Britain’s poorest face doubling of debt

Britain’s poorest people now owe twice as much to energy suppliers as they did during the 2022 energy crisis, according to figures Baringa has crunched thanks to a collaboration with nine of its retail energy clients. This threatens an energy bill price spiral where customers increasingly default on debts, leading to costs being passed onto others in the form of higher bills, further widening and intensifying the financial pain. Baringa argues the situation can be averted only by joint action from society, energy firms and the government. 

Baringa analysed the debt books of nine British energy providers*, and found that debt is rising across the industry, but disproportionately for the most financially vulnerable.  

The overall proportion of customers with overdue energy bill payments has slightly reduced, from 23 per cent in 2022 to 20 per cent at the end of last year. But the levels of “unsecured debt” – debts for which no payment plan has been agreed, almost always because the customer has too little money or income for any plan to be viable – had risen by 104% over the same period, jumping from an average value of £553 to £1,125. 

Alasdair Dorrat, a Partner at Baringa, said: “Our assessment of the energy retail market underlines that the poor are getting poorer. The money owed to energy companies is growing and becoming concentrated amongst the people least able to pay it. This results in terrible circumstances for households, and knock-on effects for society: when financially vulnerable customers default on their debts, the cost of their defaults is loaded on to other people’s bills, raising prices and sucking yet more people into the spiral of unaffordability. 

“There are routes out of this very challenging situation, but it relies on customers, suppliers and the government all taking action.” 

Between 2022 and 2023 the average debt held by people whose energy bill payments were overdue increased by 48% from £478 to £709. Over the next two to three years Baringa expects the level of bad debts – debts written off by energy firms as unlikely to ever be repaid – to more than double against historic norms. This would point to increased costs for energy companies, and potentially higher bills for other consumers. 

Alasdair Dorrat said: “Three groups need to act now. Firstly, customers should be proactive, looking to reduce their energy consumption, take advantage of any support to insulate their homes and engage with their suppliers about how to best manage their financial circumstances. 

“Secondly, energy firms need to continue to heighten and evolve the support on offer to customers. At the simplest end of the scale, they need to be more hands-on in identifying and communicating with their vulnerable customers, and more flexible in the advice, help and payment plans they offer. And they have a broader role to play by helping with both financial vulnerability and the net zero challenge. By striving to provide wider integrated energy services – such as helping gas and electricity customers to also improve their home insulation – they could help solve two problems at once.  

“Thirdly and finally, the government needs to take action to ensure the most financially vulnerable in society get the support they need. At minimum it should consider financial support. Likewise the price cap will need to evolve to meet the needs of customers and broader market objectives. But the government can go further, pulling more of the many levers at its disposal. An example is to incentivise the faster and better insultation of housing stock, particularly for people in social and privately-rented accommodation, as these groups are disproportionately likely to be financially-vulnerable. 

“No one wins where debt it concerned, and therefore it’s vital that financial support is provided to break the spiral of debt we are seeing in the energy retail market.” 

Baringa’s latest number-crunching follows work the company undertook on Financial Vulnerability in early 2022. 

* Methodology 

Baringa analysed the debt books of nine British energy companies, all of whom are its clients. Statistics quoted above were true as of quarter 4 2022 and of quarter 4 2023, depending on the year quoted.