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Time to get switched on about electricity prices

Man's hand turning a dial on a thermostat
Man's hand turning a dial on a thermostat

It’s not the kind of news anyone wants to wake up to – energy price rises.

And no doubt many people’s first thought at breakfast tables around the country yesterday was: “Am I with British Gas?”

For some 3.1million of its customers across the UK about to see their electricity bills go up, it cannot have been a great start to the day.

When the other five of the so-called Big Six increased prices earlier this year, British Gas implemented a price freeze until the beginning of this month.

But the giant, which trades as Scottish Gas in Scotland, has now revealed what industry insiders are calling the worst-kept secret: a 12.5% increase in electricity prices from September 15.

Gas prices are staying the same and those on fixed rates will be unaffected until the end of their term.

If you are on the standard electricity tariff however, you will be hit – unless you receive the UK Government’s warm home discount.

Parent company Centrica has confirmed around 200,000 vulnerable customers who do will be given a £76 credit to offset the increase.

This is the amount by which an average dual fuel bill for a typical annual household tariff will go up by – to £1,120, a rise of 7.3%.

Unsurprisingly, the move has provoked widespread criticism, including from the UK Government and consumer groups.

The Department for Business, Energy and Industrial Strategy (BEIS) raised concerns the hike will affect people on already poor-value tariffs and Will Hodson, co-founder of tariff-switching firm The Big Deal, called it “completely unjustifiable”.

Meanwhile, Martin Lewis, who set up, urged customers: “Do not sit on your backside and just take this.”

By way of explanation, the company acknowledges that the wholesale cost of electricity has fallen, but insists its non-commodity costs such as transmission and distribution, as well as costs associated with government policy, which are reflected in bills, have climbed by a greater amount since 2014 – £36 per bill, versus £98.

Centrica chief executive Iain Conn, who reportedly received a £4.15million remuneration package last year, said: “The net effect of both of these is an increase of about £62 on the average bill.

“That is the main driver of the increase, combined with the fact that our electricity prices at British Gas have been some of the cheapest in the market.

“Actually we’re now selling our electricity at a loss, which is clearly not sustainable.”

British Gas chief executive Mark Hodges added: “We held off increasing prices for many months longer than most suppliers in order to protect our customers from rising costs, so it is a difficult decision to have to announce an increase in electricity prices.

“We know that keeping energy prices as low as possible is vital, and our new standard tariff price has again been set at a level lower than most of the top 10 suppliers. We are able to do this because we have managed our own cost base tightly.”

It is hardly a coincidence, however, that the rise was announced alongside Centrica’s half-year results showing earnings from its consumer business declined by more than a quarter after it lost 377,000 UK customer accounts.

Underlying operating profits from its UK home energy supply arm tumbled 26% to £381million, hit by warmer than normal temperatures among other factors.

And Centrica’s overall underlying operating profits were also 4% lower at £816million for the six months to June 30, although shares rose 2%.

Taken together with the fact that this increase is the first since November 2013, it’s not hard to see how the decision was reached.

None of this washes with Mr Hodson, however, who described the rise announced “as they make half a billion pounds in profit” as the “ultimate slap in the face for families”.

He said: “British Gas claim the rise is because of increased costs but Ofgem data shows that all their costs – wholesale, network and policy- have dropped since December 2016. They should be cutting prices not raising them.

“This price rise unfairly hits millions of ordinary families in the pocket while British Gas makes hundreds of millions in profit and their executives take home millions in pay packages.”

SNP Aberdeen Central MSP Kevin Stewart added: “It is absurd for a big energy supplier to plead poverty when its group chief executive has been given a 40% pay rise. Household energy customers should not be expected to boost supplier profits and fund rising executive salaries.

“I would not be surprised if energy customers now seriously consider their options for supplier or tariff change as this is a disgraceful way to treat people.

“I am astounded that British Gas expects customers to just accept this and readjust already squeezed household budgets with barely six weeks’ notice.”

A BEIS spokesman also waded into the row, insisting government policy costs make up a “relatively small proportion of household energy bills and are coming down”.

But the Conservatives too came under fire from the Labour party, which accused them of failing to rein in soaring energy bills and breaking a manifesto pledge to impose a cap.

At the general election, the Tories pledged to “introduce a safeguard tariff cap that will extend the price protection currently in place for some vulnerable customers to more customers on the poorest value tariffs”.

The plan was absent from the Queen’s Speech, however, after Theresa May failed to win a majority and ministers have since said they are merely “considering the best way” to do so.

Shadow energy minister Alan Whitehead said: “Unfortunately the government has decided, despite having that in their manifesto that they’re not going to do that now and that’s something we’d want to press them to change their minds on, because it’s really important now that energy prices are stabilised and we need a cap to do that.”

Government regulator Ofgem is currently consulting on a safeguard tariff for vulnerable customers as well as reforms to standard variable tariffs and the BEIS spokesman insisted yesterday it wants to see “rapid progress” on this commitment to “prompt action”, adding: “We are ruling nothing out.”

This suggests a cap could yet be on the cards, although as the government tries to navigate its way through the Brexit process, there are certainly many priorities competing for attention.

In addition, ministers are also trying to improve the consumer’s lot by encouraging them to reduce how much energy they use in the first place.

Using less obviously means there’s less to pay for, and there are environmental benefits too.

The government hopes to achieve this through smart meters and has pledged to ensure they will be offered to every household and business by the end of 2020.

The idea is to give people control over their energy bills in a way they have not had before, but the roll-out has been mired in controversy.

Not everyone is convinced of the difference they can make, the project has been hit by delays and some may stop working if you change suppliers, according to some reports.

These measures will of course be of little comfort to those faced with higher bills now.

But the good news is that – because the increase does not come in until the middle of next month – there could still be time to switch to a cheaper deal.

According to’s Cheap Energy Club page, those still on British Gas’ standard deal when the hike comes in could be overpaying by more than £285 a year.

Mr Lewis said: “This is British Gas’s catch-up price hike. It was the only one of the big six firms not to raise prices at the start of the year, and now, as predicted, it’ll do it from September.

“That means if, as is possible, we see another batch of rises this coming winter, its customers will feel like they’ve been price-slapped twice in rapid succession.

“While the freeze has given people a little respite from price moves over the key high-use winter period, the problem is, for many the false sense of security that it wouldn’t move prices meant they did nothing, when they could’ve cut their rate and locked that in for longer by actively picking a far cheaper one-year fixed energy tariff.

“So let this be a clarion call for British Gas customers (and all those on big six standard tariffs):do not sit on your backside and just take this.

“Switching is usually no big deal – there’s no break in service, no engineers coming to call. It’s the same gas, same electricity, same safety – only the price and who provides customer service actually changes.”

Changing provider has been possible since the late nineties, yet more than 40% of British households have never switched and could be missing out on savings as a result.

As with many services like insurance or TV packages, often the most competitive rates are reserved for new customers.

And while it might seem like a bit of a hassle on the face of it, a bit of research suggests the process is indeed fairly straightforward, although remember to check first whether you will be charged an exit fee.

This is common for those on a fixed rate tariff looking to switch early. According to consumer group Which? all suppliers should now allow you to leave up to 49 days ahead of your tariff’s end date without incurring a penalty.

So how does it work?

There are a number of Ofgem accredited websites that calculate the different options available to you, based on a few pieces of information including postcode, current supplier, the name of your tariff and how much you pay.

If you do decide to go ahead, the switch can then be completed online or by contacting your preferred new supplier directly.

Alex Neill, managing director of home products and services at Which? said: “Hard-pressed consumers waiting to see how the government will tackle costly standard variable tariffs will be disappointed to see prices rising. Customers concerned about their tariff should switch to a fixed-price deal now.”

The consumer group even suggests running a comparison every six months to check you are still getting the best rates.

That idea might fill you with dread, but it does seem doable – provided you are organised – although it is admittedly harder if you aren’t online or have poor internet access as in some parts of the north and north-east.

Of course the question remains as to whether the onus should be on the consumer to shop around to so great an extent.

It undoubtedly always pays to be informed, to keep on top of your finances and most of us automatically look for the best buys in our day to day lives. Moreover, if more people do start switching, that will in turn encourage companies to compete on price.

On the other hand, it can be argued that customer loyalty – valued so much in the past – should be rewarded and that the regulator should help ensure a fairer system in that sense, although deciding what role it might play is obviously complicated.

Clearly this issue is much broader than the British Gas announcement, having troubled governments for a number of years.

And while there has been a lot of talk about protecting consumers better in the energy market, an effective solution has yet to materialise.

Consumers and their advocates will hope these latest negative headlines help bring about some action.