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a cross-party group of MPs Ofgem’s plans to tackle rising household bill debt have been criticized as “grossly inadequate”.
The energy regulator announced that up to £500 million of debt owed by millions of UK households would be repaid through bill increases.
Britain faces an energy affordability crisis after electricity and gas prices rose since late 2021, driven by the pandemic and the reopening of economies following Russia’s invasion of Ukraine.
Household energy debt has increased to £4.43 billion, ofgem The figures showed last month – a record figure that has more than tripled in five years.
Under its so-called “debt relief scheme” unveiled on Thursday, Ofgem said bill payers would face a £5 rise in their annual energy costs.
The increase will begin in the year 2027/28 to help suppliers recover the cost of unpaid bills.
It comes just a day after the Energy Security and Net Zero (ESNZ) Select Committee called on the regulator to pay off some energy debts by tapping into suppliers’ windfall profits rather than recouping the costs through household bills.
Responding to Ofgem’s newly announced plan, the group of MPs said it “barely scratches the surface” of the debt.
In a letter to the regulator, committee chairman Bill Esterson said the cost crisis demands “different thinking”. Government And Ofgem should ensure that “those parts of the sector that are making good profits form part of the solution to tackling the high cost of energy”.
He wrote: “It cannot always come down to high bills with the promise that they may come down in the future.”
Citing statistics from citizens adviceThe committee said the energy network had made windfall profits of around £4.15 billion from better-performing network price controls.
He argued that it could be used to help repay £4 billion in consumer debt.
But Ofgem’s proposed plan falls far short of the committee’s recommendations, the letter said, adding that it “does not get tough on the debt and does not begin to address the causes of that debt.”
Ofgem does not have tax raising powers and so must make a recommendation to impose the windfall tax. Department of EnergyWhich will then have to bring a proposal in the Parliament.
Responding to the committee’s initial recommendations, an Ofgem spokesperson said: “This issue (a £4 billion windfall) arose due to very high levels of inflation in early 2020, not seen for 30 years, and we made clear to network companies that they should use it to strengthen their balance sheets to deliver benefits to consumers and support those who need it most.
“Ofgem has since implemented regulatory changes to reduce costs across the energy system by securing the best deal for customers, reducing industry profitability and setting tougher targets on service performance.
“The decision not to apply these changes retroactively was based on the risk that reopening price controls could lead to other costs to consumers that outweigh the potential benefits of any benefit recovery.”
Lawrence Slade, chief executive of the Energy Networks Association trade body, argued that the committee’s findings relied on “narrow citizen advice analysis which does not reflect the long-term nature of network investment”.
“Ofgem has already reviewed this and confirmed that changing the current framework would not be in the best interests of customers,” he said.
“Returns are tightly regulated at around 5%, helping to keep one of the world’s most reliable electricity systems running for 28 million customers, supporting 26,000 jobs and 1,500 apprentices – at around 60p a day on the average bill.”