The weather's getting cold but the bills will be red-hot

Temperatures are forecast to dip below last winter's levels, finds Esther Shaw, and gas and electricity suppliers could push what we pay to 1,000

With the Met Office predicting that this winter will be a lot colder than last year, you may be tempted to turn the heating up a notch or two.

But before you do, take the temperature of the market: consumers are being warned by energy broker Catalyst Commercial Services that prices are set to rise by 10 per cent in early 2008 - which could push the average household energy bill above the 1,000-a year-mark.

Catalyst says increases in wholesale gas prices, the decline in North Sea fields and the increase in the price of oil will "force suppliers' hands".

According to the National Energy Action (NEA) charity, for every 1 per cent rise in energy prices, a further 40,000 households are forced into fuel poverty defined as the need to spend more than 10 per cent of household income on electricity and gas.

If the NEA figures are right, up to 400,000 more households could become "fuel poor" in the new year.

As yet, no supplier has announced price rises for domestic customers, but the fear is that as soon as one provider makes the move, the others are likely to follow suit.

Hard-pressed consumers could be forgiven for having djà vu over rumblings of sharp price increases

"Dire warnings that energy prices must rise have become a regular feature of the British winter," says Allan Asher, chief executive of consumer group Energywatch. "High oil prices, extra-cold weather and potential gas shortages are the usual reasons given. This talk becomes a self-fulfilling prophecy by giving comfort to those operators that will seize on any excuse to raise prices - and to raise them fast."

That said, he adds, the story is very different when it comes to cutting the burden for consumers.

"In the last year, wholesale gas prices have fallen by 50 per cent, and while the industry enjoyed the respite, it was in no hurry to share the benefits with consumers," Mr Asher explains. "Suppliers waited until spring this year to pass on miserly reductions to their customers of an average 15 per cent off gas bills and an average of 4.9 per cent off electricity bills. That little nest egg should tide companies through any cost spikes."

The NEA has asked energy regulator Ofgem to look more closely at how the big six energy firms British Gas, Powergen, EDF Energy, npower, Scottish Power and Scottish and Southern (SSE)- respond to wholesale price changes.

"While price increases are passed on rapidly, there is evidence that any price reductions take much longer to filter through to households," says NEA chief executive Jenny Saunders. "The Government-appointed Fuel Poverty Advisory Group has also questioned suppliers' willingness to increase profit margins rather than make any serious attempt to absorb part of the cost."

The predicted price hike couldn't come at a worse time for many people.

"It is going to squeeze households dry," warns Ann Robinson, consumer policy director at comparison website uSwitch.com. "This winter is expected to be colder than last, plus consumers will be facing the full impact of the credit crunch in the new year."

At the same time, new figures from the Office for National Statistics show 23,900 people died last winter as a result of the cold weather, of whom 22,300 were older people.

"Many pensioners feel they need to cut back on their heating to reduce their bill, yet this could be putting their health at risk," says Gordon Lishman, director-general of the Age Concern charity. "With fuel costs 60 per cent higher than four years ago, it is no wonder that many pensioners worry about paying expensive bills. But they shouldn't have to worry about health versus wealth."

The energy-efficiency grant 'has made a real difference'

Beryl Barrett, 40, from Croydon, has warmed to the Government's Warm Front financial grant given to people on low incomes to help with the cost of insulation and other energy-saving measures.

With a family of five children Wayne, aged 15, Hannah, 11, Rebekah, 8, Joseph, 5, and 10-month-old Faith - Beryl has to manage the household finances very carefully.

"I got involved with Warm Front last year when I was on income support," she says. "I got a grant for 2,700 which I put towards a variety of measures, such as replacing my old boiler, installing insulation and fitting energy-efficient bulbs."

As a result, Beryl reckons she has cut her monthly energy bills from over 60 to about 40. "I always regulate how long the heating is on for, and monitor how much we're spending, but the grant has made a real difference."

Nevertheless, she is still aware of the need to economise on energy use. "I do little things like turning off lights and not keeping the hot water tap running for longer than needed."

The stoking up of prices

The effect of a 10 per cent increase on combined annual gas and electricity bills:

Supplier/Prices today/With 10% rise

British Gas 912/1,003

Powergen 913/1,004

EDF Energy 907/998

npower 908/999

Scottish Power 958/1,054

Scottish & Southern 875/963

Average 912/1,003

Source: uSwitch (based on household using 20,500kwh of gas and 3,300kwh of electricity a year)

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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