Seeing red? Act now to cut your household bills

The best way to combat greedy power companies is to shop around, says David Prosser

It's not the most obvious of alliances, but David Cameron's Conservatives have at least one thing in common with the European Commission. Both have warned this week that competition in the UK's energy markets does not seem to be doing much to ensure customers get a decent deal.

The Commission's preliminary report, which calls for tighter regulation of Europe's energy markets, comes too late, however, to help British gas and electricity customers, for whom the average home energy bill increased by 38 per cent to £1,013 in 2006. Those increases followed three years of rising prices, albeit with more modest hikes in bills.

Energy prices rose sharply last year because of increases in the price of gas on the international energy markets. This has an immediate impact on the cost of domestic gas, but it is also important for electricity because 40 per cent of power in the UK is generated by gas-fired plants.

However, while the price of wholesale gas rose to just over 80p a therm last May, it has since fallen to below 20p a therm today. This is actually below the price at which energy suppliers were buying gas at the beginning of 2003, at a time when domestic prices were around half today's levels.

Suppliers say consumers will benefit from the fall in wholesale prices - eventually. But since the fuel companies buy their gas months in advance, at the prevailing market price, they claim they are not yet able to pass on the reductions.

Meanwhile, consumer groups point to the large profits generated by energy companies. Scottish and Southern Energy posted annual profits of £858.2m last year, for example. Scottish Power's interim results for the second half of the year showed a 77 per cent increase in profits to £483m. And Centrica, the owner of British Gas, reported profits of £200m in the second half, even though it has lost more than a million customers in recent times.

It is against this backdrop that the Conservatives are calling for an investigation of the energy sector by industry regulators and competition watchdogs, following similar calls from the Liberal Democrats. Regulators already have the power to intervene, but have not yet done so.

Ann Robinson, policy analyst at price comparison service uSwitch, says: "Ofgem has threatened to take action against any provider whom it considers to be lethargic in passing on any reduction in prices - it is hoped by all that Ofgem bares its teeth and makes good on this threat."

Joe Malinowski, founder of The Energy Shop, a similar service, adds: "The consumer wants to know why, if we have a competitive energy market in the UK, he is paying over £1,000 a year for his energy when wholesale gas prices have halved in the last six months."

There's no sign yet of an imminent fall in prices, though British Gas has said it will cut prices in April. In fact, some bills are still increasing. Scottish & Southern Energy raised gas prices by 12.2 per cent on 1 January. At the same time, the cost of its electricity rose by 9.4 per cent. British Gas is also piling on the pressure - it has introduced a £5 charge for customers who don't pay their bills within 28 days.

Thousands of customers will also be affected by the end of fixed-price gas deals - at least six will finish in the first quarter of the year.

In these schemes, customers agree to pay slightly more for their gas in return for a guarantee the price won't rise over a specific period. Contracts taken out a couple of years ago from British Gas, Powergen and Scottish Power were a smart bet, but the average customer will see an immediate jump of more than £300 once their deal stops.

It's no wonder that customers are upset. One option for those whose fixed-price deals are expiring is to take out a new guaranteed contract.

However, Karen Darby, chief executive officer of Simply Switch, warns that could prove an expensive mistake. If suppliers do start cutting prices this year, customers on fixed-price deals would lose out.

Companies such as uSwitch and Simply Switch have been urging home energy customers to hunt out cheap energy deals for years, as have consumer groups. "Wholesale gas prices may have been falling but householders will have to seek a better deal by switching suppliers," says Darby.

Around half of all households have never switched supplier and those who have done so may be able to save money by moving again. For a task that is relatively hassle-free, the potential savings are dramatic, as the table above shows. In all of the examples, the difference between the most expensive supplier and its cheapest rival is at least 16 per cent, or £104 a year. The biggest saving available is more than 30 per cent.

There are other ways to save money. All energy companies offer preferential rates to people who pay by direct debit. Those who pre-pay, particularly using meters, on the other hand, lose out. In addition, your energy company has a duty to provide you with information on energy-efficiency, to help cut bills.

Switching supplier, however, is the real money saver and should take no more than a month to complete. The easiest way to find the best deal is to use the price comparison services, which will even arrange the switch on your behalf, free of charge. Your existing supplier will require a final meter reading, but the switch requires no change of equipment - it's purely administrative.

A water meter could save you money

* Water bills are an increasing burden for households. Just two of Britain's 22 water companies last year chose not to impose the maximum increase on customers allowed by Ofwat, the industry regulator. Average bills in England and Wales rose by 5.5 per cent last year to £294, following an 11 per cent increase in 2005. Further bill rises are certain for this year.

* To add insult to injury, companies such as Thames Water announced large increases in profits while failing on many other measures. Thames, which missed its target for cutting leakages for the fifth year running in 2005 and imposed hosepipe bans on customers, was sold for £9bn in October to a group of overseas investors.

* Unlike the gas and electricity markets, water customers can't shop around for a better deal - you're stuck with the supplier that operates in your area. But that doesn't mean you can't save money, particularly if you live in a smaller household.

* Water companies charge people on the basis of the type of property they live in, rather than on how much water they actually use. So if you have an identical house to the family of five next door, but live on your own, you'll pay the same water bill as them.

* The solution is to exercise your right to have a water meter fitted, so that your bills are based on usage. A spokesman for the Consumer Council for Water explains: "Domestic customers can request a water meter which is fitted free of charge unless the location or pipework makes it impractical or uneconomic for the company to do so."

* Water suppliers are required to advise customers on whether installing a meter will save money. The water companies publish "ready reckoners" to help you make the calculations and many have online calculators on their websites. Even better, installing a water meter is not a gamble - if the change doesn't save you money, you have the right to change back to the old system, as long as you ask to do so within 12 months.

No need to ring up expensive phone and internet charges

* It's getting easier and easier to cut the cost of your home phone bill, as BT comes under increasing pressure to give rivals access to its networks and infrastructure.

* Martin Lewis, who runs the Moneysaving expert.com internet site, says the biggest savings are available to those who currently have - or want to get - broadband internet access. TalkTalk's £20 a month deal for both services is the cheapest deal on the market by some way, he says. For that price, all your internet access and all calls to UK landlines are covered.

* If you don't need broadband, or don't want to change your existing supplier, Lewis recommends renting a line from BT at £11 a month and requesting its Together Option 1 package. He then tips Primus (call 0800 036 0094 for details) as the cheapest supplier of calls. Its Saver 2 deal offers free weekend and evening calls to landlines, though other deals may be cheaper if you regularly make more than six calls during the weekdays.

* Lewis also points out that for both combined broadband and phone, and phone-only, customers, it's possible to save even more money by using different call suppliers for calls to mobile phones and overseas numbers. To access these services, you typically dial a number to get into their networks and then the actual number you want. You usually pay via your normal call supplier's bill, but at the "override" provider's charges.

* Lewis's site includes a daily updated list of override providers that shows the cheapest service for each type of call. "In a world where prices constantly rise, the phone is now cheaper than ever before," he says.