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energy regulator, ofgemhas unveiled a new relief scheme that is set to forgive up to £500 million of household energy bill debt.
Supervision Stated its intention to “reset and reform” the country’s growing energy debt, a burden that has contributed to increasing pressure on household finances.
Under the current price cap, a £52 allowance is currently included in annual household energy bills, designed to cover unpaid energy debts that eventually need to be written off.
The initiative is expected to resolve the historic debt of £500 million accumulated during recent energy crisisPotentially around 195,000 individuals will benefit.
The regulator confirmed that a final consultation on the first phase of its debt relief plan will be published shortly.
Data published by Ofgem last month showed that money owed to suppliers by households in England, Scotland and Wales reached a new record high of £4.4 billion by the end of June.
The average debt for people who don’t have a repayment plan with their provider is currently around £1,716 per household.
Ofgem said that in a worst-case scenario, the supplier estimated that £1.1 billion to £1.7 billion of historical debt would never be repaid and would be written off.
It comes a day after lawmakers called on the regulator to foot part of the energy debt bill through windfall profits on suppliers.
However, the cost of unpaid loans will continue to be covered by reclaiming them from the bills of all households.
Ofgem said it is moving forward on proposals to improve the way these loans are managed to reduce debt and prevent it growing to such high amounts in the future and therefore reduce the cost of living for all households.
Other proposals from Ofgem include plans to trial changes to the process that families must follow when moving into a new property.
Charlotte Friel, director of retail pricing and systems at Ofgem, said: “We know the increasing volume of debt in the energy system is a significant challenge.
“We must protect consumer By striking the right balance between ensuring that those who can pay are supported to do so, and targeting support at those who need it most.
“These proposals will reach households directly and provide relief from unmanageable debt burdens, while also bringing about a change in the way debt is managed in the sector.”
The first phase of the scheme, which is due to launch early next year, will focus on people who are receiving means-tested benefits with loans over £100 during the energy crisis.
It says eligible households will be expected to make some contribution towards debt and current energy use or work with a debt advice charity if they are unable to make payments.