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Can British Gas justify 7% price increases?

Pound coin on gas hob

Looks like we’re in for a long, cold and skint winter. Energy price increases are back with a vengeance – and today’s unwelcome news from British Gas will hit eight million of its customers.

It was back in July that we discussed whisperings of possible energy price rises here on Which? Convo.

Sadly, British Gas (BG) has now made those rumours a reality, joining Scottish and Southern Energy (SSE) in raising its standard prices.

SSE is increasing its gas prices by 9% from 1 December, while BG will raise gas and electricity prices by 7%. That means eight million BG customers on a standard or variable dual fuel tariff will face (on average) an extra £1.50 a week on their bills from 10 December – equivalent to an extra £78 a year.

Winter energy woes

These are the first standard price increases from the so-called ‘big six’ energy companies to hit existing customers for two years.

The company admits that rising energy prices will ‘come at a difficult time for many in Britain’ – jolly nice of them to remember. So why the increase? It’s putting the blame on a 25% rise in wholesale gas prices as well as rising ‘network charges and environmental obligations’.

Hmm, that will be little comfort for people already concerned about energy costs. As Which? Switch found, around half of Brits are worried about how they’ll afford their fuel bill over the colder months – and that was back in October before any price increases had even been announced.

There’s a bit of relief for the 300,000 low income customers on BG’s ‘Essentials’ tariff – the new prices won’t affect them until April 2011. Anyone on a fixed price tariff is also safe from the price rises, until those deals come to an end.

What can BG and SSE customers do?

Your best bet is to switch to the cheapest available tariff. But considering it takes an average of five weeks to switch energy suppliers, customers will need to act sooner rather than later to avoid a winter’s worth of higher rates.

We’re yet to hear what Eon, npower and Scottish Power has in store for their prices, while EDF Energy has committed to freeze its standard gas and electricity rates until March 2011.

Above all, remember that as a general rule of thumb, if you’re on a ‘standard’ tariff and/or don’t pay your bills by direct debit, there’s probably a cheaper option out there for you. The question remains, will higher prices force you to switch?

Comments
Guest

I wonder how much of our energy bill goes towards sales commission (which manifests itself in many different ways from the human canvassers to referrals by comparison websites)?
I have made at least £30 cash back per switch and up to £120 by switching on the internet. There is only one source for this money; the consumer.

Guest
Marjie C says:
13 November 2010

No they can’t. If they had passed on the full 40% price drop of wholesale gas to their customers over the last few years then it would be reasonable. But they didn’t. Instead they have made a profit out of us all, whilst keeping very quiet about the real cost of gas to them. But the moment that prices start to move upwards they become very vocal about what it’s costing them. It’s time that they realized that the public at large aren’t as stupid as they seem to think.

Guest
pickle says:
14 November 2010

I reckon Marjie C is right. Wholsale gas prices are relatively low – so a price rise is surprising. The only possible excuse is the cost of invcreasing gas storage – we have less storage capacity than most other countries.

Guest

Completely agree – and I read somewhere quite recently – Observer I think – that Transco (who look after the pipes and storage) are decommissioning ALL gasometers (gas holders) in the UK over the next 12 months. I don’t recall the article stating a reason for this, but where will we store any gas at all without them?
Cynical me thinks this means we will have to buy-as-we-burn from other countries, making us far more susceptible to gas price rises globally and also at much greater risk of running out of gas in a cold snap or when the countries supplying us have a cold snap and want to stop the export for a while.
Whichever way you look at it, they (the energy co’s) make a killing out of us and leave us vulnerable by their profiteering methods.

Guest

I remember a few years ago the wholesale price of gas plummeted to the point that they couldn’t even give it away. I didn’t see the energy companies pass on those savings to consumers then so, absolutely not, they cannot justify prices. I’m a SSE customer – I’ve switched before and I’ll switch again. It was a lot easier to do than I thought it might be.

Guest

I’m with Ecotricity for gas and electricity.

I’ll stick with them because they put ALL of their profit into building renewable generation schemes, even for gas now.

They track their price against the biggest supplier for the area (in my case currently npower) so I will watch the big six carefully, but I’m afraid I won’t switch as I’d rather pay more but know exactly where the profit is going (and approve of it) than make a temporary saving but know that there is still a hefty profit made from me and spent on I know not what and I might not like it if I did know.

Guest

Latest news is that Scottish Power has just announced price rises of 2% on gas and 8.9% on electricity. How many more to follow?…

Guest

oh, you’re joking?! that’s who came top of my switch list on November the 18th and I was ready to go with them (after getting my ‘loyalty’ bonus with SSE on the 19th 🙂 ) Does the SwitchWithWhich calculator take into account the new SP prices?

Guest

Hi fat sam, the calculator is currently being updated with the latest figures and they should be reflected from this Thursday. You can check the details on this page to see what changes have been made to the tool: http://www.which.co.uk/switch/news?filterOption=PRICE_ANNOUNCEMENT

Guest

Hi Hannah,
Looking at the SP website the price of gas (at 25/11/10) in my area (Midlands elec) has actually gone DOWN by 4.7%. Electricity is up by 17.5%, the quarterly threshold tiers (which, as Wilf Lower has helpfully pointed out below, also have influence on the real price difference), thankfully remain the same though they should be abolished altogther to make comparisons easier. So, will have to see how this afrects my bills, seeing as I use 3.7244 x (approximately :)) as much kWh of gas as electricity.

PS I think it might be worth putting a reminder on the section where the user is asked to enter their kWh of gas to make sure they don’t confuse this with readings on some (if not all?) meters (which aren’t in kWh but in units).

Guest

I’m with British Gas on a Websaver6 Tariff (‘Which’ recommendation).

Following notification of BG’s new rates per unit from 7 December, I checked against my current rates:

– Tier 1 rates were are actually by 7.18%…….OK. I can accept that, but the volume of gas used before moving the Tier 2 is also to be raised, making the actual increase 8.64%
– meanwhile, the Tier 2 rates will actually be increasing by 10.4%

I have queried with BG who have replied with another set of misleading figures, but no explanation of why their publicised 7% is actually 10.4%. I’ve now asked BG to explain the new laws of mathematics that they’ve obviously created.

Guest

Not “bored of”, you ignoramuses, “bored with”. No slumming, please. No Estuary English. Keep it pure, please.

Guest
Peter Trueman says:
20 November 2010

Words matter! Keep up the good work!
Peter

Guest

shouldn’t that be ‘ignorami’?
🙂

Guest
Mike P says:
20 November 2010

The gas industry knows well enough that there will soon be a huge glut of LNG ( liquid natural gas) and that prices will have to fall so they are making sure that their profits will not suffer by artificially inflating the price before this happens. The LNG also explains the reason for the disappearance of gas holders, as storage for gaseous forms will no longer be required as it will be stored in liquid form. Since many electricity generating stations also use gas the price of electricity should come down also -but will it?
We all know it is all about increasing profits to immoral levels but we are powerless to do anything about it unless we get ourselves organised – How about it Mr “Which”

Guest
Kate Wroe says:
20 November 2010

Regarding the plastic bag poll. As the majority want to retain them. It is up to the shops to make sure that they are biodegradable.

Guest

Hi Kate
Thanks for your comment – I think you meant to respond to another Conversation we have about plastic bags – if so, here is the link – please feel free to repost your comment there!
https://conversation.which.co.uk/energy-home/will-paying-for-plastic-bags-make-us-greener/

Guest
Iain Stuart says:
20 November 2010

I’ve stayed with SSE but have changed to their cheapest tarrif (Go Direct 5); despite earlier publicity saying it was not open to existing customers, I was allowed to change with no problem. Saving £150 a year.

Guest
Charlie says:
22 November 2010

I’ve been with Good Energy for my electricity for a long time, as a sort of lobbying technique to force bigger companies to put more resources into greener energy. I’m not a militant green though. My main concern is that we aren’t energy independent. Some of our gas is coming from as far away as Russia and that’s not a secure or sensible arrangement. If there were to be conflict in any one of the countries it comes through to reach us, it wouldn’t even be a question of price, there just wouldn’t be enough to go round.

It’s not good news about rising energy costs but we have to face the fact that energy is expensive and it’s only going to get more so. We may even find we can’t pay whatever the price, if our supply is interrupted. The truth is, it’s always pay now, or pay a lot more later. Saving £100 this year with a dirty fuel tariff is borrowing on tomorrow when the environmental costs will be vastly more. Modern life encourages us to live moment to moment in a culture of instant gratification. It infantilises us. How we hate energy price rises. We planned to use that extra £100 towards a £3000 3D TV in time for Christmas – life is so unfair!

We need to remember how to take responsibility and plan for the future. Greener, more independent energy is the future but reducing consumption is the start. I live in a draughty old house but I’ve made real progress over the past couple of years with upgrading the insulation – I started with the loft, then replaced the windows. This year I’ve experimented with insulating the ground floor between the joists – this wasn’t a difficult job, I managed to DIY it. When I can afford to, I’m thinking of adding wall insulation (the walls are 9″ solid brick, which is tricky to insulate but not impossible). Every addition has made it noticeably warmer, quicker and easier to heat. I realise not everyone can afford these measures but it is worth adding those you can, when you can and with rising energy bills, the cost-benefit ratio makes more sense.

Guest
Charlie says:
22 November 2010

This is a reply to Dave’s comment above about Ecotricity.
I’m with you on this. I’d stay with my clean energy provider irrespective of the tariff. It’s really great that Ecotricity put all their profits into creating green energy although they only actually generate 41% of their energy from renewables. Good Energy generates 100% of it’s electricity from renewables, so it was a hard decision for me which one I should go with. In the end I thought Good Energy was an important lobbying choice. A serious message for other energy supply companies.

http://www.ecotricity.co.uk/for-your-home/uk-s-greenest-energy
http://www.goodenergy.co.uk/

Guest

Hi. We’ve done a number of cartoons in our Guardian cartoon strip “Ripped-off Britons” on issues Which? is campaigning on. Here’s the latest on Ofgem’s announcement to probe energy price hikes. Hope you like it…
http://www.guardian.co.uk/money/cartoon/2010/nov/29/ofgem-energy-review#

Guest

Thanks again Hari, looking good! Feel free to pop around Conversation for inspiration of more cartoons 🙂

Guest

NPower have joined the party with a 5% price hike on its gas and electricity. The new prices will start on January 4th. Not quite as bad, but is it fair? And who’s next?

Guest
VicRic says:
27 January 2011

Just recieved my British gas bill with the new prices and also noticed that the threshold for the tier change has increased. As a low volume user (as are many of us poorer people in society) I feel that this tier change unfairly targets our group and have asked BG to explain the reasoning behind a “hidden” increase that appears to specifically disadvantage both the poor and perhaps the eco prudent “Low Usage” customer.

If BG reply I shall re-post it here.

Guest

Here’s another interesting example of dealing with British Gas over their pricing policies. I have a Homecare 400 product which provides services for boilers, central heating, plumbing and home electrics. My renewal quote came in at £489.30 which was a more than 7% uplift on last year’s prices (which struck me as hard to justify given there is no natural resource market argument for this service). I then went to the BG website and got a quote of £372 for the same service (24% less than the renewal quote!). I phoned to complain. The upshot was that, because I take my gas supply from BG, they would offer me essentially the same service for £324 (33.8% discount to renewal quote) and they would hold this price forever provided I continued to take my gas supply from BG; the only changes to the cover are removal of accidental damage cover, tap washers are not covered and because, it is not an insurance backed policy, there is no resort to the Financial Ombudsman service. All of this points to two conclusions: BG (and I suspect it is not alone) does not treat long-standing customers (25+ years in my case) with respect or offer them the best deals automatically and, secondly, it pays to complain (which the British psyche is naturally averse to doing).