Ofgem to hike energy price cap to help firms handle record bad debts

(PA)

Londoners’ energy bills could go up by £16 per household this Spring if new proposals to help multi-billion pound firms cope with record levels of bad debt are approved.

Ofgem, the main industry watchdog, launched a consultation on its plans today, with the level of unpaid bills in the industry nearing £3 billion. It would use the price cap mechanism for the levy, starting in April.

The “one-off” increase would be paid “between April 2024 and March 2025″, Ofgem said, making it “equivalent to around £1.33 a month”.

That money will allow firms to recover some of the additional costs of continuing to supply customers who can’t pay. The change is designed to “reasonably reflect” the actions taken to help customers in difficulty and debt.

Nonetheless, controversy is likely to follow, as a levy on  hard-pressed consumers is  to insulate the industry from bad debts after a string of record profits at energy firms. Centrica, the owner of British Gas, reported profit of £969 million for the first half of 2023.

Ofgem’s Tim Jarvis, director general for markets, said: “The proposals set out today are not something we take lightly.

“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.”

Gillian Cooper, director of energy at Citizens Advice, said record numbers of people unable to pay bills was “fast becoming a problem people face all year round, not just in winter.”

She called for “additional targeted support for those who are struggling.”

A recent survey from National Debtline put the number of UK adults in energy bill arrears at 6.4 million.

Soaring gas and electricity prices led the cost-of-living crisis and the wave of inflation that swept the UK and led to 14 consecutive interest rate rises, taking the base cost of borrowing to 5.25% this year. The rise in rents and mortgage repayments which followed added to the pressure on household finances.

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According to the Joseph Rowntree Foundation, more low-income households are getting into debt in order to keep the lights and the heating on, with almost half of the UK’s low-income mortgage holders facing rising repayments in the last 12 months, adding around £330 per month to repayments.

JRF’s chief economist Alfie Stirling said: “The central bank is talking tough on interest rates while four million families are sitting on debt taken out just to pay vital bills,” adding:

“To turn things around requires decisive intervention from government, not the Bank of England.”