Chipping away at the debt mountain
As consumer debt in energy and water grows to previously unimaginable levels, how can we stem the flow and protect the most vulnerable? Utility Week gauges the views of companies and independent experts.
Chipping away at the debt mountain
As consumer debt in energy and water grows to previously unimaginable levels, how can we stem the flow and protect the most vulnerable? Utility Week gauges the views of companies and independent experts.
By Lucinda Dann, features editor
“Your average monthly bill is £50. You mean to say that customers are not paying you for 10 months before you even reach out to find out if there’s a problem?”
Steve Crabb, an adviser on customer strategy across the utilities sector, is recalling a conversation with a water company that proudly told him it proactively contacted customers in arrears... as soon as their debt reached £500.
The company has since changed its approach and gets in touch at the first warning sign. However, the anecdote captured a theme running through Utility Week’s Consumer Vulnerability & Debt Conference in Birmingham last week. The sector already has many of the tools it needs to tackle customer debt, from targeted bill support to flexible payment options and increasingly sophisticated signposting to wider support.
The problems come when these tools are not deployed early enough and due to the lack of consistency across the sector.
Paul Spence, former EDF director and Crabb’s successor as chair of the Vulnerability Commitment, described the best practice he had seen among suppliers, from smart pay-as-you-go to hardship schemes run in partnership with the debt advice sector. “All of those things, when done well, mean that no one is being left behind. I just wish it was evenly distributed everywhere, and it’s not quite there yet.”
A starker point was made during a session in which delegates were addressed directly by customers facing difficultly in paying their utilities bill, convened by Three Hands Insight.
A mother-of-two struggling to make ends meet said: “My energy provider tells me I’m on the Priority Services Register (PSR). That’s great but what does that mean? I don’t need to be told I’m on a list, I need to know what practical help is out there and how to access it. It doesn’t feel like you’re seeing things through the eyes of people like me.”
“My energy provider tells me I’m on the Priority Services Register. That’s great but what does that mean? I don’t need to be told I’m on a list, I need to know what practical help is out there and how to access it.”
A £10bn challenge
As everyone in the room well knew, the stakes are rising. Combined household debt to energy suppliers and water companies is on course to reach £10 billion by winter 2027/28, according to Baringa. Georgie Richings, management consultant at Baringa, warned that water companies were inheriting “a hangover of a debt book from energy for the same customers”, and that total household utility debt was now far higher than when energy went through its own crisis.
According to Baringa’s figures, households currently owe £5 billion to their energy suppliers, while in water there is almost a £3 billion debt pile. This is up £2 billion on this point in 2024. Richings said that with unsecured debt per customer currently sitting at about £2,800 across energy and water, the total arrears were likely to hit £10 billion by winter 2027/28, if left unchecked.
Asked if water companies could learn anything from how the energy sector has coped with rising bills and the impact on customer debt, Richings said: “Household utilities debt is so much higher than when energy first went through this. So, water companies need to walk into that with eyes wide open.”
She added: “We need to get better at an industry and a cross-utility level at targeting the right customers with the right support, knowing that we’re going to head into those bill rises … This time next year it’s going to be a £10 billion challenge. So, we need something structural.”
Richings said Baringa’s latest economic outlook showed one in four UK households are financially vulnerable, with 8% extremely vulnerable and a further 25% at risk of falling into financial vulnerability.
Percentage of households that are either financially vulnerable or at risk of it, according to Baringa
Average amount owed by electricity customers who are in arrears, according to Experian
Proportion of all indebted households more than six months in arrears, according to Experian
Tamara Dowson, customers policy and regulation senior analyst at EDF, said these figures reflected what she was seeing on the ground, adding: “We have a lot of customers who have historic debt, and they are the ones that are struggling to pay.
“Due to cost of living pressures, you’re having people struggling to pay their current bill, let alone the previous debt. So, we are heading into a really, really tough time.”
Experian data, also presented at the conference, showed how entrenched energy debt has become. Ofgem figures put domestic energy debt and arrears at just over £5 billion in the second quarter of 2026, up 234% since 2020. Three quarters of this is not covered by a payment arrangement.
The number of accounts not repaying debt has risen from 1.3 million in 2020 to 2.1 million, with the average electricity debt owed by those not paying up from £653 to £1,872. In 2023, around 60% of energy debt tracked by Experian was six or more months in arrears. That share has now risen to more than 80%. Colette Land, head of consulting at Experian, said it was “staggering” that energy now has the second-largest total value of debt (more than 90 days overdue) of any sector other than mortgages.
Experian figures also show that arrears on essential bills now account for 56% of the total owed, up from just over half a year ago. Direct debit failure rates in energy have risen by 60% in three years, proportionally more than in other sectors.
However, the data suggests many customers in energy debt could pay something. Of those in arrears, 16% have no disposable income or less at the end of the month. But 62% have £100 or more, and 28% have £250 or more. Most are keeping up with other commitments, including credit cards, buy now pay later and telecoms bills.
Land said: “There is a real unique challenge that needs to be considered about the customers that potentially have got the money to pay, could be paying, and finding a way to engage those customers on repayment.”
Water debt is a growing concern
Andrew White, senior leader – social policy at the Consumer Council for Water (CCW), said the latest figures did not yet show a sharp escalation in water debt, but warned this was partly due to a lag. He said: “It takes a while for the bill to become a debt. So, those big bill increases that we saw at the start of this price review period in 2025 will be feeding through and leading to an escalating situation.”
CCW research with the University of York found 1.8 million households were in water poverty even before those increases took effect. “It’s extremely disappointing that I’m here yet again saying we need a single social tariff in water,” said White. “We’ve made progress in the past but not got it across the line with government. We can’t wait any longer. There’s a desperate need to take action now and get that in place.”
Alex Wilkes, customer service director at South Staffs Water, said more than half of customers consistently flag affordability as a concern in the company’s research, while around 10% are on its social tariff. He argued that traditional approaches to collection were making matters worse.
Number of UK households in water poverty
“The old approach of - bill a customer, chase, escalate then potentially debt collect - is exacerbating a problem of low trust within the sector. We need to look at how we can join forces and recognise that affordability support is actually intrinsic to good customer service, rather than being a tacked-on component for a single demographic of customers.”
Panellists agreed that better data sharing was key, with Dowson saying a centralised PSR would be key, adding: “It would be better if it is led by government because they hold the most useful data.”
White said the focus should be on the customer. “If someone reaches out for help, then they only have to tell their story once and go through that process, and we make that as frictionless and as easy as possible.”
Regulators look to government for lead
Ofwat’s interim chief economist, Martin Crouch, said there was a case for government to take more of a lead on social tariffs. He was responding to last month’s Public Accounts Committee (PAC) report on regulation of energy, water and broadband.
“There is a debate to be had about the extent to which the responsibility for things like social tariffs are for regulators as opposed to for government,” he said. “There is an argument that that’s something we can look to government to take more of a lead on.” Crouch also questioned why support arrangements differ so much between sectors. “If you think about this from a customer perspective, why do we have one arrangement for water customers and a different arrangement for energy customers? Why don’t we have something that’s much more joined up?”
Crouch confirmed that Ofwat will review water companies’ vulnerability strategies during 2027. He welcomed the growth in sign-ups to the Priority Services Register (PSR) – from 2% in 2020 to 15% currently – but stressed this was still not capturing all of the customers that need support. Ofwat has previously estimated 52% are potentially eligible.
Proportion of household on the Priority Services Register
Ofwat's estimate of the proportion of households that could be elligible for the PSR
He warned delegates that bills will keep rising beyond the current price control. “I don’t think anyone’s under the expectation that water bills are going to suddenly fall post 2030,” he said. “We can expect continued upward pressure on bills, continued challenges for water customers into the future, and we need to plan on that basis.”
Ofgem’s director of consumer protection and competition, Beth Martin, said the energy regulator would review the PSR this year.
She said Ofgem would set out plans to reform the home moves process in the coming weeks, adding that this would include moves towards better data sharing.
However, Martin was unable to give an update on when the regulator’s debt relief scheme might come into action. Utility Week has previously reported that the plan to write off £500 million of debt accrued during the energy crisis has been delayed because of Treasury concerns about the cost.
Reasons to be cheerful
Spence, whose Vulnerability Commitment covers 15 suppliers serving around 95% of energy customers, said there were “quite a lot of reasons to be cheerful”, with PSR numbers up by around 5% on average across the industry over two years. But he said variation between companies remains stark.
“At one end, I see companies who’ve got somewhere around 5% of their customer base that they’ve recorded on their PSR. At the other end it’s 58%.
Debt has now become a core part of the commitment, Spence said. “I can point at good things where companies have fantastic partnerships with debt advisory organisations. They go beyond signposting to referrals to hot referrals to sorting out the problems. But in a lot of cases, they’re one-off, fantastic examples.
He added: “I hear a lot about how difficult it is to get hold of the energy companies and to get through to the right person to get the right level of support. So, there is still a lot of work to do to make that support accessible.”
Venus Galaza, principal policy manager for the energy retail market at Citizens Advice, said a survey the charity carried out in July found more than 10 million households were already worried about their energy bills this winter. Some 12% said they were already in debt to their supplier, rising to 25% of households from ethnic minority groups, 24% of those on means-tested benefits and 17% of disabled people.
Galaza also questioned the language used around debt collection. “I sometimes do wonder if some of that language is part of why consumers feel that they cannot necessarily trust their suppliers, why they might feel more comfortable coming to independent debt consumer groups and getting advice elsewhere, and why they may not pick up the phone or email their supplier right away.”
“I hear a lot about how difficult it is to get hold of the energy companies and to get through to the right person to get the right level of support. So, there is still a lot of work to do to make that support accessible.”
Paul Spence, chair, Vulnerability Commitment
‘First debt in, last debt out’
Crabb, who co-chairs SES Water’s Customer and Environmental Scrutiny Panel, quoted research that indicated 44% of customers had never spoken to their water company. He said: “A lot of people are really afraid to talk to their water companies, which is hugely ironic because not only is there all that help there, but actually water companies can’t disconnect domestic customers for debt.”
He added: “Water debt is known as the first debt you get into and the last debt you get out of because it’s a relatively small amount of money, and therefore if you’re struggling financially, it’s often the one that you think, ‘Oh, I can close off that direct debit.’”
Crabb said data gaps remained a major problem for water, with one company he spoke to only holding first names for 50% of its customers. “The legacy of focusing on the pipes rather than people is going to take a long time to actually recover without data sharing,” he added.
Crabb welcomed moves towards data sharing with the Department for Work and Pensions but called on government to go further. “I’d love to see a public information campaign to encourage people to come forward when they need help, and to explain to them that you needn’t be afraid of your water company or your energy supplier.”
But he stressed that more data should not replace conversations with customers. “I don’t want to see a situation where government simply sets up some kind of centralised PSR and says that’s it, we can tell you who’s vulnerable in your customer base, and then takes away any need for energy or water companies to actually contact and speak to those customers. No two customers are alike.”
“I’d love to see a public information campaign to encourage people to come forward when they need help, and to explain to them that you needn’t be afraid of your water company or your energy supplier.”
Steve Crabb, adviser on customer strategy across the utilities sector
Warm Home Prescription
The conference closed with an update on the Warm Home Prescription, which brings together the health and energy sectors to keep vulnerable people warm.
Dr Rose Chard, senior adviser at the Energy Systems Catapult, said cold homes cost the NHS at least £500 million a year. This results in the dilemma of the health service knowing where people with health conditions are, while the energy sector spends heavily trying to find vulnerable customers.
The latest trial, funded by SGN’s Vulnerability and Carbon Monoxide Allowance, helped more than 1,800 households, with nearly £500,000 credited directly to energy accounts. Some 80% of participants reported improvements in their physical and mental health, and 84% said they were able to heat their home to healthy temperatures.
Once people had experienced a warm home, 27% went on to make energy efficiency improvements. Chard said: “Once people have experienced something, that’s when they value it. We can’t test drive having a heat pump and having insulation like we can a car, but people need to experience a warm home before they really value it.”
With the Energy Company Obligation scrapped and the shape of future low-income schemes still unclear, the Catapult is now looking at how the model could be scaled. This includes analysis of business models that would allow the NHS to pay for outcomes through social outcomes contracting, due to be published in the next month or two.
There is also consideration of a version focused on overheating, following this year’s hot summer. “We’re definitely thinking about overheating, because the population that are most affected by the cold are also those that are most affected by overheating,” said Chard.
