Millions of UK households could have energy debt written off under new government plans

Struggling households could see their energy debts wiped clean early next year under plans announced jointly by the government and Ofgem.

Designed to assist households "in genuine financial need", the Debt Relief Scheme aims to address the £2.47 billion in arrears accumulated during the height of the energy crisis between 2022 and 2024, according to the regulator.

The regulator estimates that as many as 2.4 million consumers who are unlikely to repay their outstanding balances could be eligible for help.

Expanding upon earlier drafts, the initiative will be rolled out in a single phase, extending eligibility to pensioners, individuals receiving disability benefits, and households claiming means-tested support.

A formal consultation on the updated plans will be launched shortly by Ofgem, ahead of the scheme's anticipated rollout in the spring.

The final amount of debt cancelled will ultimately depend on household participation, with customers required to collaborate with energy suppliers on agreements to manage future bills and prevent further arrears.

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.

Invest at least £100 in Stocks or ETFs of your choice. Get fractional shares worth £50!

Terms and conditions apply.

Go to website

ADVERTISEMENT

Invest at least £100 in Stocks or ETFs of your choice. Get fractional shares worth £50!

Terms and conditions apply.

Go to website

ADVERTISEMENT

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.”