suppliers were included in the sample when allocating costs between payment methods, and a small upwards adjustment was made for the increase in employer National Insurance Contributions implemented from April 20251.
On debt, Ofgem has set an allowance of £71 per customer per year on average, at the bottom of the range consulted on, based on observed debt costs over 2023 and 2024. Ofgem says this represents a £2 increase versus current allowances and will vary over time with overall bill size, as it is set as a percentage of the cap level1. The current differences between direct debit and standard credit customers are retained1. The decision also ends the "float" allowance in July 2025, sets a separate pass-through industry charges allowance, and retains the status quo approach to setting the smart metering net cost change allowance1. Ofgem states the allowance set as part of this decision is in place until October 20251.
"The impact of this review is an average reduction of £8 per customer in the cap"
Why it matters for households
The allowances sit inside the energy price cap, so they feed directly into the standing charges and unit rates that default tariff households pay. The average £8 reduction is small against a bill where these costs account for around £300, and it is not uniform: standard credit customers see the allowance rise by £9 while direct debit customers see it fall by £15. That widens the existing gap between prepayment and direct debit and between payment methods generally. The £71 debt allowance is recovered from paying customers, so the cost of unpaid bills remains spread across the customer base rather than concentrated on those in arrears. For a household's energy independence, the practical effect is at the margin: a slightly lower total allowance, but a structure that shifts where the money is collected, and a debt allowance that moves with the size of the cap rather than sitting at a fixed figure.
What happens next
The new allowances take effect in the July 2025 cap, cap period 14b1. The allowance set by this decision is in place until October 20251. Ofgem says it will keep debt costs under close review and consider further changes if costs depart from allowances in a systematic and material way1.