Credit, Collections & Insolvency News
Energy regulator Ofgem has laid out plans to make firms offer tariffs without standing charges from next winter. The new plans also outline better support for households struggling with debt. The regulator will consult on introducing an option under the price cap to include zero standing charge tariffs alongside existing tariffs, offering consumers the ability to choose what is right for them.
Some suppliers already offer low- or no-standing charge tariffs, but it is not universal, and Ofgem believes more choice is needed for all consumers, including those in debt.
Tens of thousands of consumers responded to Ofgem’s call for input on standing charges, with many asking for standing charges to be removed altogether, saying that reducing or removing standing charges would make it easier for them to manage their bills or pay back debt.
However, there was also evidence of the risk of harm to some very vulnerable consumers who are high users of energy, often for medical and health needs if the fixed costs currently covered by standing charges were moved to unit rates, which would see their bills rise significantly. So it is important that consumers have the ability to make the right choice for their own circumstances.
The regulator has also set out its debt strategy, which aims to tackle the growing impacts of rising debt in the energy system, and to create lasting change in the way debt is managed and customers in debt are supported.
Ofgem says it has followed best practice guidance from the finance sector to propose new supplier standards that will make it easier for the customers struggling to pay their bills to get support. This includes ensuring a consistent approach is taken when assessing a customer’s ability to pay, with the help of charities and debt support agencies. Consumers would also have greater clarity on how their supplier can help with debts which will help limit the risk of consumers getting into debt in the first place, and of unsustainable levels of debt building up in the future.
Alongside this, Ofgem has also announced proposals to address debt that was built up during the energy crisis, when energy bills reached unprecedented levels. The level of debt built up during that period has become unsustainable, and requires a bespoke, one-off solution to tackle it that will drive down the costs of debt in the long term for the benefit of all consumers.
Ultimately any scheme would be cost neutral, in that it would lead to lower overall bills against the counterfactual of not intervening, and contribute to lowering the overall cost of debt and therefore bills over time.
Currently, all consumers pay through their energy bills for the cost of debt to suppliers – but the customers’ debts themselves are not always forgiven. And the extreme levels of debt remaining from the energy crisis are unlikely to be fully recovered without intervention.
Tim Jarvis, Director General Markets at Ofgem, said “We know that many households continue to struggle with bills after the events of the energy crisis, which is why earlier this year, we took steps to consider all the issues around affordability and debt – including the impact of the standing charge.
“Today we’re setting out the next steps in what Ofgem can do to meet these challenges, as part of our work to make sure the energy market is working in consumers’ interests. Many people feel very strongly that standing charges are unfair and prevent them from being able to manage their bills effectively.
“We want to give consumers the ability to make the choice that’s right for them without putting any one group of consumers at a disadvantage. And by having a zero standing charge tariff, we would create that choice for everyone.
“We have also set out plans to increase and standardise the support people struggling with energy debt will receive, as well as options for practical help for those households who are in real difficulty with debt built up during the energy crisis.
“We will continue to use all the tools at our disposal to support customers but know there is more to do, so it is important that all of us – government, the sector and charities – do everything we can to help those who need it.”
Debt advice charity, the Money Advice Trust, has today welcomed Ofgem’s announcement, Steve Vaid, Chief Executive of the Money Advice Trust, the charity that runs National Debtline, said
“It’s really positive to see that Ofgem has listened to our calls and recognised the need for a dedicated scheme to help people repay unaffordable energy debts, through debt write-off and repayment matching.
“Offering people help to repay in this way could lift millions of people out of debt, and will have wider benefits for consumers and energy suppliers.
“With energy debt at record levels, the scheme is desperately needed. Ofgem must now work closely with suppliers and charities to bring the scheme into effect as soon as possible next year.”
Chief Client Officer at StepChange, Richard Lane, said “This wide-ranging consultation, geared towards supporting people struggling with energy debt, is hugely welcome. We have consistently called for a Help to Repay scheme, alongside sector partners, to help households tackle unaffordable energy arrears that have built up over the past few years – so we’re encouraged to see that a debt relief scheme is being explored. We’re especially pleased to see Ofgem look closely at how to raise standards of support for customers struggling with energy debt and preventing it from escalating.
“Ofgem’s proposals will take time to put in place and, with energy costs elevated for the foreseeable future, it is vital that energy suppliers do everything possible this winter to support struggling customers. A long-term solution led by government is also needed to ensure energy is affordable for all, including the introduction of an energy social tariff.
“As the UK’s largest debt advice charity, we know all too well how often people are falling into difficulty due to the cost of energy bills. In recent years energy debt has become one of the most common household debt types that our clients struggle with. Amongst StepChange clients, energy arrears have increased by a third since January 2024 and now stand at an average of £2,601.
“However, with an expectation of increased need for debt advice to help those with energy debt, it’s important that the sector is well-funded and resourced to deal with these challenges and increases in capacity.”
Richard Neudegg, Director of Regulation at Uswitch.com said “The controversy of standing charges has been exacerbated in recent years – with so many households reverting to being on default tariffs where the standing charges are effectively set by Ofgem’s price cap.
“Under Ofgem’s price cap, standing charges have risen 43% since 2019] and disproportionately affect lower-usage households, as these fixed costs make up a higher proportion of their overall bill. On the January price cap, dual-fuel households on default tariffs will be paying £338 per year on average in standing charges.
“The promise of more zero or low standing charge tariffs options by next winter could help bring more choice to the market, and might be a good choice for some lower consumption households. But consumers must beware that the trade-off for lower standing charges will be higher unit rates, so comparing options will be important.
“Consumers can take action now to reduce what they pay for their energy. There is a range of fixed deals on the market, which offer savings of up to £112 per year versus the January price cap for an average household, and often come with lower standing charges than the cap.”