Thousands of British households are set to have their energy debts cleared under a major new plan announced by the industry regulator. Ofgem has revealed it will wipe out up to £500 million of historic arrears in a bid to tackle the UK's growing energy debt crisis.
Who Will Benefit from the Debt Wipe?
This significant intervention is expected to assist approximately 195,000 individuals who have fallen behind on their energy payments, many during the height of the ongoing cost-of-living crisis. The total money owed to energy suppliers across England, Scotland, and Wales reached a staggering £4.4 billion by the end of June, highlighting the scale of the problem.
The first phase of the debt relief scheme is scheduled to launch early next year. It will specifically target households on means-tested benefits that have accumulated more than £100 of energy crisis debt. This means customers of major suppliers like British Gas, OVO, EDF, EON, and Octopus Energy who meet the criteria could see their burdens lifted.
How Will the Scheme Be Funded?
To help suppliers recover these uncollected sums, a new charge is expected to be added to all household energy bills. The initial estimate is around £5 per year, though Ofgem has stated this figure could be lower depending on the final uptake of the scheme.
This new charge comes on top of an existing £52 annual fee that is already incorporated into bills under the current price cap to cover unrecoverable debts. However, the watchdog expects the overall impact on consumers to be partially offset by new measures designed to reduce customer contributions towards other debt-related costs, such as collection fees.
A 'Reset' for the Energy Sector
Charlotte Friel, Ofgem's director for retail pricing and systems, explained the rationale behind the move. "We know the growing amount of debt in the energy system is a significant challenge," she said in a statement.
"We must protect consumers by striking the right balance between making sure those that can pay are supported to do so, and targeting support at those who need it most. These proposals will both directly reach households and relieve the burden of unmanageable debt, while also making changes to the way that debt is managed in the sector."
This initiative represents a fundamental "reset and reform" of how energy debt is handled, aiming to provide immediate relief to the most vulnerable while creating a more sustainable system for the future.
