In from the cold: British Gas finally cuts prices
Critics say it's too little, too late - and urge other suppliers to quickly follow suit
Saturday 10 February 2007
Did you turn up the heating as the snow fell on Thursday morning? If so, British Gas's announcement of its first cut in energy prices for seven years must have seemed perfectly timed (though the reductions don't actually take effect until 12 March).
Credit where credit is due. British Gas - which has lost 2.7m customers, 14 per cent of its client base, in the past three years - is making significant reductions to the price of both its gas and electricity, as well as introducing an even better deal for vulnerable customers on pre-payment meters. Gas bills will fall by 17 per cent, while electricity is coming down 11 per cent. That's a £167 annual saving for the typical customer who buys both from British Gas.
However, the figures are worth setting in context. The average household's total gas and electricity bill topped £1,000 for the first time last year, having risen 72 per cent since 2004.
Moreover, price cuts could have come sooner. All energy companies, led by British Gas, increased their prices throughout 2005 and the first half of 2006 because the cost of wholesale gas rose dramatically. Yet in the second half, prices collapsed in the wholesale gas market - crucial for the cost of both domestic gas and electricity - ending 2006 50 per cent lower.
Energy suppliers buy their gas in advance, so customers were never going to benefit immediately from the collapse. Yet consumer groups want to know what has taken suppliers so long.
Much to campaigners' irritation, at least part of the delay seems to stem from the six big energy providers jockeying for position. Before Thursday, British Gas had already promised to cut prices "in the spring" while one of its rivals, Scottish & Southern, said last week that it also intended to reduce bills, though it has not said when and by how much.
"We need to see some action rather than simply good intentions," says Georgina Walsh, of the consumer watchdog Energywatch. "Wholesale prices have been low for so long that bills should already be falling."
Analysis from TheEnergy Shop.com, a company that helps consumers switch energy provider, suggests suppliers have never had it so good. The company's founder, Joe Malinowski, believes British Gas's full-year results, to be published on 22 January, will show it made record profits in the second half of last year, having lost money during the first half.
Its best estimate is that customers are currently paying an average of around 2.8p for each kilowatt hour of gas, while suppliers are being charged around 1.2p on the wholesale market. The current price at British Gas is closer to 3.1p, TheEnergyShop.com reckons, or 2.3p if all costs other than acquiring the gas itself are stripped out.
Profit margins are just as robust in the electricity sector. The average domestic buyer pays more than 11p for each kilowatt hour of electricity. Around 4p of that is accounted for by suppliers' costs, other than the cost of generating electricity, which is now below 4p, following the fall in gas prices. So the typical customer is financing a 27 per cent margin for his or her supplier.
These figures suggest there is plenty of room for a price war. British Gas may have stolen a march on its rivals this week, but it is unlikely to be the only company delivering price cuts.
Jeff Slaughter, head of home services at online price comparison site uSwitch, wants British Gas's competitors to declare their hands. Consumers have lost out because energy suppliers have been watching each other, he says, rather than concentrating on customers.
"We'd like companies to be as specific as possible about what they're going to offer customers and when," he says. "The time for price cuts is now."
Every day that prices stay unnecessarily high causes more damage, critics argue. Especially as consumers are paying top dollar when they're using most energy - bills are always highest in the first quarter of the year.
To switch or not to switch?
* With energy providers playing a cat-and-mouse game on price cuts, customers have a dilemma. Should they change gas and electricity supplier straight away, or hope their current providers will cut prices by more than rivals in the months ahead?
* "There is a case for waiting to see whether a price war develops over the next few weeks," advises Joe Malinowski, of TheEnergyShop.com. "I think there will be better propositions available sooner rather than later."
* British Gas's price cuts make its prices for both gas and electricity much more attractive, for now at least. But if you're with British Gas, don't assume you're paying its best prices. Its Click Energy 2 tariff is now the cheapest dual fuel - gas and electricity combined - deal going in the UK, but most customers aren't getting it. The good news is that existing customers can switch to Click, if they do so via an online price comparison service.
* Malinowski is convinced that by 12 March, when British Gas's price cuts take effect, other providers will have followed suit - and that there will be plenty of cheaper deals. It's worth seeing who offers what before deciding on your switching tactics, he says, particularly as you can't get the new British Gas prices for a few weeks.
* In the meantime, this is the most expensive time of year for energy. It may be possible to save money even before the price cuts, if you're currently paying bills by cheque or cash. Switching to direct debit will get you an automatic price cut.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Michael Brown shooting: Police shoot and kill second young black man near Ferguson
- 2 James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
- 3 ALS ice bucket challenge co-founder Corey Griffin drowns aged 27
- 4 Cilla Black defends Cliff Richard: 'I am positive that the allegations are without foundation'
- 5 James Foley 'beheading': Met police warn public watching murder video could be criminal offence
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Ukip MEP calls for reintroduction of death penalty on fiftieth anniversary of last deaths
Russell Brand calls for Israel boycott: Comedian urges big businesses that 'facilitate the oppression of people in Gaza' to pull funding
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
iJobs Money & Business
£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...
£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...
£350 - £365 per day: Orgtel: Manager, SAS, Data Warehouse, Banking, Bristol - ...
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Linux, SQL Se...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony