26th August 2026
The energy-debt problem is becoming serious enough that ww should separate it into two different crises: household energy debt and business financial distress. The available figures suggest the household problem is much easier to measure, but there is growing evidence that energy costs are contributing to the financial pressure on small businesses.
The latest household figure is particularly striking: Energy UK estimates that domestic energy debt reached about £6 billion by June 2026, and it warns that it could reach £7 billion by the end of this year.
And this comes just as Ofgem has announced that the typical household energy price cap will rise another 4% in October, to £1,723 a year.
Households are carrying the biggest measurable debt
Ofgem's own figures give an indication of how serious the underlying problem has become. By the first quarter of 2026, average arrears had reached approximately £1,876 for electricity and £1,623 for gas, both around 9% higher than a year earlier.
There is another worrying feature here.
This isn't simply millions of people being a few pounds behind.
Ofgem previously found that nearly three-quarters of domestic energy debt was arrears with no repayment plan. It also concluded that the number of households in debt had not risen as dramatically as the total debt, suggesting that some households were getting deeper and deeper into debt.
That is a very different problem from somebody occasionally paying a bill late.
It suggests that some households have reached a point where their income simply doesn't cover their essential expenditure.
But businesses are a different story
There isn't an equivalent £6 billion figure for business energy debt, which makes it much harder to say that, for example, "£X billion of the national debt is owed by small businesses".
But there is some worrying evidence from the wider business-finance figures.
Research published this week found 53,756 UK businesses in "critical financial distress" in Q2 2026, up 9% from a year earlier. Another 674,030 businesses were classified as being in significant financial distress.
That doesn't mean 53,756 businesses are about to go bust.
"Critical financial distress" is a much broader category than insolvency. It includes companies experiencing severe liquidity problems, creditor action or legal proceedings.
But it does tell us something important:
there is an enormous population of businesses with very little financial room for manoeuvre.
And energy is one of the costs pushing against that limited room.
Why small businesses are particularly vulnerable
A household can turn the thermostat down.
A shop can turn some lights off.
But imagine a small bakery, restaurant, hotel, laundrette, garage, workshop, care business or food manufacturer.
Electricity and gas aren't discretionary costs. They are part of the production process.
If electricity rises from £10,000 to £15,000 a year, a business has four choices:
absorb the £5,000, reducing its profit;
increase prices, risking losing customers;
cut other costs, potentially reducing staff or investment;
or borrow money, increasing its debt.
None of those solves the underlying problem.
And small businesses are particularly vulnerable because they often don't have the purchasing power of a large corporation.
This is where the situation can become dangerous
Suppose a small business was already making only £15,000 a year profit.
An additional £8,000 of energy costs doesn't necessarily mean the owner has £8,000 less disposable income.
It can mean the business has gone from £15,000 profit to £7,000 profit.
And if other costs — wages, rent, insurance, ingredients, transport and business rates — are rising simultaneously, the profit can disappear altogether.
That's when energy debt can become business insolvency rather than simply an expensive bill.
Ofgem recognises that businesses unable to pay their energy bills may need payment plans, payment reductions, payment breaks or hardship funds.
But that is a short-term remedy.
It doesn't make the energy cheaper.
And today's household figures contain a warning for businesses
There is a particularly uncomfortable feedback loop developing.
Energy companies are accumulating bad debts because customers cannot pay.
Those debts don't simply disappear.
Energy suppliers ultimately recover part of the cost through the regulatory system and future tariffs.
Energy UK estimates that the typical dual-fuel household is already paying around £50 a year towards energy debt-related costs, rising to around £140 for some standard-credit customers.
So we have something approaching a vicious circle:
High energy prices → customers cannot pay → suppliers accumulate bad debt → debt costs are recovered through bills → bills remain higher → more customers struggle to pay.
That is one reason the £6 billion figure matters.
And the October increase comes at an awkward moment
The government has removed VAT from electricity, which provides some relief, but the underlying wholesale gas problem remains.
Ofgem says the October increase is being driven largely by higher wholesale gas costs, with the continuing geopolitical crisis affecting international gas markets.
There are already forecasts that the January 2027 cap could rise again.
That means businesses are making decisions now about winter costs without knowing where the energy market will ultimately settle.
Are small businesses actually going bust because they can't pay the energy bill?
Some undoubtedly will, but I wouldn't claim that energy debt alone is causing a measurable number of business failures without better data.
That distinction is important.
The evidence currently shows a much broader problem: businesses are under severe financial pressure, and energy is one of several costs contributing to it.
A small business doesn't usually fail with a headline saying:
"Company collapses because electricity bill was too high."
Instead, the sequence is more likely to be:
energy costs rise → margins disappear → supplier debts accumulate → tax or rent gets deferred → cash flow deteriorates → creditors demand payment → business becomes insolvent.
By the time the company actually enters insolvency, the original energy bill may be only one part of a much larger pile of debts.
And that makes the problem rather difficult to see in official insolvency statistics.
I think there is an important story here for Britain
We have spent a great deal of time talking about household energy poverty.
But we may now need to start talking about business energy poverty.
A household that cannot afford its energy cuts consumption and goes cold.
A business that cannot afford its energy may close.
And when a small business disappears from a rural community, the consequences extend beyond the owner. Employees lose jobs, suppliers lose customers and the local economy loses another source of spending.
That could be particularly significant in places such as Caithness, where a small number of independent businesses can be important parts of the local economy.
The most worrying figure isn't necessarily the £6 billion household debt.
It is what happens if the £7 billion forecast arrives at the same time as hundreds of thousands of businesses are already operating with very little financial headroom.
At that point Britain's energy problem stops being simply a question of whether people can afford their electricity bill.
It becomes a question of how many households and businesses can remain financially viable while energy remains expensive.