Prices are coming down, but we must continue to help struggling households

As Ofgem launches its call for input on affordability and debt, the regulator’s director general for markets Tim Jarvis urges the sector to continue to help households who are struggling. Writing for Utility Week Jarvis explains how the enormous response to Ofgem’s consultation on standing charges shows that there is much more work to be done to tackle the retail sector’s mounting debt pile without making people worse off.    

For more than two years, households across Britain have been feeling the devastating effects of the global energy crisis. While the market has stabilised and in February we were able to confirm that the energy price cap will fall from April, costs remain significantly higher than we have been used to, and for many households remain a high proportion of their income. Despite substantial government support, many households have been struggling to pay for the energy they need alongside other cost of living pressures, making difficult decisions such as self-rationing energy or in extreme cases self-disconnecting to save money. In other cases, customers have been building up additional debt on top of a backlog they cannot clear, with debt in the system having now risen to £3 billion.

I know this is a huge and continuing worry to many households. Nowhere have these concerns about energy prices been made more apparent than our call for input on standing charges. It received around 30,000 responses, with many of these calling for us to scrap the standing charge altogether. We are already working hard to tackle unfairness in standing charges, such as ending the unequal treatment of people with prepayment meters so they are no longer charged more than other customers.

The problem we face is that without wider thinking on affordability, we are forced to simply move costs around – any reduction in standing charges means an increase in unit rates which would make a lot of people on low incomes worse off.

Ofgem’s first responsibility is to protect consumers. At the end of 2023 there were roughly 2.2 million households in debt and arrears. We remain very concerned that struggling households have a limited ability to cope with future price shocks. At the same time, the cost of recovering bad debts, and the high number consumers who are locked in to debt and repayment plans, could have serious consequences for the retail energy sector.

We are also doing everything we can to protect consumers from poor behaviours by their energy supplier. Customers have a right to expect that their bills are accurate, that they are given support and advice such as ‘time to pay’ arrangements, are directed to financial support they may be eligible for, and that their calls are answered promptly and dealt with sympathetically. So we are working with the sector to ensure good customer service is the norm and holding suppliers to account when it is not.

However, the root problem for many households are the costs of energy itself. While we have some levers to drive down costs, and where we can we have done so, we cannot reduce some of the main drivers of these costs, such as the wholesale price of gas, and the investment needed in the networks.

Supporting the most vulnerable in our society goes beyond the remit of a regulator but we have an important role in looking at how the way we regulate the market through the price cap and allocate costs, affects those least able to afford their bills.

How we regulate prices in the future will play a big part in what the future retail market looks like, and this in turn will affect how we think about protecting those struggling to pay, how we can help disengaged customers who risk getting exploited, and the split between fixed and unit rate costs to ensure we are incentivising the right behaviours for net zero.

So to think though all these issues and about the best way to protect different types of consumers, especially the most vulnerable in the round, today [11 March] we are issuing a call for input, to work out the steps we need to take to guard against the harmful impacts of future price shocks, ensure that the debt burden doesn’t leave us with an unsustainable situation which will lead to higher bills in the future, and look at how we can better support consumers as we move to net zero.

We are going out to the whole sector, to suppliers, to charities and to households themselves, to looking at the issues surrounding standing charges, the price cap and affordability together, looking carefully at what has worked well and what hasn’t in helping customers manage their energy bills. We are keeping the scope of this deliberately wide and open, not narrowing down the focus or pointing people to certain solutions.

As we hopefully return to something closer to a more stable energy market, we have an opportunity to reset and reframe the market to make sure it is ready to protect customers if prices rise again and that costs are allocated fairly across customers. Dealing with the burden of debts and making energy available to households and businesses at a price they do not struggle with is a pivotal challenge for all of us, and I am determined that Ofgem plays its part in meeting that challenge.