British households are currently facing a significant challenge as they find themselves owing nearly £4.8 billion to energy suppliers due to the burden of high energy bills. According to recent data released by the regulatory body Ofgem, the total debt has increased by £240 million, representing a 5% rise, reaching a new record high during the first quarter of this year.
The situation is expected to worsen further as Ofgem’s price cap is set to increase by 13% to £1,862 annually starting next week for typical dual fuel households paying through direct debit. This hike translates to an additional £221 per year or £18 per month, based on the current price cap of £1,641.
Ofgem attributes the relentless rise in debts to affordability challenges, high levels of existing debt, and certain industry processes. The impact of these debts is felt broadly, with most households, whether in debt or not, bearing the brunt through an average annual increase of £50 in their bills.
The number of electricity accounts in debt has surged by 3% to 852,000, while gas accounts in debt have risen by 4% to 710,000. The owed amounts vary depending on whether individuals have arranged a repayment plan with their suppliers to settle their dues.
For those without a repayment plan, the average debt stands at £1,876 for electricity, significantly higher than the £587 a decade ago, and £1,623 for gas, up from £558 in early 2016.
When repayment plans are in place, the average debt decreases to £828 for electricity and £679 for gas, albeit still at record levels. However, over 1.1 million electricity accounts and more than 900,000 gas accounts are behind on payments without a structured repayment plan, struggling to manage their finances.
The total debt load has soared over the past few years, quadrupling from around £1.1 billion in 2018 to the current £4.79 billion, with a substantial portion belonging to customers who are at least three months in arrears.
James Mabey, a policy analyst at the charity National Energy Action, expressed concern over the escalating energy debt, emphasizing the adverse effects it has on households, including living in cold homes, increased anxiety, and difficult choices regarding essential needs. Mabey called for scaling up debt relief efforts to alleviate the financial strain on low-income households and reduce the overall impact on energy bills.
Gillian Cooper, the energy director at Citizens Advice, echoed these sentiments, highlighting the alarming increase in energy debt and its impact on vulnerable households. Cooper urged the government to support Ofgem in implementing the long-awaited Debt Relief Scheme to assist millions in need and ensure targeted support is available, particularly during challenging seasons like winter.
Ofgem is taking steps to address one of the primary reasons behind the accumulation of energy debts, which accounts for a significant portion of historical debt. The regulatory body plans to introduce proposals later this summer to reform the process for home movers, aiming to create a fairer system that benefits all stakeholders in the energy sector.
Neil Kenward, representing Ofgem, emphasized the need for a coordinated effort across the industry to stabilize debt levels and mitigate the impacts on households and energy consumers. Ofgem is focusing on regulatory actions, including improving the home movers process, providing targeted support, and ensuring responsible debt recovery practices to address the challenges posed by rising energy debts.
