Recommendation 12

HM Government Acknowledged

The Government recognises the need to tackle the problem of energy consumer debt, which remains at a record level. Too many families paid the price for our dependence on fossil fuels during the energy price crisis, and its impacts are still being felt. If consumers are concerned about paying their energy bills, they should contact their energy supplier in the first instance to discuss their circumstances and find out what support may be available to them. It is in all consumers’ interests to reduce debt in the energy system, as consumer debt is putting pressure on everyone’s energy bills and without action, unsustainable debt risks placing even higher costs on consumers. Ofgem allows suppliers to recover a proportion of debt costs from all billpayers through allowances in the price cap, covering aspects such as the costs of debt administration and writing off unrecoverable debt. If suppliers were not allowed to recover the costs of debt in this way, then it would impact financial resilience and may ultimately lead to their failure, the cost of which could fall to consumers. The Government continues to be supportive of Ofgem’s action on debt, including its proposed Debt Relief Scheme to address debt that built up during the price crisis. Ofgem published a statutory consultation on the introduction of the scheme on 6 November 2025, which closed 18 December 2025. The Government is continuing work to amend legislation to enable phase 1 of the Debt Relief Scheme to take place. The Department for Science, Innovation and Technology (DSIT) published a consultation 29 July 2025 which included proposals to amend the Digital Economy Act 2017 to allow the sharing of data on customer eligibility for means-tested benefits between energy suppliers and the Department for Work and Pensions for the purposes of the Debt Relief Scheme. DSIT are currently analysing responses to this consultation. Ofgem has also provided an update on progress with other proposals that form part of their wider debt strategy which is aimed at improving how debt is dealt with in the sector. This includes work to drive better engagement between consumers and suppliers to ensure that consumers in payment difficulty receive adequate support and suppliers can effectively manage debt. The Government looks forward to seeing Ofgem’s next steps on this work. In terms of windfall profits, it is Ofgem’s responsibility to set price controls to ensure energy network companies treat customers fairly, invest in improving their service, and support the move to low-carbon energy. Ofgem currently implements the RIIO (Revenue = Incentives + Innovation + Outputs) framework. Ofgem outline that RIIO price controls encourage energy network companies to support Great Britain’s move to low-carbon energy. There are price controls for gas and electricity transmission, gas distribution, and electricity distribution. Ofgem is actively reforming its price control mechanisms to prevent future windfall profits and ensure network companies deliver value for money. Ofgem’s current price control, known as RIIO-2, ends on 31 March 2026. The next price control, known as RIIO-3, will run for five years, from 1 April 2026 to 31 March 2031. On 4 December 2025, Ofgem published its Final Determinations for RIIO-3.2 Excess profits in the previous period were driven by higher-than-expected inflation. Ofgem has significantly strengthened its price controls to cut the link with inflation so it cannot happen again. The returns allowed through RIIO-3 will be lower than comparable sectors, like water. Ofgem will continue to scrutinise every cost to ensure it is in the consumers’ interest. The Final Determinations for RIIO-3 announced on 4 December 2025 mark a decisive step forward in building a clean, secure, and affordable energy system for consumers.