Millions of struggling households could have their debts written off under a new Government-backed scheme.
The Debt Relief Scheme will target people in “genuine financial need” who have little prospect of repaying arrears built up during the energy crisis between 2022 and 2024.
Ofgem said energy debt from the crisis has reached £2.47 billion, with up to 2.4 million customers potentially eligible for support.
The scheme will bring together support for pensioners, people receiving disability benefits and those on means-tested benefits in a single phase, building on earlier proposals.
Ofgem is expected to consult shortly on the revised plans, with the scheme due to launch in spring 2027.
Who could get energy debt written off?
The scheme is aimed at households struggling with energy arrears and who have little prospect of paying them back.
However, the amount of debt eventually cleared will depend on customers engaging with the scheme. This includes working with their energy suppliers to agree repayment plans and take steps to prevent debt building up again.
Ofgem said the joint strategy with the Government would provide a “much-needed circuit breaker for customers in hardship to reset and regain control of their energy bills”.
The plans are also intended to make repayments more sustainable and tackle some of the underlying causes of energy debt.
Government analysis suggests the strategy could save a typical household around £130 over the next 10 years by avoiding the cost of debt being passed on to all consumers through their bills.
It is also expected to prevent more than £5 billion of new debt accumulating by 2036.
Changes planned to prevent energy debt building up
The one-off scheme will form part of wider reforms designed to tackle the growing energy debt problem.
These include changes to the home-moving process to help prevent households building up arrears when they move property.
Rules on involuntary prepayment meters will also be reviewed to ensure vulnerable consumers are protected while allowing suppliers to tackle rising energy debt.
Ofgem chief executive Tim Jarvis said: “Too many households are still weighed down by debt built up during the energy crisis.
“Our targeted debt relief scheme will help people get back on top of their finances and make a fresh start, and we welcome the Government’s support to make this happen.
“But this is about much more than tackling historical debt. These steps balance customer rights with their responsibility to pay, empowering them to manage and keep track of their energy bills to prevent debt piling up in the first place.
“Recognising both consumers’ rights and responsibilities, the strategy aims to set out the collective action needed to ensure that those who can repay debt do so, while providing appropriate safeguards for those facing the greatest challenges. Together, these measures will help build a fairer and more resilient energy market for all consumers.”
Energy Secretary Miatta Fahnbulleh said: “I know how worrying energy debt is for the thousands struggling. That affects all of us, with the costs passed onto other billpayers.
“That’s why we’re helping vulnerable people in energy debt with targeted support and tackling debt built up in the system to help bring bills down for all.
“That goes alongside action we’re taking to tackle energy affordability – my number one priority.”
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Energy industry warns debt could reach £8 billion
Energy UK, which represents the energy industry, welcomed the announcement but said the support must be delivered in collaboration with suppliers to reach the households who need it.
Ned Hammond, the organisation’s deputy director of customer policy, said: “Energy UK has been raising the alarm around energy debt for some time so it’s great to finally see a joint debt strategy launched by Government and the regulator Ofgem.
“The update on the debt relief scheme, with the possibility of more households being supported, is also welcome.
“We appreciate the relief will be targeted at customers most in need of support, but this must be delivered in collaboration with suppliers to ensure it reaches them effectively.
“With debt heading towards a staggering £7 billion by the end of 2026 and potentially reaching £8 billion in the first half of 2028 without action, it is vital all these measures are delivered at pace alongside industry to get the debt burden down for customers and the suppliers they owe.”
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