Any end in sight for soaring energy debts?

Peter Smith, Director of Policy and Advocacy at National Energy Action, says news that household energy debt has spiralled to £3.7 billion shows the government, Ofgem and industry need to help the most vulnerable

Ofgem confirmed today [26 September] that levels of energy debt continue to spiral upward. The amount customers owe energy suppliers has now surged to £3.7 bn, up £400 million in just one quarter.

While there have long since been issues with sector debt, how frequently customers are billed and how quickly customers are notified or supported when they are getting into difficulties, this level of energy debt is obviously a consequence of energy bills that are already unaffordable for millions of households. Given how many customers are already struggling to heat and power their homes and are getting deeper and deeper into difficulty paying their bills, a key question for us at National Energy Action is: is there any end in sight for soaring energy debt?  

In the short-term, the answer seems to be no. Next Tuesday’s (1 October) price cap increase won’t help at all. An average increase of 10% in energy prices for 28 million households across GB during the most energy-use intensive season is likely to drive many more into debt. In fact, some of those additional increases will ironically be to pay for the servicing of debt by energy suppliers. This current approach costs customers approximately £1.5 billion a year but critically, it doesn’t actually directly help customers, they are left with the same level of debts and energy suppliers have a lot of discretion in how they can spend the debt allowance they receive.

In the longer-term, prices are forecast to remain at current levels until the end of the decade. The benefits of the UK government’s additional investments in energy efficiency investment or wider plans to decarbonise our energy supply, while welcome, won’t feed through quickly either. So, without a significant intervention by the government and energy regulator, levels of debt in the sector will obviously only get worse. Put simply, there will be higher bills and even less support available this winter and debts will continue to spiral. It’s within this context we hope major consideration is now being given by the government, Ofgem and industry to provide additional support to reduce the most vulnerable customers’ bills as a priority and help create new ways to directly help them clear these unmanageable debts far quicker.

These dual interventions would provide customers with vital ’breathing space’ before the positive impacts of a ramp-up of energy efficiency delivery and a decoupling of energy prices from gas can be felt. Without Ofgem and the UK government announcing a package of additional support to tackle higher energy prices and record levels of energy debt this winter, there seems very little chance debt levels will begin to peak, level out, or fall. We must seize every opportunity to avoid further shattering people’s personal finances and badly damaging their physical and mental health and wellbeing.

Peter Smith, National Energy Action’s Director of Policy and Advocacy