Ministers Tell Energy Firms to Clear Household Debt Before the Write-Off

The morning after Bank Rate rose to 4 per cent, the political argument about household bills moved from the price of money to the debts already on the meter. Energy bosses were called in on Thursday and told to do more, this winter, to help people get on top of unpaid bills, before the government spends almost 2.5 billion pounds writing off arrears for about 2.4 million of the hardest-hit households.

Polly Billington, the minister for energy consumers, is understood to have told executives from Octopus Energy, British Gas and EDF that suppliers still have a crucial role, alongside the public money. Household energy debt could reach 7 billion pounds by the end of the year. The write-off is part of the circuit-breaker John Healey put in the Budget: a plan to stop old arrears compounding, sitting next to the 100 pounds off some winter bills in England. It is not a cap on the bill that arrives in January, and it does not undo Thursday's quarter-point rise.

What the scheme is for

The debt the Treasury wants to pay down is the stock of unpaid bills, not the next unit of gas or electricity. About 2.4 million households are in the group described as hardest hit. Almost 2.5 billion pounds is the sum ministers are preparing to spend. The firms were told that public money does not let them step back. People still need a route off a payment plan that has already failed, and a bill they can actually meet, before the state clears the old balance.

That is the political problem on Friday. The Bank expects inflation near 5 per cent by the middle of next year, and the BBC's reading of the forecast has a typical energy bill up 27 per cent in January, to 2,150 pounds. A tracker mortgage costs about 31 pounds more a month from this week. The 100 pounds in the Budget is a one-off. The write-off, if it works, retires old debt. Neither one stops a higher tariff or a higher mortgage rate. Ministers can claim they are giving families breathing space. They cannot claim the bills have stopped rising.

The other argument running this week

Welfare is the second front, and it is not a Friday announcement. Healey has said the overall benefits bill will come down under Labour, that changes start next year, and that he has not set a timetable for the saving. Downing Street has already pushed back at reports that he promised the cut before the next election. Two reviews due this month, one by Sir Stephen Timms on personal independence payment and one by Alan Milburn on young people and work, are meant to draw the map. Helen Miller of the Institute for Fiscal Studies has noted that the difficult decisions on disability benefits and support for young people are still ahead.

Friday's concrete meeting was the energy one. The firms left it with a public instruction and no published list of new promises. The households in arrears are the test. If suppliers do not change how they collect, the 2.5 billion pounds will retire a debt that starts building again with the January bill. Healey's Budget offered 100 pounds and a circuit-breaker. The Bank has since made borrowing dearer. The gap between those two facts is what the roundtable was for, and it is still open.