Energy affordability: five actions for Ofgem and the next Government
Our Policy Lead, Meg van Rooyen, on what Ofgem and the next Government need to do to tackle energy debt.
Posted May 28, 2024
Following last week’s energy price cap announcement, energy costs are set for a modest drop from July. But with arrears at record levels, and prices remaining high compared to pre-pandemic levels, millions of households are struggling or unable to pay their energy bills. Our Policy Lead, Meg van Rooyen, sets out what Ofgem needs to do and why this issue should be a priority for the next Government.
Energy debts have reached staggering amounts. With record arrears levels now seemingly the norm, millions of households are facing severe difficulty affording bills and repayments.
What we’re seeing
At National Debtline and Business Debtline, energy debt continues to be one of the most common issues our advisers hear about. In recent years, the proportion of clients in arears has grown significantly. In 2018, 18% of callers to National Debtline had energy debt. This rose to 38% in 2022, and so far this year stands at 34%.
And at Business Debtline, more than one in five (21%) clients have energy arrears – up from 16% six years ago.
The average amounts owed have also risen. At National Debtline, the average arrears for energy are up 34% between 2019 to 2024, from £1,150 to £1,541. Among Business Debtline clients, the average arrears amount for energy has more than doubled since 2019 (from £852 to £1,738).
These statistics only tell part of the story, and while we are seeing examples of good practice from energy suppliers, many problems remain. This includes some billing practices, not accepting affordable offers of payment, failing to liaise with third parties like debt advice charities, and unaffordable debt collection activity.
All of this is set against a wider backdrop of more than £3bn owed in energy arrears.
Action taken so far
There has been a welcome focus from Ofgem over the last year to improve suppliers’ debt collection practices, including through the introduction of the Consumer Standards and involuntary pre-payment meter installation rules.
Our hope is that this will be help drive a shift in culture within suppliers towards better identification and support for people in financial difficulty.
It’s been encouraging to see some suppliers, like British Gas and EDF, announce ring-fenced funding to provide safe routes out of debt when customers simply cannot afford to repay. And E.ON Next, through their Winter Support Scheme that ran until the end of March, provided much needed payment matching for eligible customers.
However, this alone is not enough to deal with the scale of the challenge – and what we are seeing at our services highlights the need for further, and consistent, support from across energy firms.
Five actions for Ofgem and the next Government
Ofgem and the next government must work together to bring down the high levels of debt people are struggling with; and put in place longer-term affordability measures to ensure people can afford the energy they need.
Five actions that would make a difference:
- Introduce a Help to Repay scheme - to offer debt relief and repayment matching for people unable to afford to repay their energy arrears. This would bring significant benefits for both people in debt, consumers and suppliers and could be part-funded through the additional bad debt allowance that Ofgem has temporarily added to bills.
- A robust approach to supervision and enforcement - for Ofgem to ensure that the rules they have already put in place are being followed.
- Strengthen rules and take further action -Ofgem need to be prepared to tackle poor practice and ensure all suppliers uphold high levels of standards in their interactions with customers in financial difficulty and/or vulnerable circumstances.
- Tackle the wider affordability challenge - A social tariff is urgently needed. Government and Ofgem need to work together to introduce a discounted, targeted tariff to ensure people are able to afford their energy bills and live in warm homes.
- Increase investment in energy efficiency measures - Ofgem and the next government need to ensure the way in which costs are spread (particularly future policy costs, as well as the costs of failed suppliers) is fair and does not disadvantage low-income customers or those with high energy usage due to health conditions or disabilities.
Despite a further drop in energy prices coming in July, prices are predicted to increase again in the autumn. Without further action, the level of unmanageable energy arears is only set to get worse. Our hope is that both Ofgem and the next government listen to our warnings and those of others and prioritise taking action to tackle this issue.
Read our response to Ofgem’s Affordability and debt call for input.
Meg is the Money Advice Trust's Policy Lead and has more than 35 years' experience in the debt advice sector. She is on the Quarterly Account editorial board and a range of other forums. View all posts from Meg van Rooyen.
