Unprecedented levels of customer debt and arrears are threatening the future of the retail energy market and will continue to escalate without coordinated intervention across Government and industry, Energy UK has warned.
The sector trade association’s latest report, Energy debt: Everyone pays, reveals the scale of household energy debt, which has more than doubled over the last three years to reach £5.5 billion.
Arrears now represent around 75% of all unpaid energy bills, meaning there are no repayment plans in place for the majority of this debt, while over one million households currently have no registered details with suppliers, increasing the risk of unmanaged debt.
As a result, all households are paying significantly more on their bills to cover the cost of the energy debt crisis. Typical dual fuel customers face an extra £50 a year under the price cap, while standard credit customers pay around £140 due to the ‘debt allowance’ built into tariffs.
Without urgent intervention, total debt could escalate to more than £7 billion by the end of 2026. This would add a further £10-£15 to annual bills over time.
Energy suppliers are finding it increasingly difficult to cover their costs in these market conditions, undermining their financial resilience and ability to invest in innovation that could lower bills in the long term.
Dhara Vyas, Chief Executive of Energy UK, said:
“Around two million households are currently experiencing some form of energy debt, and nearly three fifths of these are not on repayment plans. This is a massive crisis for the energy sector, which is facing unique challenges not seen by other utilities, and affects all energy customers, who end up paying more.
“Suppliers have a whole range of strategies for engaging and supporting customers, but with debt and arrears spiralling out of control, the industry can’t fix this problem alone.
“Immediate and decisive action from both Ofgem and the Government is essential to stabilise the sector and protect households and the companies that supply them.”
Failure to tackle the scale of debt
The report argues a series of regulatory decisions have made it easier for households to fall into debt and harder to recover from it, with efforts to tackle the crisis falling short.
Ofgem’s Debt Relief Scheme, which aims to write off £500 million in debt, is a welcome first step but fails to grasp the scale of the crisis. The limited scope and delayed rollout of the scheme is unlikely to deliver meaningful and sustainable reductions in debt levels.
A trial of new rules designed to tackle issues related to change of tenancy, which drives between 10% and 15% of total outstanding energy debt and arrears, has also been proposed rather than an immediate rule change that would bring the UK in line with many other countries.
Ned Hammond, Deputy Director, Policy (Customers) at Energy UK, said:
“A much bolder plan is needed to reduce the mounting debt pile that is eating away at the energy sector’s financial resilience.
“It will need to combine measures that cut the existing stock of debt while stopping customers struggling with their bills from adding to the problem. We need to encourage customers in debt, or at risk of falling into it, to engage with their supplier so that they can receive the support they need.”
A comprehensive and coordinated strategy is needed
Energy UK is calling for a comprehensive and coordinated strategy from Government, Ofgem, energy suppliers and debt advice agencies to address the urgency and scale of the debt crisis.
An enduring and targeted scheme should be introduced using improved data collection on a range of factors including income, health, energy usage, and occupancy to identify households most in need of support for their bills. This should be linked to the specific requirements of each household, reflecting their affordability, vulnerability and energy need.
Restrictions on increased adoption of smart prepayment meters where appropriate should be reconsidered to allow them to safely support customer budgeting while enabling suppliers to easily provide support where required.
Without these decisive interventions to improve the effectiveness of support to customers, Energy UK expects the energy debt crisis will place even more strain on consumers while undermining the ability of suppliers to invest in and improve the resilience of the energy market for years to come.
ENDS
