Plans to write off £500m of energy debt – Who will qualify?

The energy regulator, Ofgem, has announced plans for a new 'Debt Relief Scheme' (DRS) to write off up to £500 million in energy debt for the most vulnerable households. The move is designed to help around 195,000 customers who fell into significant arrears during the energy crisis.

The plans for funding the scheme are to add a small, temporary charge to all other customers' gas and electricity bills, expected to be around £5 per year. This proposal is part of a wider plan to "reset and reform" the UK's growing energy debt problem, which has hit a record £4.4 billion.

What is Ofgem proposing?

Ofgem has published a final consultation on the first phase of its new Debt Relief Scheme, which is expected to launch in early 2026. This first phase targets customers who are struggling with unmanageable debt. To be eligible for the write-off, households must:

• Be in receipt of means-tested benefits
• Have energy debts of more than £100
• Have built up this debt during the peak of the crisis (between April 2022 and March 2024)
• Continue to make a contribution towards their ongoing energy use (or work with a debt advice charity for support)

Customers who qualify will be identified automatically by their energy supplier and contacted directly.

Why is this being proposed?

The total amount of money owed to energy suppliers has reached a record £4.4 billion. Ofgem has called this a "significant challenge" for both customers and the industry. Currently, all households already pay to cover the cost of unrecoverable debt. This "debt allowance" adds around £52 a year to the average bill under the existing price cap. Ofgem argues that this new, one-off scheme is necessary to "relieve the burden of unmanageable debt" resulting from the energy crisis and to create a fairer system for managing debt in the future.

What is the next phase?

While the first phase targets customers receiving means-tested benefits, Phase 2 will be for other eligible customers who are struggling with energy debt but are not on these specific benefits. To qualify for this second phase, customers will be identified using a "standardised and enhanced ability to pay assessment". This is a more detailed check to determine who is eligible for help based on their financial situation, rather than just their benefit status. The entire debt relief scheme could potentially be expanded to £1 billion to help a larger group of customers, which would include this second phase.

When will we hear more?

Ofgem has stated that it plans to deliver Phase 2 later in 2026, after the first phase has been rolled out. The regulator will develop the new assessment process for this second phase over the coming months as part of its broader work on energy debt standards.

Who will pay for the debt write-off?

The £500 million cost of the scheme will be paid for by all other domestic energy customers through a temporary, additional charge on their bills. This levy is expected to be around £5 per household for one year and is planned to be added to bills from April 2027. The plan has faced criticism, with the Energy Security and Net Zero Committee calling the proposal "completely inadequate," stating that it "barely scratches the surface" of the debt problem. The Commons Select Committee argued that the cost "adds to the problem by increasing bills for everyone" and suggested Ofgem should instead use profits from energy network companies to fund the debt relief.

What other changes are being considered?

The debt write-off is part of a larger package of reforms. Ofgem is also trialling changes to the 'occupier' account system for when people move home. Currently, when a new resident moves in to a property, bills can accumulate under an anonymous 'occupier' account until the resident registers with the supplier. This loophole is estimated to account for between £1.1 billion and £1.7 billion of the total historic debt. The new proposals also include measures like adding credit to smart meters when they are switched to prepayment mode for new residents, ensuring they are not left without power while setting up their account.