Ofgem to set out plan to ‘reset and reform’ growing energy debt

A scheme to tackle historical debt built up during the energy crisis could help around 195,000 customers by writing off up to £500m, Ofgem announced today.

The regulator confirmed a final consultation on the first phase of its Debt Relief Scheme will be published shortly as part of its plans to help consumers and support suppliers to bring down £4.4bn of debt in the energy system. 

The costs of recovering this debt, and in the worst case writing it off, are spread across everyone’s bills. That's why Ofgem is moving forward with proposals that aim to bring debt down and reform the way energy debt is managed to prevent it building up again while protecting the most vulnerable.

Other steps include plans to trial changes to the process households must follow when they move into a new property. Currently when someone moves into a new home, energy accounts are switched to ‘occupier’. Bills build up under these anonymous accounts until the individual contacts a supplier to register. This is in contrast to the way this process works in many other countries across Europe, where consumers are required to set up energy accounts to get on supply.

In the worst-case scenario this debt – which suppliers estimate accounts for between £1.1 and £1.7bn (up to a third) of the historic debt currently in the system - is never paid and is written off. This is recovered via the debt allowance that is included in everyone’s bills, currently adding £52 under the current price cap. 

The proposals will include several safeguards to ensure consumers in vulnerable situations are protected, alongside measures to ensure support is targeted at those who need it. This could include adding credit to the smart meter when it is moved to prepayment mode for new tenants or homeowners, which would ensure they remain on supply while setting up an account with an energy supplier. 

Charlotte Friel, Director for Retail Pricing and Systems at Ofgem, said: 

“We know the growing amount of debt in the energy system is a significant challenge – for those that are living with the significant stress of being in debt, for households that ultimately face higher costs on their bills to cover the debt that can’t be recovered, and for the industry that is limited in its ability to innovate and invest because of the costs of debt.

“We must protect consumers by striking the right balance between making sure those that can pay are supported to do so, and targeting support at those who need it most. These proposals will both directly reach households and relieve the burden of unmanageable debt, while also making changes to the way that debt is managed in the sector. 

“This is a challenge that requires us all to work together across industry and government to deliver a fairer system that works for current and future consumers.”

Further changes from the regulator also include a new ‘Know your Rights’ document for consumers setting out what suppliers must do to support households struggling with debt.

The first phase of the Debt Relief Scheme, expected to launch in early 2026, will focus on people in receipt of means-tested benefits with more than £100 of debt built up between during the energy crisis (April 2022 to March 2024).

Eligible households will be expected to be making some contribution towards their debt or ongoing energy use, or if they are unable to do so at this time, be willing to work with a debt advice charity to seek help managing their debts. They would also be identified automatically and contacted by suppliers.

The regulator will publish consultations on the proposals in the coming weeks, with the aim of the Debt Relief Scheme being implemented early 2026. 

Notes to editors

Policy documents will be published in full in the coming weeks.