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Spend & Save

James Daley: Don't like paying higher bills? Tough

The news that British Gas generated profits of almost £600m last year sparked yet another wave of anti-capitalist hysteria on Thursday. Incensed consumer groups and unions demanded the immediate introduction of windfall taxes and tighter regulation, while impoverished families were interviewed on the television, talking about how they could barely feed themselves due to their ever-growing fuel bills.

But while rising energy prices are a frustration for everyone, consumer groups are wrong to believe that the price hikes are the result of an inefficient market populated by greedy corporations, who need to be kept on a tighter leash.

Indeed, British Gas is the very proof that the market works well. In 2006, when it let its prices drift out of kilter with its competitors, it shed more than a million customers. Meanwhile, Scottish & Southern Energy has climbed from being the fifth largest provider in the UK to the second in just five years, driven by its competitive pricing and good customer service.

For consumers who are unhappy, it is now simpler than ever to switch, with sites such as www.uswitch.com and www.switchwithwhich.com helping you compare the best deals and complete the move in a matter of minutes.

And, according to the energy regulator Ofgem, anyone who hasn't changed provider since the market was opened up to full competition in 1999 could instantly save at least £100 by switching.

While it is certainly true that each of the main energy providers have been raising their prices over the past few months, these hikes have been driven by a number of external influences, not merely by corporate greed.

For a start, the wholesale price of gas is on the rise. While Britain used to generate much of its own gas in the North Sea, our reserves are now depleted and today this accounts for only 30 per cent of our supply. As a result, we're now having to import a greater proportion from overseas, which naturally costs more.

At the same time, energy companies are suffering under an increasing regulatory burden – forced to deliver a growing proportion of their energy from renewable resources each year, and to compete with European carbon emission caps. Each of these requirements is helping to edge up the cost of providing us with our gas and electricity, and these are long-term trends that we'll have to get used to. Creating a greener society costs money.

Perhaps because it's only two years since energy providers were last raising their prices, it feels like our bills only ever go in one direction. But, in fact, there are occasional reductions too.

When wholesale gas prices fell last year, British Gas was one of the first companies to pass the benefits on to customers, and as recently as October, the company found itself fighting a price war with Scottish & Southern to maintain its place as the cheapest online energy supplier.

So all the talk about excessive profits is nonsense. British Gas has millions of customers, and should be allowed to make a profit. If it doesn't price its products keenly, and treat its customers fairly, it knows they will go elsewhere.

Furthermore, if you've got a pension, chances are you've got some money indirectly invested in their shares anyway – and you should be very glad you have. Over the last three years, shares in Centrica, which owns British Gas, have more than doubled – giving you more money to spend on your fuel bills when you reach retirement.

Free markets and competition work in the favour of both consumers and shareholders – and there's nothing to stop you being both. Calls for windfall taxes and tighter regulation will only force energy companies to raise their prices even further.