Energy debts hit 10-year high as industry warns things will get worse

According to analysis based on the regulator data, it amounts to double the levels typically registered in 2019 - before the pandemic and far more than experts and consumer groups have previously estimated.

The regulator has said it is taking further action to combat the "unprecedented" cost of living crisis which it says has left consumers facing the "hardest winter in decades" with millions struggling to afford the cost of energy and other essentials.

And in a letter to ministers, the regulator has warned that it has already led to the "highest increase in energy debt we have seen in over a decade".

The trade organisation Energy UK told the Herald things are only going to get worse.

Recent analysis from Cornwall Insight said that energy suppliers could be exposed to nearly £2bn of debt as the cost of living crisis leaves more households unable to pay their record energy bills. It predicted a significant portion of the projected £1.9bn debt will be unrecoverable, known as ‘bad debt’.

They warned that with no action from policy or regulation, a worst-case scenario increases the risk of more supplier failures.

That could result in rising costs to consumers and a further deepening of the cost-of-living crisis.

In August, before average dual fuel energy bills doubled this winter compared to the previous year, analysis based on average energy provider debt from price comparison group Uswitch.com estimated that energy debt stood at and all-time high of £1.3bn.

At that point with most customers' energy bills due to rise last October for winter, almost a quarter of households had already owed an average of £206 to their energy provider.

Frazer Scott, chief executive of Energy Action Scotland said: "The scale of the current and projected levels of debt are simply staggering. It is clear evidence that households are simply unable to cope with the incredible increase in essential energy costs. I know, in speaking with advice agencies, that people are cutting back, and cutting back on the energy consumption to such an extent that it is harming their health and wellbeing. The mental and physical health of our nation is under immense pressure.

"Government needs to set a standard of excellence for the support it provides yet more and more it looks like expediency. And that is proving costly. High energy costs are set to endure for a considerable period, potentially years and may not return to the levels we saw in 2020. UK Government should consider providing some debt matching to help manage down the overall levels of debt."

Debt Justice says that its latest analysis of Ofgem data shows that the debt mountain grew by £43% in the 12 months to October.

Joe Cox, senior policy officer at Debt Justice said: "Energy companies that have profited from record energy prices and government subsidy, should be taking on much greater responsibility for tackling this debt pile."

New research from StepChange Debt Charity Scotland (SDCS) has found that in the last three months of last year the cost of living crisis was the leading cause of debt for nearly one in four (23%) of its new clients.

That is more than double the number for the first three months of 2022 when it was just 10%.

And electricity bill debt (36%) overtook council tax arrears (33%) as the most common arrears type held by the group's client base.

To address the impact of the ongoing cost of living crisis, and the high prices for essentials that households continue to face, SDCS is urging the Scottish and UK Governments to go further to protect low-income households from mounting problem debt.

Sharon Bell, head of SDCS said: "We are seeing incredibly high client volumes at the moment, and while a seasonal upturn in demand for debt advice is normal in the new year, such high demand may be an indicator that people’s ability to keep up with the huge price rises we saw last year is waning, with more falling behind on household bills.

“In particular, the incidence of energy arrears among our clients is concerning, especially as it may be a while before we start to see significant reductions in the price of gas and electricity.

“We’re urging the Scottish Government to work alongside public bodies to take a measured approach towards debt enforcement, reducing harmful practices that push people into further financial difficulty. Firms should be proactive in identifying customers who are struggling to offer them additional support and signpost to money advice services.

“With energy debt remaining high, the UK Government must be mindful of how households will cope once the average price of energy rises in April, and the energy support scheme comes to an end. While some support for low-income households will stay, it falls short of what was previously offered and exposes many more households to potential financial difficulty.”

Ofgem chief Jonathan Brearley has written to business secretary Grant Shapps saying that stricter rules will soon be introduced to tackle the rising numbers of forced prepayment meter (PPM) installations.

He said the regulator would conduct further Market Compliance Reviews (MCR) on suppliers’ practices on PPMs.

The probe will look at how suppliers assess whether the meters are suitable before any action is taken such as remotely switching or installing them under warrant.

Poverty campaigners in Scotland have been calling for a ban on the forced installation of prepayment meters fearing people will die as it emerged that a "staggering" 100 unpaid bill warrants to have the right to enter homes have been typically lodged every day by energy companies in the cost of living crisis.

Energy Action Scotland and the Poverty Alliance joined forces to ask the justice secretary for a hiatus on the procedure in advance of a review as it emerged that an average of at least 16 warrants a day were being approved by courts at the start of last year to forcibly enter homes over unpaid gas and electricity bills.

Court data seen by the Herald shows that 32,471 Warrants For Entry were lodged and 4,822 had so far been granted in the first ten months of last year. It has been estimated that the numbers granted is over treble that accumulated for the whole of 2020.

But it is understood that because of difficulties within the court system of recording the number of warrants granted, which relate to a small number of court locations the actual numbers may well be far greater.

Mr Brearley (below) told Mr Shapps: "Protecting consumers is our primary objective – and our expectations are that suppliers treat customers fairly. They must take into consideration any vulnerable circumstances when supporting consumers who are struggling to pay their bills, when progressing through debt pathways and considering installing or switching to a PPM."

He said despite past action there had been continued reports of suppliers "not going far enough to support and protect consumers in vulnerable circumstances. Therefore, we are taking further action".

Meanwhile the National Grid asked coal-fired power stations to warm up yesterday for the third time this week to help keep the lights on if supplies become "tight" as cold weather across the UK continues.

Two units owned by the energy company Drax, in Yorkshire, and one at West Burton, in Nottinghamshire, were asked to start up just before midnight on Wednesday. The West Burton unit was stood down at 5:13am, but the Drax units have continued to fire up, according to notifications sent to the industry.

It comes amid fears the UK could be plunged into darkness as part of an emergency plan in which National Grid implements organised blackouts in an “unlikely worst-case scenario” during January and February as temperatures drop.

The National Grid is expected to pay just over £3m to suppliers for the service over Monday and Tuesday, with about £850,000 on the first day, and £2.1m for the longer session on Tuesday.

Dhara Vyas, deputy chief executive at trade organization Energy UK warned that energy debt was only likely to grow.

 “Suppliers have increased the support they provide to customers over the winter through millions of pounds of direct financial assistance as well as offering payment holidays, restructured payment plans and emergency credit while also partnering with charities and consumer advice groups to further support customers in need.

“The increase in energy bills over the past year and the wider cost of living crisis means there are more customers needing more help than ever before and despite the Government-backed support schemes, the fundamental problem is that millions of people are still struggling to afford their bills – and that is a bigger issue than our sector can resolve.

“Although there are some indications that bills may start to fall later in the year, they will still be far higher than what they were just over a year ago and we believe the Government needs to look again at its plans to reduce the support available – for example, by keeping the Energy Price Guarantee at its current level rather than increasing it in April. "Suppliers are already required to have exhausted all other options before installing a prepayment meter by warrant...

“Suppliers also have a duty to manage debt and to try and prevent customers falling further into arrears. If the option to install a prepayment meter - after exhausting other options - is removed, then it needs to be acknowledged that this will lead to a further increase in bad debt, which – as Ofgem has said - has already been rising steeply and is ultimately recouped from customer bills.

“We have been discussing energy suppliers’ growing concerns about customer debt with Ministers, the regulator and consumer groups. We will continue to work with them to see what more can be done do to support vulnerable customers.”

A Scottish Government spokesman said: "We remain concerned at the cost of living crisis which is causing financial struggles and debt for households, with Brexit only deepening the economic damage.

“This is why the Scottish Government has allocated almost £3 billion in this financial year for a range of measures which will help mitigate the impacts of the cost of living crisis on households. This includes £1 billion in support only available in Scotland, including the Scottish Child Payment and Child Winter Heating Assistance.

“We have also doubled our fuel insecurity fund to £20 million, and support free debt and welfare advice services through £12.5 million to ensure people are able to access the advice, information and support they need to maximise their incomes and to get help with debt."