Tackling energy debt - Assessing options to address the growing energy debt crisis

Tackling energy debt - Assessing options to address the growing energy debt crisis [ 480 kb]

With more people struggling, we’ve already seen an increase in the number of people coming to Citizens Advice for help with energy debt. We saw over 93,000 clients with energy debt issues in 2022, a 19% increase on 2021. Ofgem data similarly shows an increase in the number of consumers repaying energy debt to their supplier since the start of 2021.

Due to increasing energy bills, not only has the number of people in debt increased, but the value of the energy debt consumers owe has also grown considerably. Ofgem recently estimated the total energy debt owed by consumers to be £2.5 billion. This trend is reflected in Citizens Advice data - which shows the average amount of energy debt owed by our clients is now around £1500, up from £1200 two years ago.

We expect levels of energy debt to continue increasing in the coming months and years. With the Energy Bills Support Scheme coming an end and the Energy Price Guarantee increasing to £3000, more people will struggle to afford their energy bills. Consumers who came into this crisis with limited savings may fall into debt as those savings are eaten up by higher costs, even if bills do not further increase. There is evidence of widespread bad practice in the forced installation of prepayment meters and remote switching of smart meters from credit to prepay mode. This bad practice has led to a temporary halt in forced prepayment meter installs, which may also lead to an increase in energy debt.

Based on our preliminary analysis and discussions with stakeholders, we have identified a range of options that could reduce the burden of consumer debt. We make no pretence that any of these options are perfect; there are significant downsides to each. We would particularly welcome feedback on alternative solutions, given those difficulties.

The seven options considered by this paper are:

• Expanding debt allowances in the price cap to give customers breathing space

• Using the fiscal headroom created by recent falls in the wholesale price to fund debt forgiveness

• Transferring indebted customers to a government backed white label supplier

• Spreading the costs of debt recovery over a longer period

• Coupling more extensive use of smart prepay with spreading the costs of debt recovery over a longer period

• Allowing for individualised recovery of actual debt costs through regulatory levies

• Do nothing

There are pros and cons to each of these options, and none stands out to us as the ideal solution. We would welcome feedback from stakeholders both on these ideas, and on any alternative approaches that could tackle the growing debt problem. If you have any feedback on these proposals please contact thomas.brookebullard@citizensadvice.org.uk.