Ofgem confirms new bad debt allowance funded by £28 a year on typical bills

Ofgem has confirmed that from April 2024 there will be a new allowance for bad debt, meaning money owed by customers which is unlikely to be repaid, funded by temporarily adding £28 per year onto the typical bill¹. The figure is almost double the level the regulator originally consulted on¹.

The allowance sits alongside the energy price cap, which stood at £1,690 for a typical household as of 1 April 2024, down from £1,928 in the first quarter of the year and from £2,100 in the first quarter of 2023¹. Energy debt and arrears in the GB domestic market now exceed £3bn, described as a record high level¹.

Consumer Scotland set out the position in a briefing published on 4 April 2024, drawing on the sixth wave of its Energy Affordability Tracker, for which fieldwork ran between 25 January and 13 February 2024¹.

The briefing reports that 26% of households say it is difficult to keep up with energy bills, down from 35% in winter 2022/23, and that the proportion expecting to feel worse off in three months fell from 60% to 30% over the same period¹. It also reports that 9% of households in Scotland are in energy debt on its broad definition, which includes borrowing from friends or family or taking out loans to pay energy bills as well as arrears with a supplier¹. Of those in energy debt, 20% reported debt recovery action in January and February 2024, compared with 10% in October 2023, and 17% reported being put on a prepayment meter as a result of their energy debt¹. Almost half, 48%, of consumers in energy debt were not confident they would be able to clear it¹.

Ofgem figures cited in the briefing put average debts at £851 for those with a repayment plan in place and average arrears at £1,761 for those with no repayment plan, correct as of December 2023¹. In March 2024 Ofgem published its Call for Input on affordability and debt in the domestic energy market¹.

Why it matters for households

The £28 is added to the typical bill rather than charged as a separate item, so it reaches households through the price cap rather than through a direct bill or levy. Consumer Scotland describes the funding as temporary, but the sources do not state an end date for the allowance¹.

The cost falls on households paying the typical bill, while the money is directed at debt that suppliers are unlikely to recover. Consumer Scotland notes that energy indebtedness has impacts on the broader market, including the costs of socialising bad debt across all consumers¹.

The briefing identifies disability that limits a lot, having a health condition, and having a child under 5 in the household as the factors most associated with energy indebtedness, more strongly than low income itself¹. It also finds that households paying when the bill arrives or by prepayment meter are more likely to be in energy debt than those paying by direct debit or standard credit, even after controlling for lower average incomes among those groups¹. Customers in energy debt were substantially more likely to say that keeping up with energy bills negatively affects their mental and physical health¹.

What happens next

Ofgem's Call for Input on affordability and debt in the domestic energy market, published in March 2024, is the next step identified in the briefing¹. Consumer Scotland sets out priorities for that work, including greater visibility and accessibility of energy debt and arrears statistics for Scotland, reform of tariff structures, steps towards an inclusive energy market, and solutions that improve energy affordability for all households¹. No outcome or timetable for the Call for Input has been reported¹.