Consumer Scotland response to Ofgem's Debt Relief Scheme policy update working paper

These findings clearly illustrate the scale of the challenges that many households currently face. We would also observe that just as energy debt represents a significant challenge for individually affected households, so too has it grown in terms of its impact on consumers generally. Cost allowances under the price cap relating to debt have risen significantly in recent years. Continued growth in these allowances is unlikely to be sustainable. It is critical that, in introducing the DRS, we do not unduly increase the costs borne by consumers generally.

Against this backdrop, Ofgem’s proposals are welcome and timely.

DRS Eligibility

Consumer Scotland generally agrees with the eligibility criteria proposed for the DRS. We consider that these are sufficiently straightforward and clear to allow consumers to access support with relative ease, and for suppliers to readily implement for the first phase of the DRS. The focus on domestic consumers who have held energy crisis debt for multiple years, and who qualify for means-tested benefits, is reasonable in order to deliver some benefit to consumers as quickly as possible.

We also understand the rationale for the suggested phase one criteria that eligible households make some payment towards current usage in the billing period immediately prior to being enrolled on the DRS. We think the phase two criteria are better in this regard, as for some households with significant financial challenges even modest payments towards their energy may be unachievable. But as an expedient measure to enable some benefit to be delivered to some consumers are quickly as possible, we support the initial criteria.

As we expand on later in our response to the “disengaged consumer criteria”, we recommend Ofgem consider how such households can be supported, especially with the use of referrals for holistic debt advice, ensuring the root causes of their debt are tackled, and therefore maximising the opportunity, long-term impact and value of the DRS.  

We would also encourage Ofgem to consider how heat network consumers might be supported through the Debt Relief Scheme or an equivalent mechanism. At present, heat network consumers could only access the currently proposed debt relief scheme for any debt accrued on their electricity account (if they are not part of a private wire network). However, this leaves heat network consumers unprotected for any debt accrued on their heating accounts.

This is particularly concerning given that heat network consumers are not protected by the Default Tariff Cap. During the energy crisis, some heat network consumers therefore faced unit rates for heating significantly above those paid by households supplied by a typical gas supplier.

As Ofgem assumes its statutory role as heat networks regulator in 2026, we would welcome further exploration of options to address the position of heat network consumers holding energy crisis related debt.

DWP Data Set

We welcome Ofgem’s decision to use DWP data sources to identify eligible means-tested benefit recipients. As Consumer Scotland highlighted in our previous response to the policy consultation, the initial proposals to use energy supplier-held Warm Home Discount (WHD) data risked otherwise eligible Scottish consumers potentially missing out on debt because of the unique application process for working-age “Broader Group” WHD recipients in Scotland.

We stressed in our response that some Scottish consumers would unfairly miss out on debt relief support because they either had not been advised to apply for WHD previously, or had applied after their energy supplier had used up allocated funds and therefore did not receive the WHD. This process would have contrasted with their counterparts elsewhere in Great Britain who receive WHD automatically and do not risk missing out on the benefit in this manner.

Ofgem’s decisions to now instead use a DWP-held dataset, that does not change the targeting of consumers on means-tested benefits but avoids any structural inequality between Scottish consumers and consumers elsewhere in Great Britain, will ensure the DRS is received equitably across Great Britain.

Engagement Assessment – Smart Meters

By encouraging meaningful engagement, the DRS could play an important role in meeting Ofgem’s goal of improving the culture of debt management. It should help to ensure that consumers do not fall back into debt by tackling the underlying causes of their debt, and in doing so increasing the value for money of the DRS.

Consumer Scotland broadly supports the engagement assessment set out in the technical working paper, though we believe that the implementation of two of the pathways could be improved to ensure meaningful engagement is achieved.

The 3rd engagement criteria, “smart meter installation”, could be improved. Instead, using “agreement to a smart meter installation”, rather than merely a discussion on smart meter installations, would better align with the DRS’ objectives of preventing repeat indebtedness. A discussion alone is unlikely to provide indebted consumers with the help to manage affordability and debt that the installation of a smart meter can provide.

There is evidence that smart meters support affordability and better debt management. UK Government analysis recognises that there are both current consumer benefits, in terms of energy savings from access to up-to-date feedback on usage, and supplier benefits, in terms of savings on operational costs around meter readings, billing and switching,[2] which should also reduce price cap costs for all consumers. Citizens Advice research also found that prepayment customers were more likely to actively seek a smart meter installation because of the additional features they could access and improved support they could get from their supplier.[3] More accurate billing, remote top-ups, early identification of self-disconnection for prepay consumers, and early sight of debt build-up are all obvious consumer benefits of smart meters. These benefits can help those in debt to better manage their situation, and benefit consumers more broadly by reducing the costs of bad debt that have to be recovered through the price cap. Previous UK Government analysis estimated the total value benefit associated with better debt management at approximately £1.1bn.[4]

Encouraging smart meter installs advances both the aims of the DRS and wider smart meter policy goals. Reasonable exemptions should apply where the installation is not reasonably practicable (for example, technical or access constraints), and consumers should still be offered alternative pathways so eligible households that either do not want a smart meter, or are unable to get one, are not excluded.

Engagement Assessment – Signposting and Referrals to Accredited Charities

Ofgem should explore the cost and practicality of warm referrals (for example, live transfers or call backs), where proportionate and appropriate as an improvement to the 4th engagement pathway: “signpost to accredited Advice Charity”.

Warm referrals can provided indebted consumers with holistic advice about energy debt, other priority debts, income and entitlements, and general affordability challenges. This will reduce the risk of debt recurring and/or future affordability challenges, and support the long-term goals and cost-effectiveness of the DRS. We would recommend Ofgem investigate the established infrastructure that already exists between suppliers and select accredited charities for warm transfers and referrals that may be workable at scale.

Supplier Reimbursement Model

Consumer Scotland recognises that the choice of supplier reimbursement model will inevitably create some degree of competitive distortion, given that different approaches will favour suppliers with varying provisioning practices. Suppliers themselves are best placed to assess the detailed impacts, as they hold the necessary commercial data.

However, it remains essential that Ofgem’s decision is framed through a consumer-focused lens, ensuring that the chosen model delivers fair, efficient and proportionate outcomes for all bill payers, who will ultimately fund the DRS.

From a consumer perspective, any reimbursement model must prioritise efficient cost recovery and fairness. In practice this would mean setting safeguards or criteria that do not reward suppliers who adopted low provisioning rates, while ensuring that suppliers who managed debt responsibly are not penalised. This is particularly important as Ofgem has decided that it will undertake its exercise of “netting-off”, or ensuring that suppliers are not being compensated for the same debt twice, at a future point during a bad-debt true up. This makes it important that the DRS reimbursement methodology takes account of bad debt costs already recognised in the price cap. Without this alignment there is a danger that suppliers who did not provision adequately, or who operated with less efficient debt management practices, could be rewarded disproportionately. This would undermine the fairness and efficiency of the scheme, ultimately increase the cost of it to consumers.