Britain’s energy regulator has set out plans to cut the weight of household debt built up during the energy crisis. Ofgem’s new Energy Debt Relief Scheme could wipe out up to £500 million of arrears for around 195,000 vulnerable households. The wider goal is to ‘reset and reform’ how debt is managed, protect those struggling to pay and stop arrears from growing again.
In this article, we’ll tell you more about it.
A large-scale problem
Energy debt in the UK has reached £4.4 billion. That burden is carried by everyone, not just those in arrears. Unrecovered debt adds £52 to the average household’s annual bill under the current price cap. The regulator wants to bring that figure down while supporting suppliers to stay stable and invest.
Ofgem’s figures show debt has risen sharply since the energy crisis triggered by soaring gas prices in 2022. Millions of households fell behind, and suppliers have had to recover these costs across all consumer bills.
The plan is to protect consumers by striking the right balance between ensuring that those who can pay are supported to do so and targeting support to those who need it most.
The Debt Relief Scheme
The Debt Relief Scheme will focus on people in receipt of means-tested benefits who have built up more than £100 of debt between April 2022 and March 2024. Suppliers will identify eligible customers automatically and contact them directly.
Households will need to make some contribution towards their debt or energy use, or work with a debt advice charity to get support. The relief will be funded by a one-year levy on bills, adding around £5 per household in 2027/28.
The first phase of the scheme is expected to launch in early 2026, following consultation later this year.
The key features of the scheme are:
- £500 million of debt written off for around 195,000 households
- Funded by a one-off £5 bill levy from 2027-28
- Only households on means-tested benefits will be eligible
- Automatic identification of eligible customers
- Collaboration with debt advice charities to manage repayments
Preventing future debt
Ofgem also plans to fix the processes that allow energy debt to grow in the first place. A major change will target ‘occupier’ accounts. These are bills that accumulate when someone moves into a new home before registering with a supplier. These anonymous accounts are responsible for between £1.1 billion and £1.7 billion of debt, up to a third of the total.
The regulator wants new tenants and homeowners to register for energy supply immediately, similar to systems already in place in other parts of Europe. It is also exploring safeguards to protect vulnerable consumers, such as adding credit to smart meters when properties change hands, so customers don’t lose their energy supply while setting up their accounts.
Further proposals include:
- A new ‘Know Your Rights’ document to outline what suppliers must do to help customers in debt
- Stronger protections for vulnerable customers
- Closer collaboration between industry, government and consumer bodies to prevent debt and manage risk
The scheme also highlights the link between energy debt and wider financial vulnerability. Many of the households set to benefit are still struggling with the consequences of the last energy crisis, when costs soared and support schemes ended. Ofgem’s focus on early identification and automatic contact is designed to stop people from falling through the cracks.
For suppliers, the scheme also delivers better data on repayment behaviour and clearer visibility of customer risk. In time, these insights could help shape more sustainable pricing and credit practices across the retail energy market.
A fairer energy market
The Debt Relief Scheme is part of Ofgem’s broader effort to rebalance the energy market. While prices have fallen since their peak in 2023, they remain about 50% higher than before the 2021 energy crisis. Many households still find bills unmanageable, and consumer groups have called for more targeted support.
Ofgem’s plan aims to provide that relief while addressing the structural weaknesses behind rising debt. The combination of direct write-offs and process reform could reduce household costs, give suppliers a cleaner balance sheet, and build a more stable foundation for the future.
Consultation on the final details will take place in the coming weeks, with implementation planned for early 2026. If successful, the scheme could mark a turning point in how Britain handles energy debt. It could put pressure on the most vulnerable while lightening the load on everyone’s bills, which seems like a good thing for everyone.