UK domestic energy debt levels have hit a record of high of £3.7 billion. With consumers hit with a further increase in the energy price-cap as we enter the winter months, it appears we are on the brink of an energy debt crisis. We look at what has led the energy industry to this debt crisis point and if anything can be done to resolve it.
Latest statistics from Ofgem show UK domestic energy debt rapidly approaching £4 billion. This data highlights a 12% rise in energy debt and arrears between the first and second quarter of 2024 and a 43% increase year on year.
Domestic energy debt has been steadily increasing since 2019. However, it was the cost-of-living crisis of 2021 which saw debt levels start to escalate signficantly. The long-tail impact of the Covid-19 pandemic and Russia’s invasion of the Ukraine caused a global rise in inflation. Food and energy were disproportionately affected, particularly in the UK where the issue was compounded by the fall-out of Brexit. This has led to many UK households to struggle to afford essential everyday basic expenses. Government intervention helped mitigate affordability issues while the gas crisis was at its peak, but not enough for many households. Even those who had historically been financially secure were plunged into debt.
As highlighted in the below graph from Electrical Insights.co.uk average consumer energy prices remain substantially higher than before the cost-of living crisis – despite wholesale energy prices returning to similar levels to mid 2020.
In October, Ofgem announced a 10% increase to the energy price-cap. The price-rise was agreed as a measure to combat the ongoing debt crisis by ensuring energy companies have enough money in the bank to provide support for the most vulnerable households. However, if anyone has taken the brunt of the energy crisis, it has been the consumers not the corporations. As a spokesperson for the End Fuel Poverty Coalition highlighted in a recent article drawing attention to the £457 billion in profits made between 20 of the energy companies since the start of the energy bills crisis.
“…there is plenty of money in the energy system, but it never ends up in the hands of consumers who are struggling to pay their energy bills”.
Ofgem state in their Energy price cap additional debt costs review decision, that the increase to the energy price-cap;
“…will continue to protect consumers from the full extent of bad debt costs now and in the future and strike a balance between allowing suppliers to recover their efficiently incurred costs and enabling them to provide immediate support to customers who are struggling to pay their bills and effectively manage their debt”.
Questions must be asked about the legitimacy of this strategy – with the rise in debt levels directly correlating to rising prices, surely the best method to slow down the accumulation of energy debt would be to reduce prices, rather than inflate them? Whilst it might not resolve existing debt levels, it could certainly help prevent further households hitting crisis point.
One thing is certain – there could not be a time when proactive credit-control support is more needed. Whilst some consumers are clearly not going to be in position to pay, some will, and nearly all will not want to end up in increasing arrears. Energy companies should be reaching out to all their customers to both get a true understanding of bad risk, but also work with customers to find solutions and resolutions. From offering debt repayment plans at the earliest opportunity to debt repayment holidays, to allow people to get back on their feet – solutions need to be found to prevent the current crisis becoming a national catastrophe.
Author: Ashley Barratt, CEO, Barratt, Smith and Brown.
About Barratt Smith Brown
Leicester based Barratt Smith Brown, has already established a strong reputation for providing market-leading debt collection support to the utilities sector. Leveraging CEO Ashley Barratt’s 15 years of experience at Centrica, they have not only provided outsourced support to key industry players such as Business Stream, Bristol Energy and Shell, but have taken a lead role in managing collections for UK energy administration collections – handing over 75% of energy administration cases since 2018. Their expertise in energy administrations led to their key role in helping The Citizen’s Advice Bureau develop their Supplier of Last Resort – Good Practice Guide.
