Nearly 200,000 people on benefits could see their energy debts wiped out under new plans from Ofgem, the energy regulator.
The proposal is part of a wider effort to bring down record household energy debt, which has climbed to £4.4bn after years of high prices.
Ofgem said it intends to “reset and reform” how debt is managed across the sector, warning that rising arrears are putting pressure on both struggling customers and those who face higher bills as a result.
What is Ofgem’s new scheme?
The regulator’s debt relief plan, due to launch early next year, would write off up to £500m of unpaid household bills.
It is designed to support the most financially vulnerable people who have fallen behind since the energy crisis began.
Around 195,000 people are expected to benefit, mainly those on means-tested benefits who built up more than £100 of debt between April 2022 and March 2024. Suppliers will identify eligible customers and apply the write-off directly to their accounts.
Charlotte Friel, director for retail pricing and systems at Ofgem, said the growing amount of energy debt was a “significant challenge”.
She added: “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.”
Energy debt across Britain has reached record levels, with more than one million households owing money to their supplier without any repayment plan in place. According to Ofgem, total arrears rose by £750m in a year to £4.4bn.
The average household debt for those without an arrangement to pay now stands at about £1,716. Ofgem said the situation limits investment across the industry while increasing bills for all customers, since unpaid debts are spread across everyone’s charges.
“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,” Friel said.
Who qualifies for debt cancellation?
Ofgem said the scheme will target people in receipt of means-tested benefits who accumulated more than £100 of energy debt between April 2022 and March 2024.
Energy suppliers will identify these customers automatically, using payment and account data.
The regulator said the plan was designed to ensure support goes to those struggling most during the cost-of-living crisis, while preventing a “moral hazard” for those who could afford to repay.
People who may qualify for the write-off will not need to apply directly, as suppliers will contact them if they meet the criteria.
However, those who are contacted will need to show some willingness to repay part of what they owe or cover the cost of their current energy use.
If they cannot make any payment, they must accept support from an accredited debt advice charity to qualify for the write-off.
This could involve setting up a budget plan, attending advice sessions, or working with organisations such as Citizens Advice or StepChange.
Customers are encouraged to stay in touch with their supplier and respond promptly to any communication regarding debt, as failing to engage may delay or reduce the assistance they receive.
Ofgem said the approach would “target support at those who need it most” while maintaining fairness for all billpayers.
How will it be paid for?
All energy customers will cover the £500m cost of the scheme through a small addition to bills. Households on the price cap tariff already pay about £52 a year towards historic debt, included within the typical £1,755 annual bill. Ofgem’s plan would add roughly £5 more to that figure.
Ned Hammond, from Energy UK, which represents suppliers, described the move as an “important first step” but said it would need to be “expanded to meaningfully address the debt problem and reach a wider group of customers”.
Ofgem rejected suggestions that the scheme should instead be funded through the network companies’ recent windfall profits, warning that renegotiating price controls could increase consumer costs elsewhere.
MPs on the Energy Security and Net Zero Committee have urged the Government to go further by using “excess profits” made by network firms to fund debt relief. The Committee’s report said it was “completely inexcusable” that households were forced to choose between “heating and eating” while network companies made billions in profit.
Committee chair Bill Esterson said: “British energy consumers are £4bn in debt, while network companies have made over £4bn in excess profits.
“These profits have come simply from outperforming price controls, even as millions of families ration energy or go without heat.”
The Committee called for a “lasting energy debt relief scheme” and stronger powers for the energy ombudsman, which it described as “toothless”.
What other changes is Ofgem considering?
Ofgem is also consulting on new rules to stop unpaid bills from building up again. One proposal would require new tenants and homeowners to register their gas and electricity accounts as soon as they move in, to prevent anonymous “occupier” accounts from accumulating debt.
Suppliers estimate that between £1.1bn and £1.7bn of the industry’s historic debt stems from these unregistered properties. Ofgem said it wanted to introduce a system similar to those used abroad, where customers must sign up before using energy.
To avoid people being cut off, smart meters in these homes would be switched to prepayment mode with limited credit, allowing residents to top up or formally register. The rule would apply only to homes already fitted with smart meters.
The regulator said these measures could help lower future debt, protect vulnerable customers, and reduce costs for all households over time.
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