Energy debt has reached a new high of £3.8bn as of Q3-24, up £134m from the previous quarter, and £0.9bn over the past year. Alarmingly, there's no repayment arrangement in place for £2.9bn of this debt (around 2m customers).
Key points:
- Record high debt: Industry debt rose to a record £3.8bn in Q3-24, marking a £0.9bn increase over the past year. Debt has nearly tripled since 2020, with £2.9bn (75%) of customers’ debt currently without a repayment arrangement.
- Households under significant pressure: Despite stabilising energy bills, average debt balances continue to rise, surging by 42% to £1,116 since Q2-23 when bills first started to level out.
- Ofgem proposes to improve standards: Ofgem have proposed a set of initiatives, including a debt relief scheme and a ‘Debt Guarantee’ for vulnerable customers, aiming to reset debt management practices across the sector.
- Affordability remains a persistent challenge: A fundamental rethink on affordability is likely needed to address the root causes, whether by expanding targeted support programmes, introducing stricter price regulation for vulnerable customers, or investing further in energy efficiency.
"The scale of energy debt, now at a record £3.8bn, highlights the immense financial strain on households and the critical challenges facing suppliers," said Ian Barker, Managing Partner at BFY Group.
"Ofgem’s proposed measures, including the debt relief scheme and ‘Debt Guarantee,’ are welcome steps. However, the continued rise in debt shows an ongoing issue of affordability, which must be addressed to create lasting solutions."
Average debt per account has risen to a record £1,116, which marks a 42% increase since Q2-23, when bills first started to stabilise. While the latter is good news, it’s clear that households are still facing significant financial pressure.
Despite efforts by suppliers to offer support through payment plans and tailored repayment options, 75% of the industry’s debt remains unmanaged. This is due to several factors, including:
- Affordability issues, where many households cannot commit to repayment plans due to financial constraints
- A lack of engagement, as some customers avoid communication out of fear or embarrassment
- Insufficient awareness, with many customers unaware of available support options
- Supplier challenges, such as resource constraints and limited agent capabilities, which hinder the ability to offer tailored solutions
Ofgem’s proposed initiatives, including a debt relief scheme and a ‘Debt Guarantee’ to protect vulnerable customers, offer potential long-term solutions. However, the ongoing rise in debt points to a more persistent issue – affordability.
During the energy crisis, interventions helped keep costs down for many customers, but in their absence, bills have plateaued at relatively high levels. As a result, clearing the existing debt backlog could have limited impact unless broader affordability challenges are addressed.
A fundamental rethink on affordability is likely needed to tackle the root causes of rising debt. This could involve expanding targeted support programmes, such as the Warm Home Discount, or introducing stricter price regulation for vulnerable customers, through social tariffs or tiered pricing. Greater investment in energy efficiency and renewables will also help customers reduce consumption, but as with all these potential solutions, significant collaboration, funding and policy alignment is required.
Ian Barker, Managing Partner at BFY Group, said:
“The scale of energy debt, now at a record £3.8bn, highlights the immense financial strain on households and the critical challenges facing suppliers. Ofgem’s proposed measures, including the debt relief scheme and ‘Debt Guarantee,’ are welcome steps. However, the continued rise in debt shows an ongoing issue of affordability, which must be addressed to create lasting solutions.
"With £2.9bn of debt still without repayment arrangements, suppliers need to focus on providing immediate, tailored support while collaborating on sustainable solutions to reduce household financial pressures, and prevent further escalation of debt.”
About BFY Group
BFY Group is one of the UK’s fastest-growing management consultancies, trusted by leading organisations in the Energy, Utilities, and Private Equity sectors. The firm partners closely with clients, providing practical solutions to their most complex challenges, identifying opportunities, and delivering lasting results.
Founded in 2004, BFY Group remains an independent, privately owned consultancy based in Nottingham, serving clients across the UK.
Specialising in Transformation, Strategy and Commercial Excellence, Operational Turnaround and Recovery, and ESG and Carbon Reduction, BFY Group supports a wide range of organisations, including major energy retailers - covering 75% of the UK market- as well as emerging firms. The consultancy also works across the broader energy value chain and utilities sector, encompassing water, energy services, and infrastructure.
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