MPs criticise Ofgem’s ‘completely inadquate’ response to energy debt crisis

A cross-party group of MPs has criticised Ofgem’s plans to tackle growing household bill debt as “completely inadequate”.

The energy regulator announced that up to £500 million in debt will be paid off through bill increases spread across millions of UK households.

The UK faces an energy affordability crisis after electricity and gas prices soared from late 2021, driven by the reopening of economies following the pandemic and Russia’s invasion of Ukraine.

Household energy debt has surged to £4.43 billion, Ofgem figures showed last month – a record figure which has more than tripled in five years.

Under its so-called “debt relief scheme” unveiled on Thursday, Ofgem said billpayers will face a £5 hike in their annual energy costs.

The increase will start in the 2027/28 year to help suppliers recover the costs of unpaid bills.

It comes only a day after the Energy Security and Net Zero (ESNZ) Select Committee called on the regulator to pay down some of the energy debt by tapping into suppliers’ windfall profits rather than by reclaiming the cost through household bills.

Responding to Ofgem’s newly announced scheme, the group of MPs said it “barely scratches the surface” of the debt.

In a letter to the regulator, committee chairman Bill Esterson said the cost crisis demands “out of the box thinking” from the Government and Ofgem to ensure that “parts of the sector that are making healthy profits become part of the solution to dealing with the high cost of energy”.

He wrote: “It cannot simply always come down to higher bills today with the promise that they may come down in the future.”

Citing figures from Citizens Advice, the committee said energy networks have enjoyed windfall profits amounting to around £4.15 billion from outperforming network price controls.

They argued this could be used to help clear the £4 billion in consumer debt.

But Ofgem’s proposed scheme falls far short of the committee’s recommendation, the letter said, adding that it is “not tough on debt and does not begin to address the causes of that debt.”

Ofgem does not have tax-raising powers and so to introduce windfall tax, it would have to make a recommendation to the Energy Department, which would then have to bring proposals to Parliament.

Responding to the committee’s initial recommendations, an Ofgem spokesperson said: “This issue (the £4 billion windfall) arose due to very high levels of inflation in the early 2020s, unseen for 30 years, and we made clear to network companies that they should use this to strengthen their balance sheets to benefit consumers and support those who need it most.

“Ofgem has since implemented regulatory changes to bear down on costs across the energy system to get the best deal for customers, curtailing industry profitability and setting tougher targets on service performance.

“The decision to not apply these changes retrospectively was based on the risk that reopening the price control could lead to other costs to consumers that outweigh the potential benefits from recovering any gains.”

Lawrence Slade, chief executive of the Energy Networks Association trade body, argued that the committee’s conclusions relied on “narrow Citizens Advice analysis that doesn’t reflect the long-term nature of network investment”.

“Ofgem has already reviewed this and confirmed that changing the current framework would not be in customers’ interests,” he said.

“Returns are tightly regulated at around 5%, helping keep one of the world’s most reliable electricity systems running for 28 million customers, supporting 26,000 jobs and 1,500 apprenticeships – at around 60p a day on the average bill.”