Household energy debt hits record high as industry calls for collective action

Household energy debt in Great Britain has reached unprecedented levels, with one in four households (24%) now in arrears, based on exclusive access to the debt books of seven major UK energy suppliers.

Our analysis found that 71% of household energy debt is “unsecured” – a retail energy term meaning there is no repayment plan in place with the customer. The average unsecured debtor owes £1,700—equivalent to an average household’s annual energy bill. For those with lower incomes, this level of debt is often insurmountable. Compounding the issue, the proportion of “aged” debt – debt owed for more than a year – has risen by 23% year-on-year. We estimate that £2.3 billion of household debt owed to energy retailers is now more than a year old.

The consequence of this is that bad debts – household bills that will never be paid - have doubled. Before 2021, bad debts accounted for between 1–2% of a retailers revenue. The figure is now 3–4%, causing further strain for all households because bad debt costs are factored into Ofgem’s price cap calculations and therefore drive up energy bills.

James Copper, Partner, said "The rising levels of energy debt are recognised across the industry but up to now the solutions being considered are not up to the challenge. No-one wins where debt is concerned – the unluckiest will default on their debts, but even those lucky enough to be on a sounder financial footing get squeezed, as energy firms recover the cost of those defaults. The result is the downward spiral the industry finds itself in. It’s critical that more urgency and focus is placed on finding solutions to the challenge. We need a better balance that both cures the debt challenge and helps prevent further debt build up for households."

The situation is similarly deteriorating in the small-to-medium-sized (SME) business sector that the UK’s retail energy firms also serve. The debt from SMEs held on energy companies’ books has increased by 9% over the last 12 months. Unsecured debt per SME debtor has increased by 13%, and aged debt is up 15%. Unlike the Debt Relief Scheme for household customers, there isn’t currently an official government scheme designed to tackle this SME sector issue.  

We are calling for a dual-track strategy focussed on prevention: targeted support mechanisms such as a social tariff to protect the most vulnerable, and stronger preventative measures including tighter controls on affordability assessments and more effective use of smart prepayment propositions.

Still, there are reasons for optimism. We’re seeing pioneering efforts from the industry to modernise how we manage the customer experience. But the scale of this challenge demands a more aligned collective intent. This could be a win/win for the industry: we can help the most vulnerable people in our society and reduce energy bills in future years.

Get in touch with James Cooper or Eleanor Taylor to find out more.