5. Energy debt

5.1 Evidence from the call for evidence

Of the respondents who responded to this question, all (seven) felt that energy debt should be managed differently to energy bill support. Fuel Bank Foundation recognised that energy suppliers need to recover money owed by consumers, but argue that energy bill support should be exempt from this process. They note that since the recipient of this support will have had to have met certain criteria to become eligible for the support, it is very likely that they will have some kind of vulnerability, which further underlines the need to receive the full value of the payment. The Warm Home Discount is also paid in the winter months when the need for financial support is most acute and so any deduction for debt could lead to adverse outcomes for the household. Furthermore, Fuel Bank Foundation pointed out that the level of the discount has not kept pace with the large increase we have seen in energy prices since 2020, so it is even more critical that recipients receive the full value of the payment.

The Poverty and Inequality Commission’s Experts by Experience Panel were clear that money taken off bills should not primarily be used to pay down existing debt – or at least only a proportion – since this could leave households still struggling to keep warm. If there were no way to guarantee this, it is likely that the Panel’s preference between cash payments and bill reductions may shift, as maintaining adequate heating remains the priority for many. The Commissioners agreed that energy debt should be managed separately from fuel poverty support to avoid unintended consequences.

Energy Action Scotland highlighted that support for fuel poverty and support for energy debt should not be treated interchangeably. They flagged that while people in energy debt are more likely to be in fuel poverty, the two conditions do not always overlap. Fuel poverty is driven by the interaction of income, energy prices and the energy efficiency of the home. Energy debt, by contrast, is a financial liability that can arise for many reasons, including billing practices, estimated readings, or temporary financial shocks. Some people will have energy debt and arrears but will not meet the definition of fuel poverty.

Changeworks emphasised that cash support for energy bills from the Government should not be used to pay off debt, as this will not reduce fuel poverty but instead undermine support intended for fuel poverty alleviation. This view is echoed by Energy UK, who argue that when the Warm Home Discount rebate or other types of bill support are absorbed by existing debt and arrears, they fail to achieve their key outcome – to facilitate the safe and appropriate levels of energy consumption and improve ongoing affordability. Citizens Advice Scotland agreed with this, highlighting that support designed to alleviate the pressures of high costs should not be siphoned off for debt repayment where it causes detriment to people. According to CAS, the impact of fuel poverty support being swallowed by automatic debt deductions can have a ripple effect of harm: damage to people’s health, resulting increased strain on public services, and avoidable extra pressure on advice services that already face significant challenges.

CAS provided the following case study which demonstrates this impact:

Shilpa was referred to her local CAB for advice as she had minimal funds on her prepayment meters but wasn’t eligible for a local authority crisis grant, having received three in the past year. Having accrued debts on both the gas and electricity meters totalling £2,500, part of each top up she made was taken towards repayments, meaning she was left with little money to cover her usage. Shilpa has cancer and had recently left hospital; the psychological strain of living in debt was having a profound effect on her physical and mental health.

Both Changeworks and EAS recommend that energy debt should be managed through a separate, dedicated programme. Changeworks suggested that this could be similar in design to the Home Heating Support Fund, and should be administered by experienced energy advisers and debt support organisations. Changeworks also noted that energy debt needs to be tackled with earlier intervention from energy companies and through more effective repayment options. Energy UK emphasised that the package of support should, where there are circumstances such as a chronic inability to pay, enable an energy supplier to serve that customer in a way that supports their best interests. This will include both using energy where needed but also minimising debt.

CAS recommended that the interlinked crises of energy affordability and debt should be addressed holistically. CAS argue that to tackle the high cost of energy a social tariff should be introduced, alongside a robust scheme to write off existing energy debt (which goes further than Ofgem’s existing plans, which CAS viewed as inadequate). The SFHA also stated that those eligible for WHD and already in considerable debt should be directed to other debt support schemes, and felt that the forthcoming Debt Relief Scheme[22] should play an important role here.