Summary
This report outlines the urgent need for a strategic overhaul in managing consumer energy debt, exacerbated by the global energy crisis. It details the approach to debt reset and reform to provide sustainable solutions for consumers and energy suppliers. The document, issued by Ofgem, seeks stakeholder feedback on proposed interventions including a potential debt relief scheme and new standards for supplier practices.
Key Take Aways
- Energy Debt Surge: Energy debt has increased by 91% in the last two years, with a record high of £3.82 billion in arrears.
- Consumer Vulnerability: Vulnerable consumers are at high risk of rationing or self-disconnection due to financial pressures.
- Debt Burden Distribution: 75% of energy debt resides with consumers not on repayment plans.
- Debt Relief Proposal: Ofgem is consulting on a debt relief scheme ranging from £0.5 to £1 billion to alleviate debt accumulated during the crisis.
- Debt Standards Reform: New debt standards propose a ‘debt guarantee’ to provide consumers with clear expectations for support from suppliers.
- Billing Accuracy Initiative: Improving billing accuracy is a core focus to help consumers budget effectively and avoid debt accumulation.
- Market Characteristics: Unlike other sectors, energy debt is harder to control due to the essential nature of the service and limited disconnection options.
- Supplier Practices: Variability in supplier approaches to debt management leads to inconsistent consumer outcomes.
- Consumer Support Channels: Strengthening collaboration between suppliers, charities, and consumer organizations is essential for supporting complex cases.
- Stakeholder Consultations: Two consultations are underway to refine the debt relief scheme and enhance debt management practices across the sector.
Innovation
- Debt Relief Scheme: A one-off intervention aimed at directly reducing historical debt for customers most affected by the energy crisis.
- Consumer Confidence Program: Aims to drive up customer service standards through proactive, empathetic debt support measures.
- Standardized Debt Guarantee: Proposes a new model to ensure all consumers receive consistent support in managing debt and arrears.
Key Statistics
- Energy debt and arrears have surged to £3.82 billion.
- 91% increase in energy debt over two years.
- 75% of energy debt is held by customers not on repayment plans.
- 69% of consumers reported satisfaction with supplier support during payment difficulties.
- Ofgem allocated £35 million in 2024 for the Energy Redress Scheme to fund community and charity projects aimed at assisting consumers.
Original: LINK
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