Ofgem published its decision on the energy price cap operating cost and debt allowances on 23 May 2025, concluding a review it began in May 20231. The regulator said the impact of the review is an average reduction of £8 per customer in the cap, and that the new set of allowances will be implemented in the July 2025 cap, cap period 14b1. The decision also confirms that the "float" allowance will be ending in July 20251.
The cap 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, which cover running a supply business such as call centres, metering and IT systems, and debt-related costs, currently account for around £300 of an annual household bill for a typical dual fuel customer1.
The decision sets the core operating cost allowance using a weighted average benchmark, based on 2023 supplier cost data1. Ofgem has also decided to set a separate pass-through industry charges allowance, to lower the threshold to address some of the cost uncertainties, and to retain the status quo approach to setting the smart metering costs allowance1. The allowance set as part of this decision is in place until October 20251.
For debt-related costs, Ofgem has decided to set a debt allowance of £71 per customer per year, on average, at the bottom of the range it consulted on1. Ofgem said this represents a £2 increase versus current allowances and will vary over time with overall bill size, as the debt allowance is set as a percentage of the cap level1. The regulator said it will keep these costs under close review and consider the case for further changes if costs depart from allowances in a systematic and material way1.
The table below shows the total allowance by payment method, displayed as it would have been in the April 2025 cap period, for a dual fuel customer with benchmark consumption of 3,100 kWh electricity and 12,000 kWh gas1.
| 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 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, which limits what suppliers can charge default tariff customers for the costs of supplying energy. A lower total allowance feeds through to the cap level, while the shift towards standard credit customers paying more and direct debit customers paying less changes the gap between payment methods. The ending of the float allowance in July 2025 removes a mechanism that had been used to manage cost uncertainty, and Ofgem has said it will review debt costs in relation to that change1.
Debt-related costs are recovered from paying customers, so the £71 per customer per year allowance is a direct line on household bills. Ofgem said the alternative to recovering unpaid bill costs would likely see even higher costs to customers in the long run through supplier failures, and an erosion of choice and competition1. For households carrying arrears, the separate prepayment meter debt repayment rules and the British Gas Energy Trust grants scheme sit outside this decision.
The review also included a small upwards adjustment for the increase in employer National Insurance Contributions implemented from April 2025, which Ofgem said it considered appropriate to allow recovery of because it results from changes in economic policy1. Ofgem said it has decided to lower the threshold to address some of the cost uncertainties1.
What happens next
The new allowances take effect in the July 2025 cap period, cap period 14b1. The allowance set as part of this decision is in place until October 20251. Ofgem said it will keep debt costs under close review going forwards and consider the case for further ex-ante changes if costs depart from allowances in a systematic and material way1.