Written evidence submitted by Citizens Advice (COE0077)

1. Executive summary

●        Citizens Advice is the statutory advocate for consumers in the energy sector.

●        The last four years have seen a huge spike in energy costs driven by volatile internationally traded gas prices.

●        As a result we continue to see a sustained crisis in living standards driven by the impact of high energy bills. This has also led to an energy debt crisis, with over 6.7 million living in a household in debt to their supplier, with total debt exceeding £3.8bn.

●        We welcome Ofgem looking at a debt relief scheme, but without action on ongoing high energy costs debt will continue to build up.

●        The Government should use the forthcoming expiry of the Warm Home Discount regulations to develop a new, tiered model of targeted bill support.

●        Ongoing targeted bill support is central to delivering the Government’s clean power mission - by enabling policy decisions such as rebalancing levies to incentivise widespread electrification, and demand-side flexibility.

●        Ofgem and the Government must ensure that the investment required to deliver Clean Power 2030 represents a fair return for investors and a fair price for consumers who ultimately finance this infrastructure through household bills.

2. About Citizens Advice

We Are Citizens Advice - the people’s champion. We give people the knowledge and confidence they need to find their way forward - whoever they are, and whatever their problem.

We are here to help everyone who needs it with practical advice they can really trust. Our national charity and network of local charities offer confidential advice online, over the phone, and in person, for free.

Last year we helped 2.7 million people in person, by phone, email or webchat with over 9 million problems. Our advice website had over 52 million visits. Our network of 238 local charities gives advice in 1600 locations across England and Wales, supported by 8000 staff and 14000 volunteers.

We use our evidence to show how things can be improved for people.

3. The impact of the energy affordability crisis

This April, the average annual energy bill under the price cap rose by over £100 to £1,849, which is 79% higher than historic norms[1]. Ongoing geopolitical instability continues to drive gas price volatility. While efforts are underway to boost energy independence, the UK remains highly exposed to external price shocks.

We’ve seen the effects of prolonged unaffordable energy costs in our service data. The number of people facing acute affordability issues remains significantly higher than before the energy crisis. In 2024, we helped nearly 30,000 who could not afford to top up their prepayment meter - an increase of 250% compared to 2021[2].

The long-term consequence of persistently high prices is an unprecedented energy debt crisis. Although prices have fallen from their peak, debt levels continue to climb. Ofgem data shows that by the end of 2024, total household energy debt and arrears were estimated at £3.85 billion - more than double the £1.8 billion recorded at the end of 2021[3]. In the same year, Citizens Advice helped over 92,000 people with energy debt—a more than 50% increase since 2021, where we helped just under 61,000 people[4]. In nationally representative polling commissioned by Citizens Advice this January, 10% of respondents reported being in debt to their energy supplier, which is equivalent to 6.7

million people living in households that are in energy debt[5].

Our evidence shows that people in energy debt often resort to extreme rationing, fall behind on other essential bills, and face worsening physical and mental health conditions. This is particularly true where suppliers pursue aggressive debt collection practices, with consumers in vulnerable circumstances at particular risk. The wider financial implications of rising energy debt affect all consumers. When suppliers write off bad debt, the costs are passed on to other customers through the price cap. Currently, this adds around £28 to the average annual energy bill[6].

4. Delivering a targeted support scheme for energy bills

In our 2024 report, we made recommendations for how Ofgem and suppliers could improve outcomes for people in debt[7]. Recent proposals to raise debt collection standards are a positive step[8]. Crucially, Ofgem is considering a one-off debt relief scheme to write off some or all of the debt accrued during the height of the energy crisis, which could ease the burden on many struggling households[9]. However, energy remains unaffordable for millions. Our recent research found that energy networks have made windfall profits of around £4bn through financial outperformance of the network price controls[10]. We believe they have an obligation as a result to fund debt relief for those still suffering the worst effects of the cost of living crisis.

Without sustained, targeted support, debt will continue to build up. To ensure the debt relief scheme has a sustainable impact, debt relief must be targeted at the households that need it, delivered via simple mechanisms, and paired with ongoing targeted bill support.

In our view, the simplest and most effective way to deliver this is by reforming the Warm Home Discount (WHD) scheme to reach more households on means-tested benefits and provide greater support to those with the highest energy needs[11]. The current WHD, reformed in 2022/23, targets households on means-tested benefits whose homes exceed a single high-cost threshold. A tiered version of this scheme would retain the same eligibility mechanism but introduce multiple thresholds, offering higher payments to those with the greatest energy needs and smaller payments to those with lower usage.

The government has proposed removing the high-cost threshold next winter to extend WHD to all eligible households on means-tested benefits. While we support broader access, the current payment is no longer sufficient to meet the scale of need. In 2014, the WHD covered around 12.5% of the average bill. Today, it covers just over 8%[12], and even less for high-usage households.

Our preferred solution is a tiered WHD. This approach would better target assistance to low-income households with high energy needs. Analysis of our debt client data shows that a tiered model—targeted at both income and energy use—has greater impact than a flat-rate increase for existing recipients of WHD[13].

The WHD could also be reformed to target support in other ways. Households with children face higher essential costs and are disproportionately represented among those with the highest energy bills. Polling commissioned by Citizens Advice found that families with children under five are nearly three times as likely to be in energy debt (22%) compared to households without children (8%)[14].

To support these households, the tiered WHD could be complemented by expanding access to flat-rate "safeguard" payments. These currently go to Pension Credit recipients but could be extended to families on means-tested benefits. When the WHD regulations expire in 2026, the government has a clear opportunity to create a more effective and equitable system. A tiered WHD would offer better-targeted, sustainable, and cost-effective support.

The ultimate design and level of generosity would influence the final cost of the scheme. We estimate that a tiered WHD, which provides up to a third of an average bill, would cost around £1.7 billion in addition to existing WHD spending. If funded solely through bills, this would add an average £63 to the average bill. A hybrid approach, while costing more, would also provide the most support.

While taxation is likely the fairest funding method, current fiscal constraints make it less likely to cover the full cost of additional support. Funding from energy bills is regressive and risks harming those who miss out.

An alternative would be to draw funding from within the energy system itself. Recent research by Citizens Advice found nearly £4 billion in excess returns for energy network companies, due to flaws in the price control system which overestimated the impact of inflation on their borrowing costs[15]. As a result, these companies have seen windfall gains while consumers have faced steep price increases, and we believe they have a responsibility to support those most affected through financial contributions to targeted bill support schemes.

This funding could cover the initial cost of targeted bill support and also contribute to Ofgem’s proposed energy debt relief scheme. By reducing the burden of bad debt—currently adding about £28 per billpayer—this approach could generate savings that help fund further targeted support[16].

5. Ensuring all households receive the benefits of a clean power system

The government’s Clean Power 2030 Action Plan aims to reduce bills and boost energy security through major reforms and investments in a cleaner energy system[17]. The Clean Power 2030 Action Plan also assumes consumers will play a more active role in the energy system, with consumer-led flexibility increases from 2.5GW to between 10 and 12GW. This represents an opportunity for consumers to reduce energy costs, for themselves and for consumers in general, but a strategic plan is required to deliver this. Some of the key building blocks required are:

Enabling wider access to the benefits of time of use pricing, and moving to a zonal approach for calculating wholesale prices, under the Review of Electricity Market Arrangements, is the only credible option on the table for providing accurate cost signals to consumers (and generators).

To enable electrification and decarbonisation, the government must also address the imbalance in policy costs between electricity and gas. Currently, most levies are placed on electricity bills, raising the cost of low-carbon technologies like EVs and heat pumps. Rebalancing these costs could accelerate the energy transition, and reduce costs for low income households with electric storage heaters, who are in the deepest fuel poverty.

However, this shift could disproportionately impact low-income households who are reliant on gas, especially as gas networks are decommissioned. Targeted support could reduce these adverse distributional impacts. It could also tackle the distributional impacts that could arise from standing charge reform, which could push bills up for people with higher energy needs.

The energy retail market needs to deliver much greater access to a range of services that meet consumer needs. This means stripping out prescriptive rules that prevent innovation, and implementing an overarching Consumer Duty to drive higher standards. It also means making protections like the price cap more flexible to protect consumers using a broader range of products, and looking at how the Universal Service Obligation is delivered so more specialist services can emerge[18].

Consumers will need more information, such as ways of comparing more complicated products, and access to personalised advice for all the decisions that will be needed to be taken to deliver net zero.

Public support for Clean Power, by 2030 and beyond, will be put at risk if profits made by energy companies are not seen to be justified and fair. This means there is as much risk to future investment by making the returns on grid investment, essential to deliver the benefits to consumers, too high as there is for making the returns too low.

The energy crisis saw the government step in around generator profits and we recently showed how network companies got a windfall from high inflation[19]. Each element of the bill will need to be value-for-money, and seen to be, for Clean Power to deliver lower bills.

A more flexible system should be more efficient overall, but some people may find it harder to benefit or could face higher costs from some policy changes such as levy rebalancing. The benefits of these reforms will also take time.

It’s vital that households receive adequate support during this transition. Better targeted bill support and energy efficiency can lower bills for those who are struggling most and ensure that the transition to clean power is fair.

6. Recommendations

Having made genuine windfall profits of £4bn due to flaws in how the RIIO-2 price controls accounted for inflation, the energy network companies have a social obligation to contribute to alleviating the hardship of those affected by the cost of living crisis. This should take the form of contributions towards Ofgem’s debt relief scheme, or to the cost of targeted bill support.

The Government should use the next Warm Home Discount regulations to implement enhanced targeted bill support. The new model should be tiered to reflect the needs of groups who face the greatest challenge with energy bills, such as households with children.

The Government should address the current imbalance between levies on gas and electricity bills to incentivise electrification, while protecting those at risk if they lose out. Electrification is the path to reducing our reliance on fossil fuels and reducing consumer bills.

The Government’s Review of Electricity Market Arrangements should move to a zonal approach for calculating the wholesale costs of electricity, which could help reduce the overall cost of the system.

The Government and Ofgem should ensure that investment in delivering Clean Power is value-for-money, and that returns on investment are appropriate.

April 2025