Up to 195,000 Brits could have their energy bill debts slashed, Ofgem has announced. The energy regulator expects to write off around £500 million of historic debt built up during the energy crisis in a relief scheme that aims to “reset and reform” the UK’s growing pile of energy debt.

The first phase of the scheme, set to launch early next year, will focus on people who receive means-tested benefits with more than £100 of debt. Eligible households will be expected to contribute towards their debts and current energy use, or work with debt advice charities if unable to make payments.

Under the current price cap, £52 is added to annual household energy bills to cover energy debts that are never paid and have to be written off.

Figures published by Ofgem last month showed that the money owed to suppliers by households in England, Scotland and Wales surged to a new record high of £4.4 billion by the end of June. 

The average debt for people who do not have a repayment plan with their provider currently stands at about £1,716 per household.

Ofgem said that in a worst case scenario, between £1.1 billion and £1.7 billion of historic debt, according to supplier estimates, is never paid and will be written off.

It comes only a day after MPs called on the regulator to pay down some of the energy debt bill through windfall profits on suppliers. However, the cost of unpaid debts will continue to be covered by being reclaimed across all households’ bills.

The regulator confirmed that a final consultation on the first phase of its debt relief scheme is set to be published shortly. 

Ofgem said it is pushing forward with proposals to bring the debt down and reform how these debts are managed in order to prevent it growing as high in future and therefore reducing the cost to all households.

Other Ofgem proposals include trialling a different process for households to follow when they move into a new property.

Charlotte Friel, director for retail pricing and systems at Ofgem, said: “We know the growing amount of debt in the energy system is a significant challenge.

“We must protect consumers by striking the right balance between making sure those that can pay are supported to do so, and targeting support at those who need it most.

“These proposals will both directly reach households and relieve the burden of unmanageable debt, while also making changes to the way that debt is managed in the sector.”

Richard Neudegg, director of regulation at Uswitch.com, described it as a “lifeline” for households in debt, but urged that prevention measures need to be put in place for the future.

He said: “Energy debt not only affects millions of vulnerable households, but it’s impacting the cost of the energy system as a whole, raising bills for everyone.

“Since the energy crisis, the price of energy has remained high and the subsequent problem of increasing debt needs to be urgently addressed.

“Writing off £500 million of historic debt could be a lifeline for the 195,000 customers identified by this proposal, but it’s important that any plans prevent these issues from building up again.

“When people move home, if they don’t contact the energy supplier to set up an account, suppliers can find it difficult to pinpoint who is responsible for the bill.

“These unknown ‘occupier’ accounts that remain unpaid are estimated to add more than £1 billion to the debt pile that we all end up paying for, costing the average household an extra £52 a year – so this is a sensible area for the regulator to focus on.”