Debt strategy update: supporting the reduction of energy debt

Energy debt continues to be an acute issue for the retail market. 

Our latest published data shows that by June 2025, domestic consumer energy debt had reached £4.43 billion – an increase of 20% from the same time in 2024, and 71% since 2023. 

Nearly three quarters of this debt is with customers who have no repayment plan in place (known as “arrears”). 

However, the number of households in debt has not risen dramatically in the same period, suggesting that a significant part of the debt challenge is with a proportion of consumers who are going deeper into debt.

Many households are in genuine payment difficulty and continue to struggle with debts accrued during the high prices seen in the energy crisis. But we also recognise there are features of this market that make it too easy to get into debt in the first place, like inaccurate bills, or the ability to access energy without setting up an account. 

Proactive support and tailored advice are key to achieving better debt outcomes for consumers. We expect suppliers to demonstrate excellent customer service as part of their strategies for driving down consumer energy debt.   

The impacts of debt are felt by all consumers and the market overall. Like in any market, suppliers will lose money if they do not recover debt and this can impact the resilience and investability of the market as a whole. 

We allow suppliers to recover a proportion of debt costs from all billpayers. This includes administrative expenses, working capital requirements, and the portion of debt that ultimately cannot be recovered. 

Currently a typical consumer pays around £52 per year towards the cost of managing and writing off energy debt. A key aim of our work on debt is to drive down this figure, reducing costs on bills for all consumers – but a number of interventions are needed to achieve this. (To note - the £52 figured is based on the average household on a standard variable tariff paying by direct debit. This may be higher for some households depending on how they pay for their energy.)

Our Debt Strategy

In December 2024, we published our Debt Strategy. This strategy outlined our plans to:

• reset the historic debt from the crisis
• raise debt standards for domestic energy consumers
• reform how debt is managed to help prevent debt build up in the longer term

In delivering this strategy, our aims are to ensure:

1. Support is targeted to those who need it most and customers in debt are treated fairly and experience exceptional customer service.
2. Access to credit is controlled, limiting the ability to get into unmanageable energy debt in the first place.
3. Customers are incentivised to pay their energy bills and suppliers have the appropriate tools to manage and collect debt where necessary.

On resetting the debt, we move forward today (Thursday 6 November 2025) with detailed proposals on how our Debt Relief Scheme (DRS) will work to provide one-time debt relief for households in genuine payment difficulty, who accrued debt during the energy crisis.

On reforming how energy debt is managed, we expect energy suppliers to do more to manage debt efficiently and compassionately, and improve customer service to match the top performing sectors. 

We have put in place a number of protections to support consumers on the debt journey, and we continue to work to ensure that the rules intended to protect consumers do not create a means to avoid paying energy bills.

Targeted support and fair treatment

Debt Relief Scheme (DRS)

Noting that a subset of households are getting deeper into debt, there is a need to make debt support as tailored and targeted as possible. That is why we are pressing ahead with the DRS. 

We have set out our detailed proposals for phase 1 of the scheme in the DRS statutory consultation. 

We expect phase 1 of this scheme to support up to 200,000 consumers in receipt of means-tested benefits, and reduce the debt stock by up to £500 million. 

We will continue to progress with phase 2 of the scheme to support other households in payment difficulty who are not in receipt of benefits where a robust approach to affordability assessment can be put in place.

This is an important first step in removing the burden of historic debt in order to support eligible households back onto a more sustainable footing and paying their energy bills in future. 

We do not currently expect widespread or universal debt relief to be a permanent feature of this market beyond in response to exceptional events like the energy crisis. Nonetheless we recognise the value in targeting as best possible the support that is available.

Use of data

A key focus of our Debt Strategy is ensuring customers are supported to pay their bills, but we recognise some need more help than others in doing this. 

Proactively identifying households in vulnerable situations who need additional help is critical to ensuring a high standard of customer service. 

Through the development of the DRS, we have made significant progress. We are working with government to improve how we use data – gaining access to means-tested benefits data to support suppliers proactively identifying customers who would be eligible for support. 

We will continue to engage with government to expand the use of data to proactively identify households in vulnerable situations and better target support to them. We welcome insights from stakeholders on what data is needed and how it can be better utilised in order to deliver better consumer outcomes on debt.

We also note that improved data would significantly improve suppliers’ ability to verify a customers’ circumstances during the course of discussions about the need for financial assistance or temporary relief from payment. 

We recognise more work may be needed to evolve the approach to verification in the meantime, and to consider the link to the Priority Services Register (PSR). We want to balance the burden on suppliers with ensuring they are following a responsible approach to managing debt. 

We recognise that targeted affordability support remains an important route to support those consumers who are in financial difficulty, and this is rightly a matter government.

We welcome the government's recent expansion of the Warm Home Discount and their proposals to continue the scheme once the current scheme ends in March 2026.

We stand ready to support government as it continues to explore opportunities to more effectively target support to those who need help with their energy bills, including through better sharing of data to make this possible.

Debt standards

It is clear that we need to focus on raising debt standards, particularly to prevent customers getting into energy debt in the first place and supporting those in debt in a compassionate and sustainable way. We know that consumers may continue to build up energy debt if they do not receive appropriate support.

We have initially focused on ensuring consumers are receiving tailored debt advice and being supported onto payment arrangements that work for them when they engage with their energy supplier. 

Our priorities are standardising the approach suppliers take when assessing a customers’ ability to pay, to ensure more consumers are put onto sustainable repayment plans. 

We will continue to develop this approach for ability to pay assessments through phase 2 of the DRS.  

We also want to see energy suppliers improve how they work with the debt advice sector. We continue to work with industry on a potential Debt Code of Practice and related work with energy suppliers, consumer groups and charities, and other relevant stakeholders. 

We have also published a ‘Know your Rights’ guide (which we previously called the Debt Guarantee). This sets out how domestic customers can expect to be treated by their supplier when they are struggling to pay. It outlines:

• the right to fair treatment
• the need for clear and correct bills
• the right to an affordable repayment plan
• how to access to support and advice
• the potential financial support if they are eligible for

The guide supports our Debt Strategy by giving consumers more confidence in engaging with their supplier when they are in debt. 

We will continue to focus on key expectations of suppliers such as:

• ensuring accurate bills and direct debits
• reducing the occurrence of shock bills
• ensuring customers who want a smart meter can receive one quickly

Controlled access to credit

As we set out in our 2024 strategy, access to energy is considered an essential service as going without it, even for small periods, can have serious consequences. 

As a result, disconnection is rare and the use of involuntary prepayment to manage debt is strictly controlled. The consequence is we effectively mandate suppliers to offer credit towards energy bills for most customers. Suppliers are also not required to undertake credit checks for new customers. 

While this may be right overall, we recognise there are pinch points in the system that are problematic, driving up debt due to open-ended access to credit and that could be made more efficient.

Home moves and anonymous accounts

Through the evidence we have received over the year, the 'change of tenancy' or 'home-move' process has been identified as a key target area to reduce debt build up. 

Later this year, we will launch a consultation with proposals to trial new processes during home moves, that will require customers to contact their supplier to set up an account early in the process. 

In Great Britain (England, Scotland and Wales), it is generally accepted that consumers can use energy straight away upon moving into a new property. This can create a tendency towards debt build-up where a customer has access to energy for a prolonged period without ever setting up an account. They may find they are in debt after weeks, or even months at the property. 

Consumers, particularly those in vulnerable situations, may lack awareness and understanding around how the energy market works and what they need to do when moving in and out of a property. 

Evidence received back from suppliers suggests that this cohort may be responsible for between 20% to 40% of the overall debt figure.

We think there is a strong case to develop our evidence base in this space and intend to launch trials with suppliers to enhance our understanding. These trials will focus on proposals to switch existing smart meters into prepayment mode in situations of domestic customers moving homes. 

As we design these policies, we will carefully consider the existing prepayment meter rules and seek to ensure that appropriate safeguards are in place to protect consumers.

We will also continue to engage with government on data improvements within the private rented sector, similar to those in water (for example, landlord or tenant register).

Access to credit and the role of standard credit

In August 2025, we wrote to suppliers and consumer groups to clarify expectations about how Additional Support Credit should be provided to ensure the most vulnerable households are supported, while preventing households getting into debts they cannot manage. 

We intend to consider further reforms to Additional Support Credit as part of a holistic review into access to credit in the energy sector and will provide further thinking on timings of this work as we evolve our strategy.

Our access to credit review will necessarily also need to explore the role and use of standard credit (or cash or cheque) as a common method of payment in the energy sector. 

Around 16% customers pay by standard credit, and many (research suggests up to 43%) do not realise this is the most expensive way to pay for energy, with a £135 price premium specifically due to the costs of debt.

Standard Credit also becomes the default payment method, where a direct debit fails, or prepayment is not an appropriate way for a customer to pay.

We are already exploring ways to support and encourage more customers onto more efficient forms of payment and welcome views on what the current barriers are, including the ability of suppliers to adopt more flexible direct debits for example.

Incentives to pay

The role of prepayment

Prepayment plays an important role in this market as a means to help consumers manage their energy costs and ensure payment. 

While it isn’t right for all consumers, there are significant benefits for many, and we see the highest levels of customer satisfaction among customers who pay by smart prepayment. 

Prepayment also plays an important role in debt collection, in certain circumstances.

In addition to the above actions, we are also exploring other changes that may be needed to prompt payment, with the role of prepayment meters being an important consideration. 

We are currently evaluating the involuntary prepaid meter rules implemented in 2023 to assess whether they continue to strike the right balance between consumer protection and suppliers’ right to recover debts, how implementation is working, as well as informing our understanding of the impacts of the rule changes on debt.

This work includes evaluating:

• the moratorium
• the code of practice
• updated licence conditions
• Safe and Reasonably Practicable guidance

It is both a process and impact evaluation.

We have already held bilaterals with a wide range of consumer groups and charities, suppliers, Ofgem staff and other relevant stakeholders.

We intend to conclude the review in the first half of 2026, with interim findings expected to be shared ahead of this.

Next steps

We will continue to work with industry stakeholders and consumer groups to advance policies to help address the level of debt in the energy retail market.

Alongside our proposals for DRS, we have published Delivery Guidance which will be updated to reflect the policy as it continues to develop through consultation.