The rising tide of energy debt
Alarming data published today by the energy regulator, Ofgem, shows that household energy debt is at its highest level ever — by the end of June 2023 around £2.6bn was owed. This is deeply concerning, but not surprising. It aligns with our experience at Citizens Advice of supporting people through the cost of living crisis, which has driven demand for our service to record levels.
We know that people need more support this winter. Our work has helped deliver new consumer protections and additional support from energy suppliers. But these changes will only tackle the symptoms, not the cause of the energy debt crisis. In an era of higher energy bills we need the Government to do more to support the households most in need.
We are helping record numbers with growing energy debt
We are seeing growing numbers of people coming to us with energy debt. This year we have helped over 65,000 people with energy debt issues, more than the number of people we helped in the whole of 2021. By the end of the year, we predict that we will have helped 93,000 people with energy debts, an increase of more than a quarter over 2022.
Not only are we seeing more people with energy debts, but we’re also seeing growing average levels of energy debt among the people we help with debt advice. By June 2023 the average level of energy debt held by our debt clients was more than £1,700–17% higher than it was at the same point last year.
One way for customers to manage energy debt is to use a prepayment meter. But if they can’t afford to top up their meter it puts them at risk of being disconnected from their gas and electricity. Our latest data shows that we’ve seen more than 28,000 people who couldn’t afford to top up their prepayment meter this year — as many as we did in the whole of 2022.
New support should be in place this winter
Last winter we saw shocking cases of households being forced to have prepayment meters fitted to manage their debt, including people at high risk if they were unable to afford to top up their meter, such as people with young children or with medical conditions that put them at risk. Many of the people we helped weren’t offered support by their supplier before their debts mounted, or struggled to get in touch to ask for help.
This winter Ofgem is introducing stricter rules that put in place more safeguards to protect consumers at risk of having prepayment meters force fitted. Ofgem has also proposed new rules to improve customer service standards and the support suppliers provide to customers in debt, which should be in place by the end of the year. As a result, people should be offered support sooner, be able to easily get in touch to ask for help and agree an affordable plan with their supplier.
14 energy suppliers, serving almost all energy customers, have also signed up to a new voluntary commitment, developed with Energy UK, Ofgem and Citizens Advice, to go further to help people struggling this winter. This commitment should help prevent inappropriate use of bailiffs to collect energy debt, and mean suppliers take proper account of debt repayment plans that are proposed by debt charities who have worked with their customers. We’ve also helped develop a new industry-wide campaign to ensure people know what to do if they’re in energy debt. This will encourage people to speak to their supplier, seek advice from a debt charity, and save by reducing energy use where possible and accessing energy efficiency support.
Rising debt levels are also leading to higher prices to ensure suppliers are funded to support their customers. Earlier in the year Ofgem increased the prepayment price cap to reflect higher supplier costs related to debt for these consumers, and it is now proposing further price increases for other payment methods. The fact these painful increases are being introduced reflects the worsening debt picture, and the negative long-term consequences for all consumers if debt levels continue to spiral upwards. We’ll scrutinise the case for any rises to ensure they are focused on consumer interests, while taking appropriate account of the risk of supplier failure, which also adds costs and disruption for consumers. Any price rises must also be accompanied by robust compliance and monitoring to ensure suppliers are using this funding as intended and meeting their obligations to their customers.
We need to tackle the cause, not the symptoms
These changes should help address the needs of people who fall behind on their bills, though we will remain vigilant against poor practice, and share our insight and evidence with the regulator. But they don’t tackle the underlying cause. The reality is that with energy bills around 60% higher than in 2021, and other bills also rising significantly, for millions of households the sums simply don’t add up. Over 1 in 3 households will spend more on energy this winter than last — and the figure is nearer to half for the poorest households. Looking ahead, energy prices are likely to remain elevated for years to come.
This problem isn’t going away, and the current support offered by the Government simply isn’t enough to hold back the rising tide of energy debt. A year ago it committed to continue wider cost of living payments that will top up benefits for some households this winter, and has supported small reductions in costs for prepayment customers. But it’s clear these don’t go far enough, and growing calls to do more to address the scale of the challenge have been met with stony silence.
The government has failed to publish a promised consultation on enduring support with energy bills from April 2024, and has cancelled plans to improve energy efficiency for people who rent from private landlords, who are often amongst the poorest households. It’s even been suggested that benefits may be cut in real terms, a step that would drive even more households into the red.
It’s not too late for the Government to act. We’ve called for urgent support this winter, using existing mechanisms to quickly get help for households that need it most. Longer term we need a combination of additional targeted support and a proper programme of energy efficiency improvements to bring bills down for good.
