The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

The cost-of-living crisis, though showing signs of abating, still looms in the background. Reductions in energy bills and a gradual decline in inflation offer a glimmer of hope, but true recovery remains a distant prospect. According to the Resolution Foundation, the crisis might ease by 2024, yet real wages might not regain their Q1 2022 levels until 2027. But as we stand two years into this test, the questions arise: Are customers successfully navigating their essential utilities bills? What debts have accrued, if any? How have priorities shifted, and has the landscape transformed?

A pivotal focus: managing affordability, cost of living, and timely payments

Recent “Dear CEO” Letters underscore regulators' dedication to supporting those struggling with mounting bills. The Financial Conduct Authority's (FCA) research reveals that 11 per cent of UK adults have missed domestic bill payments, based on consumer survey responses. Conversely, Experian's data shows that around five per cent have fallen into arrears in the last half-year, remaining below pre-pandemic levels. This data prompts a vital debate: How deeply has the cost-of-living crisis impacted consumers, shedding light on the gap between perception and reality?

A closer examination of essential utilities bill payments shows that three key metrics emerge, offering a comprehensive understanding of consumers' ability to manage essential utility bills:

Current status and arrears: Experian's data illustrates that over 90 per cent of customers maintain up-to-date payments for essential utilities bills. Although the percentage of customers falling behind on payments has risen after the pandemic's initial fall, it now hovers around pre-pandemic levels.

Average balance and rising debts: Unravelling the complexities of debt in energy and water bills reveals a notable rise over the past year. Increases in average utilities balances primarily reflect inflation and increases in energy costs, though over the last quarter they have surged with an increase of 30 per cent in comparison to the same period last year. Ofgem's data affirms this trend, reporting "substantial increases in average arrears – up by 40 per cent for electricity and 34 per cent for gas compared to Q1 2022.”.

Forbearance and repayment arrangements: Experian's records indicate a growing volume of customers on arrangements for energy and water bills. However, the prevalence of these arrangements remains low, with less than one per cent of essential bill accounts on such schemes.

Nudging the financial brink: identifying rising stress on essential bills

Indicators suggest that while the increase remains slight, average balances, arrears, and forbearance on essential utility bills are incrementally rising, hovering around or just above pre-pandemic benchmarks.

Consumers traditionally prioritise mortgage and car loans, followed by essential bill payments. Credit cards, loans, and retail credit usually land at the bottom. However, there are recent indications that this trend may be changing and is worth monitoring and exploring in the coming months.

Mapping the path forward: from insights to action

The challenges persist, and as providers traverse this intricate landscape, several strategies come to the fore:

• Trend tracking: Monitoring trends against sector benchmarks with robust forecasts.
• Leveraging affordability data: Understanding and integrating affordability data to enable swift identification of customers struggling with rising mortgage payments.
• Combining traditional and affordability data: Merging traditional credit risk data with affordability insights to tailor support.
• Understanding involuntary prepayment challenges: As the impact of Ofgem's rule changes unfolds, energy suppliers must collaborate with data partners to navigate increasing debts and design informed strategies.

The journey ahead remains challenging, demanding astute awareness and innovative strategies. Navigating the intersection of affordability, cost-of-living challenges, and timely bill payments requires data-driven insights and agile action, ensuring providers and consumers alike can steer toward stability in an ever-changing financial landscape.

You can read more about how customers are keeping up with their essential bills on Experian’s website.