How Britain can tackle its mountain of unpaid energy bills
A long-term plan such as a social tariff could stop vulnerable households from running up debt
There are some things UK households pay for out of their own pockets — like food, petrol and holidays. Then there are things the government is expected to fund, such as schools and healthcare. Gas and electricity fall somewhere in between. And because of this ambiguity, the country is racking up unpaid bills with alarming speed.
The UK’s energy retailers — companies including British Gas and Octopus — are collectively owed £4.6bn in bills, according to energy regulator Ofgem, up from about £1bn at the beginning of 2018. The Iran war will raise household gas and electricity prices come July, adding to the strain.
This needs fixing, not least because the cost of non-payment is, in effect, socialised. Debt-related costs are factored into the price cap — the maximum price that the regulator allows retailers to charge their customers — weighing on the nation’s already expensive bills. But what the fix should be depends on the cause of the build-up, and there is more than one factor at play here.
Financial distress is clearly part of the story: one out of every four households currently in energy debt is at or below subsistence living levels, consultancy Baringa thinks, while a further two are considered “vulnerable”. Ofgem has proposed writing off about £500mn owed by those who really cannot pay, and adding the cost to everyone else’s bills.
It would be better to stop those who struggle from running up debts in the first place. Crucially, there should be a long-term plan, such as a social tariff, to make sure that the most vulnerable households can access heat and light. And this should be run by the government, rather than energy companies and their regulator.
The catch is that those who want to game the system have plenty of opportunity. There is some evidence that households are “prioritising other payments” as industry body Energy UK puts it. Giving suppliers some bite would help. Pre-payment meters are a useful tool, but having seen one of their own rightly walloped for inappropriately forcing them on vulnerable customers, they currently do not install many.
On top of that, a huge one-third of total energy debt has been built up by those moving house. Since disconnection is vanishingly rare, new residents can access the property’s gas and electricity without setting up an account. Sorting this out should be within the limits of human ingenuity: Ofgem is consulting on the idea of giving unnamed occupiers energy through pre-payment meters, switching to direct debit once a new account is set up.
Suppliers can do their bit to help, by billing more frequently and more accurately, for example. But as long as the UK faces a broader affordability crisis, some people will simply be unable to pay for essential services. That is a problem for government, rather than the energy sector, to solve.