Household energy debt write-off scheme planned for early next year

A scheme to write off energy debt built up by struggling households is expected to go ahead from early next year, Ofgem and the Government have announced.

The Debt Relief Scheme will provide targeted support to households “in genuine financial need” to clear debt and arrears built up during the energy crisis between 2022 and 2024, totalling £2.47 billion, the regulator said.

Up to 2.4 million customers who have little prospect of paying back their debt could be considered for support.

Building on previous proposals, it will now be delivered in a single phase with support for pensioners and people on disability benefits, as well as those on means-tested benefits.

Ofgem will consult shortly on the revised proposals, with the scheme expected to launch in the spring.

The actual sum that is eventually written off would depend on customers engaging with the scheme, including working with suppliers to agree plans to prevent them building up debt again.

It said the joint strategy with Government would provide a “much-needed circuit breaker for customers in hardship to reset and regain control of their energy bills”, support sustainable repayment and tackle some of the root causes of debt.

Government analysis suggested the strategy could save a typical household around £130 over the next 10 years by avoiding the costs of debt being added to all consumers’ bills, and should prevent the accumulation of more than £5 billion of new debt by 2036.

The one-off scheme will also include reforms to improve the home-moving process to prevent debt build-up, and will review rules on involuntary prepayment meters to ensure they protect vulnerable consumers while allowing suppliers to tackle rising energy debt.

Ofgem chief executive Tim Jarvis said: “Too many households are still weighed down by debt built up during the energy crisis.

“Our targeted debt relief scheme will help people get back on top of their finances and make a fresh start, and we welcome the Government’s support to make this happen.

“But this is about much more than tackling historical debt. These steps balance customer rights with their responsibility to pay, empowering them to manage and keep track of their energy bills to prevent debt piling up in the first place.

“Recognising both consumers’ rights and responsibilities, the strategy aims to set out the collective action needed to ensure that those who can repay debt do so, while providing appropriate safeguards for those facing the greatest challenges. Together, these measures will help build a fairer and more resilient energy market for all consumers.”

Energy Secretary Miatta Fahnbulleh said: “I know how worrying energy debt is for the thousands struggling. That affects all of us, with the costs passed onto other billpayers.

“That’s why we’re helping vulnerable people in energy debt with targeted support and tackling debt built up in the system to help bring bills down for all.

“That goes alongside action we’re taking to tackle energy affordability – my number one priority.”

Energy UK’s deputy director of customer policy, Ned Hammond, said: “Energy UK has been raising the alarm around energy debt for some time so it’s great to finally see a joint debt strategy launched by Government and the regulator Ofgem.

“The update on the debt relief scheme, with the possibility of more households being supported, is also welcome.

“We appreciate the relief will be targeted at customers most in need of support, but this must be delivered in collaboration with suppliers to ensure it reaches them effectively.

“With debt heading towards a staggering £7 billion by the end of 2026 and potentially reaching £8 billion in the first half of 2028 without action, it is vital all these measures are delivered at pace alongside industry to get the debt burden down for customers and the suppliers they owe.”