Energy debt set to hit £7BILLION as support measures dubbed 'inadequate'

Energy debt is set to hit £7billion by the end of the year, analysts predict.

Trade body Energy UK has warned current support measures are "inadequate" to tackle the "debt mountain" facing millions of customers.

It estimated customer debt is already at the £6billion mark, with the price cap expecting to rise this week, pushing bills even higher.

Ned Hammond, Energy UK's deputy director of customer policy, said: "We're still not seeing any of the policies that we need to really get a grip of this challenge. It continues to be a very concerning picture."

Ofgem will announce the October energy price cap on Wednesday.

The average domestic energy bill will increase by four per cent, reaching £1,792 from October 1, Cornwall Insight has estimated.

This would mark a £66 increase for a typical household - more than the £43 saving Andy Burnham achieved through cutting VAT on energy bills.

It would be the highest price cap for three years.

Mr Hammond said the price increase was being driven up by wholesale gas costs.

These currently make up around 40 per cent of bill and have been pushed up by the ongoing conflict in Iran.

"Reducing the amount of time that gas is setting the electricity price will only come by building more clean power," he said.

"But that will take a significant amount of time to come through."

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Other charges, including network costs, were also increasing, he said.

At present, support comes in the form of the Warm Homes Discount, which gives £150 off bills.

This was expanded last year and now reaches six million customers, but eligibility is based on receiving means-tested benefits.

Energy UK has called for a more targeted, "social discount", approach that uses household income, power consumption and even health to decide who qualifies for help.

This would be "a fairer, flexible way" to support those in need, it said, and could offer more than than the Warm Homes Discount.

Mr Hammond said: "What the government has done so far reducing bills is really welcome and will help all households.

"But the £150 discount scheme is just inadequate in the current scenario. It has not kept pace at all with the way that energy prices have changed.

"While it is helpful for households that receive it, it's not enough for them, and it also misses a lot of households that really need support as well."

Lower electricity prices, he said, would increase demand and see fixed costs spread more widely.

This would create "a virtuous circle of higher electricity consumption, driving those prices down, enabling more people to electrify their demand and bringing bills down further".

Energy UK figures show more than three million customers are now in debt or arrears, with the average amount owed around £1,800.

As bad debt is recovered from all energy bills, this is adding £50 a year to a typical household.

Another £15 could be added to this if the debt hits £7billion, which is predicted to do by the end of the year.

Dhara Vyas, chief executive of Energy UK, said: "We made a stark warning about customer debt earlier this year and voiced fears that without urgent action, what was already a crisis would deteriorate further.

"Unfortunately, those warnings are proving all too accurate – the debt mountain is climbing higher, causing immense worry to many customers, adding growing costs to everyone’s bills and threatening suppliers’ financial viability.

"Persistently high energy bills over the last few years have meant many households have accumulated debt that they have little chance of paying off, given that affording their latest bill will be challenging enough.

"The industry has been raising the alarm about debt for some time now and if these warnings continue to be ignored, then nobody should be surprised by the consequences."

Responding to the social discount plan, which Energy UK announced on Sunday, a Government spokesman said: "Tackling the cost of living remains a key priority for this government and we know families will be worried by the prospect of higher energy bills this winter.

"We're acting to give consumers breathing space with the cost of living – cutting VAT on electricity bills, ensuring around six million households get the £150 Warm Home Discount this winter, and making millions of homes cheaper to run through our Warm Homes Plan.

"Alongside our efforts to support rapid de-escalation in the Middle East, we will do everything we can to shield consumers from global energy shocks and bring down bills for good."