Ofgem announces plans to raise energy price cap from April to help suppliers recover £3bn in debts

Bad debt refers to the amount of money owed by customers in the energy system, which is unlikely to be repaid.

Announcing the consultation on the plans, the energy watchdog said it must ensure the burden of this increased debt falls as fairly as possible.

Ofgem is proposing a one-off price cap adjustment of £16, equivalent to around £1.33 per month, to be paid between April 2024 and March 2025.

Customers who are on pre-payment meters won’t be affected under these proposals.

Ofgem said the price cap adjustment will ensure suppliers have the resources to support struggling customers by setting up payment plans, writing off unmanageable debt on a case-by-case basis and working out affordable repayment holidays.

Energy prices are still high, and new figures published today show that energy debt has hit £3billion – its highest ever level – due to a combination of sustained high wholesale energy prices, and wider cost of living pressures.

It comes as energy prices stay high, and wider cost-of-living pressures mean energy debt has reached nearly £3 billion, its highest-ever level, according to new Ofgem figures.

Ofgem’s energy price cap will rise from its current level, currently £1,834 a year for a typical dual fuel household on direct debit, to £1,928 from January 1.

The energy price cap is a cap on the unit price, so if a person uses more, they would spend more than these typical annual amounts.

Tim Jarvis, director general for markets at Ofgem, said: “We know that cost of living pressure is hitting people hard and this is evident in the increase in energy debt reaching record levels.

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“We have taken steps to ensure energy firms are taking better care of customers and treating people struggling with debt fairly, through our robust consumer standards, and that companies are getting in touch to offer support, such as affordable payment plans, where needed.

“However, the record level of debt in the system means 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 proposals set out today are not something we take lightly. However, we feel that they are necessary to address this issue. This approach will ensure the costs are recovered fairly, without penalising a particular group of customers.

“The price cap has helped to protect consumers from a volatile gas market. However, it remains a blunt instrument in a changing energy sector, and the way it works may need to change in the future, so customers continue to be protected.”