[INSIGHTS]: Ofgem Debt Strategy – Next Steps

Ofgem published their Debt Strategy back in 2024 and have just released a proposal on their debt relief scheme (below). Updates in the Autumn.

https://www.ofgem.gov.uk/call-for-input/debt-strategy-next-steps
  1. The energy crisis has led to unprecedented levels of household energy debt, necessitating industry-wide reset and reform.
  2. A targeted £0.5–1bn debt relief scheme is proposed to assist vulnerable customers in severe hardship, aiming to reduce accumulated debt from the crisis period.
  3. There is an urgent need to establish a ‘debt guarantee’ to standardise customer support, ensuring proactive, compassionate, and consistent debt management practices across suppliers.
  4. The current handling of debt by energy providers is inconsistent, impacting vulnerable consumers’ ability to access support and recover sustainably.
  5. A focus on standardising ability-to-pay assessments and improving collaboration with debt advice agencies is critical for delivering affordable repayment plans.
  6. The sector aims to reduce the build-up of avoidable debt by reviewing market incentives, potential for financial support mechanisms, and smarter billing practices.
  7. Consumers’ trust in energy providers remains low, complicating efforts for early intervention; third-party organisations and charities are vital in bridging this gap.
  8. Policy proposals include better reference to consumer outcomes, ensuring all customers in debt receive tailored, proactive, and empathetic support.
  9. A comprehensive review of debt recovery tools is underway, with a move away from blunt instruments towards more proportionate, customer-centric approaches.
  10. Long-term market stability and affordability depend on preventive measures, enhanced market regulation, and a focus on accurate billing and fair recovery costs.
  11. Enhanced cooperation between industry, government, and consumer groups is essential to creating a sustainable debt management ecosystem.
  12. The consultation process aims to shape future standards, with key focus areas on debt support, billing accuracy, and systemic measures to prevent debt escalation.
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Key Statistics

  • Energy debt and arrears have increased by 91% over the past two years.
  • Nearly 75% of energy debt sits with customers not on repayment plans.
  • The total value of energy debt/arrears has reached a record high of £3.82 billion.
  • The average debt of those in debt has risen by over 50% in the last two years.
  • During the energy crisis, a significant proportion of energy debt has accumulated, warranting targeted relief measures.

Key Discussion Points

  • How energy debt levels are driven by larger global energy shocks requiring bespoke solutions.
  • The importance of establishing a debt relief fund to support those in severe hardship, funded through a sector-wide approach.
  • The need for a ‘debt guarantee’ to improve consumer experience, clarity, and support standards.
  • Strategies to prevent debt build-up, including market incentives, market design, and smarter billing practices.
  • The role of third-party charities and consumer organisations in supporting customers and acting as an advocate.
  • Standardising ability-to-pay assessments to ensure fair and sustainable repayment plans.
  • The potential for financing a debt relief scheme through a cost-neutral approach, reducing the overall burden on consumers.
  • The significance of improving collaboration and communication pathways between suppliers, consumer groups, and charities.
  • The plan to develop outcome-based standards to drive better customer service and satisfaction in debt management.
  • The need to review current debt recovery tools, reducing reliance on blunt enforcement methods and fostering proportionate support strategies.
  • The importance of smart metering, accurate billing, and early intervention in preventing debt escalation.
  • The overarching goal of balancing vulnerable consumer protection with wider market stability and affordability for all users.
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Document Description

This article discusses the legacy of the energy crisis on household debt levels and outlines sector-wide proposals for resetting and reforming debt management practices. It details industry efforts to implement a targeted debt relief scheme, standardise consumer support standards, and foster a more customer-centric approach to debt prevention, support, and recovery. The article highlights the need for collaboration between regulators, suppliers, consumer groups, and government to ensure sustainable, empathetic, and effective debt management that benefits both vulnerable consumers and the broader market stability.

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