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Britain’s energy regulator is considering increasing household bills to help providers offset record levels of customer debt as household budgets are squeezed by the cost of living crisis.
Ofgem said on Thursday it was considering changes to domestic price caps, which control how much is paid for gas and electricity, after debts owed by consumers to suppliers hit an “all-time high” of £2.6bn.
Ofgem has warned that debt levels are expected to rise further and wants to avoid a repeat of the market collapse of late 2021 and 2022, when a spike in wholesale gas prices triggered the collapse of 30 suppliers, ultimately adding £82 to each household’s bill. .pay the cost of rescuing them.
Consumer debt rose due to “higher wholesale energy prices and broader cost-of-living pressures,” the report said.
The regulator said it was now considering increasing the amount suppliers can recover through an existing mechanism that allows them to recover outstanding payments and the recovery costs of bad debts through household bills.
Ofgem said any one-off adjustment could add around £17 to the average annual household bill, but consumer groups warned any such move could be counterproductive given the already high energy costs, which drove up debt levels in the first place. .
“Raising price caps to cover higher debt will make it harder for people to afford their bills. Any changes must be in the best interests of all consumers,” said Clare Moriarty, chief executive of consumer group Citizens Advice. express.
Households have been grappling with skyrocketing energy bills as wholesale natural gas prices rise. The price cap governing UK energy bills climbed from £1,216 in October 2021 to £4,059 in January 2023.
The government stepped in to cap annual bills at an average of £2,500 by subsidizing suppliers. However, full support has now ended and bills remain well above the long-term average: prices were capped at £1,923 between October and December.
The moratorium on compulsory installation of prepayment meters has exacerbated the levels of debt faced by suppliers. Ofgem said the ban added around £25m a month to suppliers’ debt-related costs between February and June, with “costs expected to increase further” this year.
Ofgem marketing director Tim Jarvis said any increase in price caps “is not something we take lightly” but “we must consider all available regulatory options”.
He added: “The Office of the Gas and Electricity Market cannot subsidize energy or force companies to sell energy at a loss and suppliers must be able to provide a high quality service to customers.”
Ofgem has launched a consultation on price cap changes. If enacted, the price increase would take effect in April 2024.
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