British consumer energy debt hits record £3bn

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

British households have built up record debts of £3bn with electricity and gas suppliers, according to figures released on Friday, highlighting the impact of the ongoing cost of living crisis with energy bills still relatively high. 

Industry regulator Ofgem said constrained household budgets had pushed the total amount owed to energy suppliers up by £400mn since mid-October.

As a result, Ofgem announced the launch of a consultation to help suppliers offset their higher debt costs by adding an extra charge to all household bills.

The proposals would add about £16 to the typical annual household bill from April, through adjustment to the price cap that limits the amount a supplier can charge per unit of energy. Ofgem said the move was necessary to ensure suppliers were “resilient” and able to help customers who needed support. 

“We know that cost of living pressure is hitting people hard and this is evident in the increase in energy debt reaching record levels,” said Tim Jarvis, director-general for markets at Ofgem. “However . . . we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient, and suppliers are offering consumers support in managing their debts.”

The cost of electricity and gas has fallen since last winter when record wholesale energy prices triggered by Russia’s full-scale invasion of Ukraine pushed the price cap as high as £4,059, prompting the government to step in to support households. 

But the ending of those subsidies has left many households still struggling to pay their energy bills. Although wholesale gas and electricity prices have fallen they remain above pre-crisis levels. This is reflected in the energy price cap, which had dropped to £1,834 but is still much higher than pre-energy crisis levels when it was usually below £1,100.

The proposed surcharge is designed to avoid a repeat of the market rout in late 2021 and early 2022 when 30 suppliers collapsed as wholesale energy prices surged and the price cap prevented them from passing on the extra costs to consumers.

At the time, Ofgem allowed the remaining suppliers to recoup the cost of bailing out the millions of customers of those failed companies by adding £82 to each household bill.

Gillian Cooper, director of energy at consumer group Citizens Advice, urged the government to do more to support struggling households. “Without action we’ll remain stuck in a cycle where rising levels of energy debt slowly pushes up the price cap and leads to higher bills for all,” she said.