The UK’s energy watchdog has unveiled plans to lift its price cap from April next year to help suppliers recover nearly £3billion in bad debts from customers struggling to pay bills.

Ofgem said it is proposing a one-off price cap adjustment of £16, equivalent to about £1.33 a month, to be paid between April 2024 and March 2025.

It comes as energy prices stay high and debt has reached its highest-ever level, according to new figures from the regulator.

Last month, Ofgem set the price cap from the current £1,834 for a typical dual fuel household to £1,928 from January 1.

Tim Jarvis, Director General for Markets at Ofgem, said: “The proposals set out today are not something we take lightly. However, we feel that they are necessary to address this issue.

“This approach will ensure the costs are recovered fairly, without penalising a particular group of customers. The price cap has helped to protect consumers from a volatile gas market.

“However, it remains a blunt instrument in a changing energy sector and the way it works may need to change in the future, so customers continue to be protected.”

Ofgem said it is already taking action to help people struggling to pay their energy bills this winter through “robust” and “strengthened” consumer standards.

It added this means energy suppliers should offer debt repayment plans at the first opportunity and consider offering temporary debt repayment holidays wherever appropriate.

The new consumer standards which came into effect on Thursday (December 14) aim to make it easier for customers and suppliers to communicate.

Ofgem said the standards will also ensure customer contact centres are open at times when they are needed.

Suppliers will also have to publish information about their customer services using a star rating from Citizens Advice.

The energy watchdog said under Friday’s proposals, any extra costs would not be passed onto customers who use prepayment meters (PPMs).

Ofgem insisted “many” PPM customers do not build up the same level of debt as credit customers because they top up as they go.

The watchdog said it is looking into other alternatives to deal with the issue of debt which go beyond the price cap.