In December 2024, Ofgem announced two consultations; one setting out proposals to provide financial support to customers who accrued debt and a second setting out proposals to reform the way energy suppliers support customers to prevent debt and aid debt recovery. On top of this, Ofgem have also proposed mandating that suppliers must offer a low- or no-standing charge tariff. These represent some potentially huge changes in the energy sector Society Matters wanted to take time to unpack what these changes mean in practice.
Ofgem’s first consultation ‘Resetting the energy debt landscape: the case for a debt relief scheme’ proposes to provide financial support to customers who accrued debt during the energy crisis, proposing some eligibility criteria
• A minimum level of debt
• The debt must have accrued between April 2022 and March 2024
• Affordability checks using data such as council tax bands or Warm Home Discount eligibility
Ofgem aim to implement this from Summer 2025 until Spring 2026.
The second consultation, ‘Improving debt standards in the domestic retail market’ proposes changes to improve debt prevention and recovering debt, outlining proposals such as
• Standardising ‘ability to pay’ assessments to provide a more consistent approach
• Clarifying rights and responsibilities relating to debt assessments
• Ensuring debt repayments from ‘credible’ third parties such as Citizens Advice debt advisors must be considered
• Developing guidance for referrals and signposting to support services
Finally, Ofgem also proposed to mandate the provision of zero-standing charge tariffs for energy suppliers, with the aim of providing increased choice for customers and better supporting those on lower-incomes (who face the prospect of a higher proportion of their income going on standing charges). Some suppliers do already offer low or no-standing charge tariffs but Ofgem is proposing to make the provision of these mandatory to offer more choice to consumers.
Ofgem previously put out a call for evidence in relation to the impact of standing charges, to which they received thousands of responses. Many people asked for standing charges to be scrapped altogether, saying that standard charges were a significant barrier to helping people manage or stay out of debts. Equally though, concerns were raised that shifting charges to a ‘per unit’ price would disproportionately impact families who, for example, care for loved ones and need to continuously operate medical equipment (people who often have lower incomes to start with and proportionally spend a greater amount of their income on energy).
These reforms to the operation of the energy sector are a welcome change. Research by the End Fuel Poverty Coalition found that as of July 2024, energy debt had soared by 57% in the previous 12 months to £3.3 billion pounds. Around 1 in 5 households (18%) are turning to illegal money lenders to help pay fuel bills and if we look specifically at those in energy debt who pay using prepayment meters (who are disproportionately more likely to be on lower incomes) the figure is even higher, standing at 36%. These reforms represent a huge opportunity for those with energy debts to, if not ‘wipe the slate clean,’ move forward positively, with a debt solution or tariff that is right for their circumstances.
As we mentioned, customers on prepayment meters are disproportionately more likely to be in energy debt, and face typically face higher prices than those who pay, for example, by Direct Debit. The introduction of a zero-standing charge tariff represents a victory for people that have long called for their abolition. Whilst these tariffs need to be carefully implemented to avoid indirectly impacting other groups (like those with caring responsibilities who require energy for medical equipment), this could be a lifeline for those on lower incomes who need the use of PPMs. Annually, standing charges are estimated to be worth around £300 a year. Even when we factor in Ofgem’s Price Cap, standing charges have risen by 43% since 2019. When every penny counts, this could be a game-changer for people with limited means.
Its worth noting though that zero-standing charges tariffs would still need to incorporate the cost of supplying a property with gas/electricity (what standing charges typically cover); this payment wouldn’t suddenly disappear. Ofgem propose that instead suppliers would offer customers a choice of tariff both with and without standing charge, with a no-standing charge tariff having a higher ‘price per unit’ of energy and customers could choose which is best for their circumstances. Single people, for example, who typically have lower incomes and lower energy usage may find that their money ‘goes further’ by not having to pay a standing charge. Conversely, those who perhaps need to run medical equipment may find they actually face higher bills, should they go for a no-standing charge tariff. Ofgem have not yet announced any plans on how they might mitigate this for those who would be acutely vulnerable to these higher charges.
Mandating the option of tariffs with no standing charge, a targeted debt relief scheme and better and more tailored support to those facing energy debt are vital structural changes to the energy market. Its an admission that the cost of living crisis and its effects still continue to be felt. As with any change of this magnitude, the devil will be in the detail but we commend Ofgem for the steps its taking to help customers deal with the new reality of higher energy bills we find ourselves in. With the consultations now open, its up to consumers and businesses to highlight that any solution must account for all circumstances, as difficult as that can be in the energy market.
You can find more information on Ofgem’s ‘Resetting the energy debt landscape’ consultation and respond here and more information on their ‘Improving Debt Standards in the Domestic Retail market’ and respond here.
