Charities warn against raising energy price cap as consumer debts spiral

A one-off increase to the energy price cap of up to £17 a year to help prevent suppliers from going bust as they face spiralling consumer debts would make bills “even more unaffordable”, charities have warned.

Britain’s energy watchdog said it was launching a consultation on options to protect the energy market after figures in the summer showed that debt reached a record £2.6 billion due to soaring wholesale prices and cost-of-living pressures on households.

Ofgem said it was considering a one-off increase in the price cap that could see households pay up to £17 a year more – or £1.50 a month – on average “to reduce the risk of energy firms going bust or leaving the market as a result of unrecoverable debt”.

It warned that if it did not take action, consumers could face even higher costs and poorer standards of service if suppliers collapsed due to the debt levels.

While suppliers are not currently at the point where they at risk of going bust, Ofgem is understood to be considering options to address the issue before it becomes unsustainable.

The £2.6 billion figure relates only to debt and arrears and is therefore not offset by credit built up by other customers and held on their accounts.

The regulator is consulting the energy industry, consumer groups and the wider public to look at the options.

But it said, if approved, any increase to the cap would be delayed until next April to protect consumers from extra costs during the winter.

Tim Jarvis, director general for markets at Ofgem, said: “We know that households across the country are struggling with wider cost-of-living challenges, including energy, so any decision to add costs to the price cap is not one we take lightly.

“However, the scale of unrecoverable debt and the potential risk of suppliers leaving the market or going bust, which passes on even greater costs to households, means we must look at all the regulatory options available to us.

“Ofgem cannot subsidise energy or force businesses to sell it at a loss and suppliers must be in a position to offer high-quality services to customers.

“We must consider the fairest way to maintain a stable energy market and we will do this in consultation with all our partners to ensure we are protecting the most vulnerable households.”

Ofgem said that at the height of the energy crisis, when around 30 suppliers went out of business, it charged every energy customer an extra £82 to cover costs to ensure that households were not cut off.

It said its latest proposals would have varying impacts on customer bills, depending on payment types.

But Citizens Advice chief executive Dame Clare Moriarty said any increase in the price cap would make bills even more unaffordable.

She said: “Even before winter hits we’re helping more people who can’t keep up with their energy bills than ever before. Worryingly, more households are running up energy debts during the warmer months, with some having to borrow money to try and keep the lights on.

“High energy prices mean millions of people remain at risk of falling behind in the coming months. An increase in the price cap to pay for higher debts will make people’s bills even more unaffordable. Any change must be in the best interest of all consumers.

“For now, the Government must provide additional bill support this winter for those at most risk.”

National Energy Action chief executive Adam Scorer said: “The enormous weight of household energy debt is crushing vulnerable households. Government cannot just look the other way and hope for the best.

“This is the highest level of energy debt we have seen, it is growing quickly and concentrated in the poorest households. Energy bills are now on average £800 per year higher than they were at the start of the energy crisis.

“While industry and regulator-led support is welcome, Government must put in place additional targeted support and establish a Help to Repay scheme and an enduring social tariff.”

Simon Francis, coordinator of the End Fuel Poverty Coalition, also said the Government should instead look to help customers pay off energy debts.

He said: “Households are struggling under the huge weight of energy debt which has been caused through no fault of their own, but by rising prices.

“All this time, energy firms have continued to profit from the misery of people racking up debt and living in cold damp homes.

“Rather than pass on more increases to energy bills, the Government needs to work with energy firms to introduce a ‘help to repay’ scheme to help get Britain’s households back on to an even keel.”

David Cheadle, acting chief executive of the Money Advice Trust, the charity that runs National Debtline, said: “With energy debt at a record high, now is the worst possible time to increase bills further, as Ofgem is proposing.

“Instead, the Government must step in and act now to help households facing unaffordable debt repayments by introducing a Help to Repay scheme to offer payment matching and write-off.

“Doing so would help tackle the record levels of energy debt we are now seeing, without the need to increase energy bills for all customers.”