Reshaping the role of the energy sector: Solving problem debt

Managing money and debts can be hugely challenging, with financial insecurity negatively impacting people’s health. Households across the country have felt the squeeze with rising costs, especially when it comes to energy bills. These pressures are not felt equally, with people living with health conditions, on low incomes, and from minoritised communities hit the hardest by the sharp rise in costs.

This past winter, the energy price cap was 59% higher than the winter of 2021/22.  Data from the energy regulator OFGEM shows that energy debt has increased by about 50% in the past year. The number of households with energy debt rose from 1.9 million to 2.3 million in 2023, with individual debt rising even faster.

Despite recent reductions in the cost of energy, people who are in arrears are slipping deeper into debt and are struggling to pay it off. When people are unable to afford repayments and their finances become unmanageable, this is classed as ‘problem debt’. Problem debt is a risk to health, causing stress that can lead to increased risk factors for mental as well as physical health, like poor sleep, increased anxiety, and high blood pressure.

Tackling debt in the community

For many people struggling to make ends meet, free and impartial debt advice has been vital in helping them face the challenges. In the context of the rising cost of living, debt advice agencies are under significant strain as the need for their services is growing with it.

Many companies that generate gas and electricity have made record profits in recent years, while a growing number of customers are in problem debt. OFGEM encourages energy firms to point customers in arrears towards debt advice providers. It states that “effective referrals and signposting to consumer groups and charities are essential to ensure good outcomes for consumers”.

Despite the acknowledgement that more customers need debt advice because of higher energy bills, and some examples of individual firms’ donations to debt advice, it is not standard practice for energy companies to fund impartial debt advice providers in a way that is proportionate. Much of the debt advice sector’s funding comes from a levy on financial services firms which came into effect after the 2008 financial crash. As energy debt is increasingly a driver of money worries and impacting on national health, we believe there is scope for providers to fund more holistic advice services.

We recognise that many energy suppliers, who buy gas and electricity from firms who generate energy and sell it to homes on the retail market, have not seen record profits over the past few years. This is an important difference and one we will consider as we go forward.

Supporting the debt advice sector

To explore how energy companies could address problem debt, we are working with Clear Consultancy Services to understand the experiences of people in arrears. Our work will also look how debt advice services are being affected by the increased need for their services. Clear will assess the energy sectors’ contributions to debt advice in comparison to other service providers.  Using this evidence, we’ll establish what a fairer funding model could be and how it could be delivered.

Consultants Craig Simmons and Francis McGee are leading the work, coming with extensive experience in government and with the debt advice and creditor sectors. Work has already started, including contacting debt advice providers to develop the project scope. From mid-2024 onwards, they will be working with organisations across the debt advice and energy sectors, who see the effects of problem debt on health at the front line, to test and refine solutions to this issue. Insight from expert voices in the debt advice sector, energy sector, and bodies that work with the two sectors will be incorporated into the work, as well as the views of consumers.

The impact of problem debt on people’s physical and mental health is deep-rooted and damaging. We call on the debt advice sector, the energy sector, and other interested bodies to contribute to this project. We must work together to ensure that people who need it most can get free and impartial debt advice, improving their finances and their health.