Ofgem published its decision on 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 would be implemented in the July 2025 cap, known as cap period 14b1.
The decision restructures the allowances into four components: core operating costs, debt-related costs, industry charges, and a component covering operating cost changes from the smart meter rollout1. Ofgem said it has decided to set the core operating cost allowance using a weighted average benchmark, based on 2023 supplier cost data, and to set a separate pass-through industry charges allowance1. The "float" allowance that will be ending in July 2025 is also referenced in the decision1.
The table below sets out the total allowance by payment method, shown as it would have been in the April 2025 cap period, for a dual fuel customer with benchmark consumption of 3,100 kWh of electricity and 12,000 kWh of 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 |
On debt-related costs, Ofgem said it has decided to set a debt 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 20241. The decision says 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. Ofgem also said it has decided to retain the current differences between direct debit and standard credit customers, and to lower the threshold to address some of the cost uncertainties1. On smart metering costs, the decision states: "Overall, we have decided to retain the status quo approach to setting the SMNCC"1.
The decision notes that operating costs, including debt-related costs, currently account for around £300 of an annual household bill for a typical dual fuel customer1. It also records that the cap was introduced on 1 January 2019 and protects 22 million default tariff and standard variable tariff customers1. Among the changes following consultation, Ofgem included a small upwards adjustment for the increase in National Insurance Contributions that was implemented from April 20251.
"The allowance we are setting as part of this decision is in place until October 2025"
Why it matters for households
The allowances cover the running costs of a supply business, such as call centres, metering and IT systems, plus the costs suppliers incur when customers fall behind on bills1. Because these costs sit inside the price cap, the decision feeds directly into what a household pays, though the effect differs by how the bill is paid: the weighted average falls by £8, direct debit falls by £15, prepayment falls by £3, and standard credit rises by £91. The split between standing charges and unit rates is also affected, as Ofgem said it would continue to spread costs between the unit rate and standing charge while passing on savings from the review to the standing charge1. For a household tracking what its appliances cost to run, the allowance changes shift the fixed part of the bill rather than the rate paid per unit of gas or electricity.
The debt allowance matters for energy independence because unpaid bills are ultimately recovered from paying customers, as Ofgem states1. The £71 per customer per year figure is a £2 increase on current allowances and is set as a percentage of the cap level, so it moves with bill size1. Ofgem said it has kept the differences between direct debit and standard credit customers, arguing it would not be protecting default tariff customers as a whole if one group disproportionately bore the costs of the minority in debt1. Households on prepayment meters see a £3 reduction in the allowance under this decision1.
What happens next
The allowances set in this decision apply until October 2025, after which the smart metering allowance (SMNCC) will be updated using the latest Annual Supply Return data1. Ofgem said it will keep debt costs under close review and consider the case for further changes if costs depart from allowances in a systematic and material way1. The decision does not set out the level of the cap itself beyond October 2025; that has not been reported here.