Ministers are considering plans to charge every household up to £45 extra on their energy bills, to help write off debts of £1.29 billion owed by customers who cannot or will not pay.
Energy regulator Ofgem has drawn up the plan after huge levels of debt were built up during the cost of living crisis.
It has launched a consultation and is in talks with the Department of Energy Security and Net Zero, led by Energy Secretary Ed Miliband.
According to Ofgem, the plan would eventually lead to lower bills for everyone but it admits the scheme could lead to “perverse incentives” because it “may suggest to consumers that energy bills do not need to be paid”.
Nearly three million households are currently in debt with their energy supplier and a total of £3.82 billion is owed. The figure shot up by £1.29 billion when energy bills soared following the Covid pandemic, and Ofgem argues radical action is needed to get the sum down again.
It has drawn up a series of options, including raising £1 billion over five years by adding £9 each year to average energy bills, a total of £45. Alternatively, just £500 million could be raised, with £7 added to bills for three years.
The cost must be shared because consumers in debt are unlikely ever to pay on their own, Ofgem says. The consultation document warns: “Our research indicates 33 percent of customers in debt or arrears earn less than £16 thousand per year compared to around 16 percent of customers that are not in debt.
“This indicates that much of this debt is unlikely to be repaid and putting more stress on these individuals through debt chasing will likely only have negative consequences.”
Options include telling affected households that £1 of their debt will be written off for every £1 that they repay themselves.
Ofgem admits that the plan could appear unfair to some customers. It says in the consultation: “We recognise that there will be households on low incomes who paid their energy bills during the crisis and made very difficult decisions in order to do so. On balance,”
However it warns that all customers are already forced to pay extra, because energy firms put up bills to compensate for the cost of “bad debts” that they never expect to be repaid.
And it said: “We believe that financial support remains critical to help consumers out of the extraordinary debt situation faced by the sector as a result of the energy crisis.”
A Department for Energy Security and Net Zero spokesperson said: “As part of Ofgem’s ongoing consultation they are seeking views on the options for funding any future scheme and whether this would benefit consumers.
“No decisions have been made and we look forward to seeing further details as Ofgem develops the proposals.”
