Household energy debt doubles in three years to £5.5bn

Household energy debt has more than doubled over the last three years to reach £5.5 billion, leaving typical customers paying an extra £50 a year on top of their own usage to cover it, the industry has warned.

Energy UK, which represents firms, said around two million households are currently in debt to their supplier, and nearly three-fifths of these are not on repayment plans.

Arrears – payments that are owed or overdue – now make up 75% of all unpaid energy bills, meaning there are no repayment plans in place for the majority of this debt, it said.

More than one million households currently have no registered details with suppliers, increasing the risk of unmanaged debt.

A trial of new rules designed to tackle problems related to change of tenancy, which drives between 10% and 15% of total outstanding energy debt and arrears, has been proposed, but this was instead of an immediate rule change that would bring the UK in line with many other countries, Energy UK said.

Energy debt falls to all households to pay, with typical dual fuel customers still on the price cap having an extra £50 a year added to their bills, while standard credit customers – those who pay for their energy after they use it – pay around an extra £140 due to a “debt allowance” built into tariffs.

Energy UK warned total debt could rise to more than £7 billion by the end of 2026 “without urgent intervention”.

Chief executive Dhara Vyas said: “This is a massive crisis for the energy sector, which is facing unique challenges not seen by other utilities, and affects all energy customers, who end up paying more.

“Suppliers have a whole range of strategies for engaging and supporting customers, but with debt and arrears spiralling out of control, the industry can’t fix this problem alone.

“Immediate and decisive action from both Ofgem and the Government is essential to stabilise the sector and protect households and the companies that supply them.”

The report suggested a series of regulatory decisions had made it easier for households to fall into debt and harder to recover from it, with efforts to tackle the crisis falling short.

It said Ofgem’s Debt Relief Scheme, which aims to write off £500 million in debt, was a “welcome first step” but it “fails to grasp the scale of the crisis”.

The limited scope and delayed rollout of the scheme was unlikely to deliver meaningful and sustainable reductions in debt levels, Energy UK said.

Energy UK is calling on Government, Ofgem, energy suppliers and debt advice agencies to co-ordinate their strategies to address the problem.

It wants a targeted scheme using improved data collection on income, health, energy usage and occupancy to identify households most in need of support for their bills.

It has also called for a reconsideration of restrictions on the increased adoption of smart prepayment meters where appropriate, to allow the industry to “safely support customer budgeting while enabling suppliers to easily provide support where required”.

Energy UK’s warning comes a day after Ofgem cut the energy price cap by £117 to £1,641 a year for a typical dual fuel household from April 1.

However despite the fall in the price cap, which sets the maximum that suppliers can charge their customers for each unit of gas and electricity, domestic energy costs remain about a third higher than before Russia’s invasion of Ukraine triggered the European energy crisis.