Ofgem lays plans to wipe £500m of household energy debt
By Josh White
Date: Thursday 30 Oct 2025
(Sharecast News) - Ofgem announced plans to write off up to £500m in household energy debt on Thursday, as part of a sweeping package of reforms aimed at resetting how the UK manages and prevents energy arrears.
The move, which could help around 195,000 low-income households, would form the first phase of the regulator's new Debt Relief Scheme and came amid a record £4.4bn in unpaid bills across Britain.
The regulator said the scheme would target people on means-tested benefits who built up more than £100 of energy debt between April 2022 and March 2024, during the peak of the energy crisis.
Eligible customers would be identified automatically by their suppliers and contacted directly, provided they were making some contribution towards their bills or were willing to work with a debt advice charity.
Ofgem said it expected to publish its final consultation on the plan in the coming weeks, with implementation slated for early 2026.
Charlotte Friel, Ofgem's director for retail pricing and systems, said the growing mountain of energy debt was creating pressure across the system.
"We know the growing amount of debt in the energy system is a significant challenge - for those that are living with the significant stress of being in debt, for households that ultimately face higher costs on their bills to cover the debt that can't be recovered, and for the industry that is limited in its ability to innovate and invest because of the costs of debt," she said.
"We must protect consumers by striking the right balance between making sure those that can pay are supported to do so, and targeting support at those who need it most."
Household energy debt had soared over the last two years as prices spiked and government support tapered off.
Ofgem data showed total arrears rose by £750m in a year to reach £4.4bn by mid-2025, with more than one million households now in debt without a repayment plan.
Under the current energy price cap, a "debt allowance" of £52 per household was already built into bills to cover unrecovered costs.
The regulator said up to £1.7bn of historic debt may never be repaid and would eventually be written off, further burdening consumers.
The new proposals were part of a wider push to reform how energy debt accumulates.
Ofgem said it was planning to trial changes to the way households are billed when they move into a new home, after suppliers estimated that between £1.1bn and £1.7bn of the system's total debt stemmed from "move-in" accounts left under the name of "the occupier".
Under the reforms, residents would be required to set up an energy account before supply begins - a system already in place in parts of Europe.
In homes with smart meters, Ofgem was considering automatically switching them to prepayment mode with a small amount of credit to ensure continuity of supply.
The regulator said it also planned to introduce a new 'Know Your Rights' guide setting out what suppliers must do to support customers in arrears.
It pledged to ensure safeguards for vulnerable consumers remained central to its debt relief plans.
The regulator's consultations on the Debt Relief Scheme and wider reforms were expected to open in November, with the first phase scheduled to launch in early 2026.
Reporting by Josh White for Sharecast.com.
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