Ofgem mulls price cap rise to tackle record bad debt

Ofgem is proposing increasing the price cap, it was confirmed on Friday, to help suppliers to recover £3bn of bad debt.

The regulator said that amid a backdrop of soaring wholesale prices and the cost-of-living crisis, energy debt had reached £2.9bn, its highest ever level. The figure covers all debt and arrears over 90 days due.

It therefore wants to increase the price cap - which is due to rise to £1,928 from £1,834 next month - by £16 between April 2024 and March 2025.

"The scale of this debt means that it is crucial that suppliers have sufficient funding to ensure they can meet the strict regulations Ofgem has in place around how they will treat customers facing payment difficulties," the regulator said.

Under the proposals, households using pre-payment meters will not be charged the extra amount, however, as pay-as-you go consumers do not build debt in the same way invoiced customers do.

Tim Jarvis, director general for markets at Ofgem, said: "We know that cost-of-living pressure is hitting people hard.

"However, the record level of debt in the system means we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient.

"The proposals set out today are not something we take lightly."

The price cap limits the amount energy providers can charge per unit of gas and electricity. From January, a typical household paying for gas and electricity by Direct Debit will pay no more that £1,928 per year.

But if usage is higher, or customers do not pay by Direct Debit, bills will likely be more expensive.

Ofgem said it would now consult on the proposals.