The UK’s energy watchdog has unveiled plans to lift the energy price cap from April next year in order to help suppliers recover nearly £3 billion in debts from customers who cannot pay their bills.

Ofgem said it wants energy companies to use the extra funding to support struggling customers and write off bad debts.

The watchdog is proposing a one-off price cap adjustment of £16, equivalent to around £1.33 a month, to be paid between April 2024 and March 2025.

Customers on pre-payment meters will not be affected.

This approach will ensure the costs are recovered fairly, without penalising a particular group of customers

The additional costs will ensure suppliers have the resources to support struggling customers by setting up payment plans, writing off unmanageable debt on a case-by-case basis and working out affordable repayment holidays, Ofgem said.

It comes as energy prices stay high, and wider cost-of-living pressures mean energy debt has reached nearly £3 billion, its highest-ever level, according to new Ofgem figures.

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 set out new consumer standards on Thursday which will mean suppliers must make it easier for customers to contact them.

Firms must also publish information on their Citizens Advice star rating, which indicates how well they deal with customer service.

The watchdog said it is looking into additional alternative ways to deal with the issue of debt, beyond the price cap.