Energy arrears now the most common form of household debt says debt charities

Three of the largest debt charities in Britain have called on Ofgem to urgently increase protections for people with mounting energy bills.

Experts warn the October price cap rise will have a ‘disastrous impact’ on the finances of millions of households, with energy arrears now the most common type of household debt. 

It comes after the news that UK household energy bills could rocket to £500 a month in January 2023, amid Russian threats to cut Europe’s gas supplies.

Citizens Advice, the Money Advice Trust and StepChange Debt Charity warn that with a further substantial rise in the energy price cap coming, more households will be unable to afford energy bills. 

Energy arrears are now reported to be the most common type of household debt, after debt charities warned of worrying times ahead, calling for more protection from regulator, Ofgem

Ofgem’s price cap rose by 54 per cent to £1,971 per year in April, with the upcoming price cap reviews expected to rise to £3,244 in October, and potentially nearly £4,000 by January 2023.

While the charities welcomed the government’s package of financial support, they fear that given the likely scale of the price cap rise will force homes into self-rationing or disconnecting from their energy all together. 

The leading debt charities are also concerned for the potential impact this could have on many people’s physical and mental health in the upcoming winter months.

It was found that energy arrears have exceeded council tax and are now the most common debt type amongst people contacting the Money Advice Trust’s National Debtline service and Citizens Advice.

In the first three months of the year, one in three callers to National Debtline had energy arrears, while the total number of people seeking energy debt advice from Citizens Advice was 64 per cent higher than 2019.

The average level of energy arrears amongst callers to StepChange Debt Charity has also risen by a third in the past two years from £1,056 in 2019 to £1,399 in 2021.

In a letter to the chair of Ofgem, charities are urging the energy regulator to take more action, asking for more guidance to energy companies to ensure people who fall into arrears are treated fairly and are not asked to repay amounts they cannot afford.

The firms are also calling for more protection for customers in financial difficulty from potentially harmful debt collection practices.

 UK gas prices are soaring after Russia began throttling off supplies to Europe, causing a global shortage as EU leaders scramble for supplies

Phil Andrew, chief executive of StepChange Debt Charity, said: ‘The October price cap rise, coupled with the damaging effects of inflation, will have a disastrous impact on millions of households’ finances.

‘The cost of living is now the most common reason for debt among new StepChange clients, something we expect to continue over the coming months. 

‘That’s why it’s essential that Ofgem, alongside Government and energy companies, does all it can to help people navigate this difficult period. We look forward to working closely with them to implement the recommendations we have outlined.’

Dame Clare Moriarty, chief executive of Citizens Advice, added: ‘Families we’re supporting are already facing stark choices because of mounting bills. 

‘Some are turning off fridges and freezers because they can’t afford the running costs; others are washing their kids’ clothes at their grandparents’ because they’re already in the red.

‘Come October when energy prices are set to jump again, things will go from bad to much worse.

‘The Government needs to be ready to act again, but Ofgem has a crucial role to play. It must ensure suppliers aren’t chasing people for debts they can’t pay or forcing people onto prepayment meters when they’re struggling to cover their bills.’

British Gas owner Centrica today announced profits had risen five fold to £1.34billion, while projections suggest the average household may £500 monthly bills for energy from next year.

Debt Charities fear that the likely scale of the price cap rise will force homes into self-rationing or disconnecting from their energy all together as they struggle to afford £500 monthly bills

Debt Charities fear that the likely scale of the price cap rise will force homes into self-rationing or disconnecting from their energy all together as they struggle to afford £500 monthly bills

BFY Group issued a warning about the upcoming price rises, as it forecast that Ofgem’s price cap could rise to an average of £3,840 in January. 

Struggling consumers took to Twitter to slam the company for ‘obscene greed’.

Kate Osborne, MP for Jarrow, also called for the energy sector to be nationalised, while the former Energy UK chief, Angela Knight, said there was a ‘big question mark over those making extraordinary profits from an extraordinary world situation’.

Joanna Elson CBE, chief executive of the Money Advice Trust, concluded: ‘Government support to help with energy and cost of living price rises is welcome, but the challenges facing many people are set to become more acute with another substantial increase in the energy price cap coming this autumn.

‘At National Debtline and Business Debtline, we are hearing from more and more people struggling to afford soaring energy bills.

‘As the Business, Energy and Industrial Strategy Committee rightly highlighted this week, Ofgem can, and should, do more to offer protection to households struggling with their energy bills. 

‘We are calling on the regulator to ramp up protections to ensure energy firms treat people struggling to pay or already in energy arrears fairly, including halting potentially harmful debt collection practices.

‘We look forward to working with Ofgem to make these recommendations a reality as soon as possible.’