Energy bills could rise by £16 to cover customers' debts

Households face paying extra on energy bills to cover customers' bad debts under plans by the industry regulator.

Ofgem is proposing lifting the energy price cap by £16 between April next year and March 2025.

It estimates that debt levels for energy customers has risen to £2.9bn.

Last month, Ofgem announced it would raise the energy price cap, which limits the amount that companies can charge per unit of gas and electricity, from January.

It means the typical household will pay £1,928 a year for gas and electricity, up from the current £1,834 for a dual-fuel home.

On Friday, Ofgem said: "We understand the distress that rising debt in energy has on people."

However, it added: "Rising debt levels create costs for suppliers."

Under the proposals, households using prepayment meters would not be charged the extra sum, which works out at £1.33 per month. These consumers pay as they go, meaning they cannot build up debt in the same way as households that are billed monthly.

Suppliers and consumers have until 17 January to submit responses to the plans.

Charities have warned that millions of people are having to borrow money to pay essential bills at Christmas, with energy costs a key concern.

The amount of debt and arrears faced by gas and electricity customers swelled to £2.9bn between July and September, up from £1.9bn in the same period last year.

Households in arrears - where a customer owes a supplier but has not worked out a payment plan - make up the vast majority of the overall figure, at more than £2bn.

Customers in debt, who have a repayment agreement with their energy company, totalled £830m.

Despite the government providing help for all households, including a £400 payment through the Energy Bill Support Scheme last winter, Ofgem said: "We have nevertheless seen debt levels rise as people struggle to meet the costs of higher bills."

Fuel poverty charity National Energy Action said that Ofgem's proposals did not address the underlying problems.

"There is now a desperate need for the UK government to step in and to help low-income households clear their debts and make sure bills are affordable," said Matt Copeland from the charity.

"People are already going without energy, heat and light and it's not enough to stop their debt rising. It's going to be a bleak and cold Christmas for millions."

Ofgem has said in the past that if it did not implement an increase in the price cap to cover bad debts, customers could end up paying more in the long run.

A Department for Energy Security and Net Zero spokesperson said: "We recognise the cost-of-living challenges families and households are facing. We expect energy suppliers to help customers who are struggling with energy costs, prioritising support for the most vulnerable.

"That's why we're spending £104bn to support households with all their bills - including targeted support for the most vulnerable.

"Bad debt can push up bills for everyone and Ofgem has a responsibility for setting the level at which suppliers can recover costs they incur."

In 2021, wholesale energy prices soared and this caused about 30 companies to go out of business.

This led to every energy customer being charged an extra £82 to cover the costs of making sure that households were not cut off.

Energy prices spiked last year following Russia's invasion of Ukraine, which resulted in sanctions against the country which is a major oil producer.

While prices have fallen - Brent crude oil is currently trading at $76 per barrel - they "remain high compared to historical levels", Ofgem said.

• Check your direct debit: Your monthly payment is based on your estimated energy use for the year. Your supplier can reduce your bill if your actual use is less than the estimation.
• Pay what you can: If you can't meet your direct debit or quarterly payments, ask your supplier for an "able to pay plan" based on what you can afford.
• Claim what you are entitled to: Check you are claiming all the benefits you can. The independent MoneyHelper website has a useful guide.

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