Domestic energy debt has reached £5bn and needs a structural response

Domestic energy debt is continuing to rise.

Ofgem’s latest figures show domestic energy debt reached £5bn in Q2 2026, rising by £234m since the previous quarter and by £591m (13%) year on year. This was the 15th consecutive quarterly increase.

This will not surprise the industry. Debt has been building for several years, through significant changes in energy prices and despite action from government, regulators and suppliers.

The issue is no longer whether energy debt exists, but whether the market’s response is keeping pace. Are short-term interventions being used to manage what has become a structural problem?

In our view, debt can no longer be treated mainly as a collections issue. It's a longer-term affordability challenge for the whole market.

The latest Ofgem data shows:

• £3.8bn of debt has no repayment arrangement in place (75% of the total debt book) and debt without an arrangement accounted for around three quarters of the increase over the past year
• The average balance reached a new high of around £1,335 per indebted customer
• Debt has now risen for 15 consecutive quarters, averaging around £200m of growth per quarter over that period
• Since 2023, average customer debt increased by 70%, while the rolling annual bill remained broadly flat

The figures point to a deeper affordability challenge, rather than simply the lasting effects of high energy prices. Debt has continued to build across different price conditions, suggesting that the problem will not resolve itself as prices change. Without a more structural response, arrears will continue to become harder for customers to repay and for suppliers to resolve.

Debt is not simply going to fall away if prices settle

Affordability pressure will remain a significant challenge, and customers with significant arrears are starting from a much harder position than they were a few years ago. There are also early signs that prices could rise again through the January price cap, although there's still time for the outlook to change. Suppliers therefore need to support customers through recurring periods of pressure rather than wait for conditions to improve.

Energy debt is a structural problem

The consequences of rising debt extend beyond the customers carrying it. Bad debt and the cost of managing it affect the wider market, while growing balances make it harder for customers to get back on track. The longer arrears remain unresolved, the more difficult and costly the problem becomes.

The impact reaches beyond suppliers. Bad debt and the cost of managing it affect the supplier economics and the wider market, while customers with growing balances find it harder to get back on track. The longer arrears remain unresolved, the harder the problem becomes for everyone.

That is why existing and new debt must be addressed together: dealing with balances already on suppliers’ books while preventing customers from falling into serious arrears in the first place.

What could a more structural response look like?

The continued rise in debt shows that more action is needed. There are no silver bullets, but one-off interventions will not be enough to address a problem that is now structural. The response needs to deal with debt already on suppliers’ books while also tackling the pressures that cause arrears to build in the first place. That will require longer-term frameworks for debt relief and affordability support, alongside better use of the opportunities available through policy and funding.

Government and regulators also need to consider where affordability costs ultimately sit, including the role of policy costs, network charging, low-cost finance and stronger efficiency standards. Better collaboration between suppliers and advisers will be equally important if customers are to get the right support earlier.

None of these choices are easy. But continuing to rely on individual interventions risks bringing suppliers and customers back to the same place when affordability pressure rises again.

Get better at spotting customers earlier

Suppliers already hold useful signals across billing, payments, contact history, complaints, vulnerability and collections. The test is whether those signals are joined up and acted on soon enough.

“Quiet debt” matters here. Some customers build arrears without contacting their supplier or being picked up through the usual vulnerability processes. By the time they engage, the balance may be much harder to resolve. Earlier identification does not solve everything, but it gives suppliers more options.

Make it easier for customers to get the right support

Suppliers cannot solve the wider debt problem alone. Advice organisations may engage customers whom suppliers struggle to reach, but consent, data sharing and referral routes need to work together rather than create another hurdle.

What does this mean for suppliers?

Government policy will shape the longer-term response, but suppliers can still act now. Debt strategy needs to look beyond cash recovered and ask:

• How much debt are we preventing?
• How early are we identifying financial pressure?
• Are we treating different types and causes of debt differently?
• Which interventions change the customer’s position?
• Are we making the best use of the information we already have?

Answering those questions requires a joined-up view across billing, customer service, vulnerability and collections. Technology can help, but only when it improves decisions about who needs support, what might help and when to act.

Suppliers should also test whether their operating models are built for continuing affordability pressure: whether teams share the right information, warning signs lead to action, and customers receive proportionate help before arrears become harder to resolve.

Where next?

The latest figures leave the market with a clear choice: continue managing the consequences of rising debt as they appear or commit to a more durable response that prevents arrears from building and addresses the pressures driving them.

Government and regulators must create a longer-term framework that eases affordability pressure without quietly shifting the cost somewhere else.

BFY will continue to share our thinking on the long-term trajectory of energy debt and what’s needed for genuine progress. In the meantime, if you'd like to discuss what this quarter's figures mean for your organisation, contact Rachel Littlewood.