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Up to £500 million of energy bill debt is to be paid off through bill increases for millions of UK homes, the energy regulator has said.
UK households are facing a £5 increase in their annual energy costs to help cover the cost of an energy loan, which will be written off because it has never been repaid.
This increase will be for the year 2027/28 to help suppliers recover unpaid bills related to the recent increase in energy costs.
ofgem It said this increase could be moderate depending on how the scheme is taken up and expected it would be mitigated to some extent by measures that reduce customers paying loan-related costs such as debt collection.
It came as watchdog Ofgem said it planned to “reset and reform” the UK’s growing pile of energy debt.
Currently, under the current price cap £52 is added to annual household energy bills through a debt allowance to cover energy debts that are never paid off and have to be written off.
Ofgem said it expected up to £500 million of historic loans made during the recent energy crisis to be written off, which could help around 195,000 people.
The regulator confirmed that a final consultation on the first phase of its debt relief plan will be published shortly.
Figures published by Ofgem last month showed that households owed money to suppliers England, scotland And wales Reaching 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 just a day later MPs There have been calls for the regulator to repay part of the energy debt bill through windfall taxes 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 debts are managed to reduce debt and prevent it rising to such high levels in the future and, therefore, reduce costs 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 consumers by striking the right balance between ensuring that those who can pay are given the support 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.