British Gas announces huge price rise for households

Some 16 million customers of British Gas face huge increases in their bills after the country's biggest home energy provider announced price rises of up to 35 per cent yesterday.

From today, British Gas is raising the price of its gas by 35 per cent, while customers buying electricity from it will pay 9.4 per cent more. Households who buy both services from the utility will see their dual fuel bills rise by 25 per cent.

The increases mean the average household's dual fuel bill will rise from £1,055 a year to £1,322.

Energy analysts pointed out that before the 15 per cent increase in costs implemented by British Gas in January, the typical household was paying £912 a year. Yesterday's price rise means British Gas's bills have now risen by 45 per cent so far this year.

However, the energy group said it had no option but to raise its prices following an increase in the cost of gas on the wholesale markets of almost 90 per cent since last winter.

"We very much regret that we have had to make this decision at a time when many household budgets are already under pressure," said Phil Bentley, the company's managing director. "The simple fact is, though, that we have entered an era of unprecedented high world energy prices."

Centrica, British Gas's parent company, owns substantial gas reserves, but only supplies a quarter of its retail arm's needs and is, in any case, prevented by regulators from subsidising the unit's prices. The company is due to unveil its interim results in full today, but revealed last night that profits at British Gas fell to £166m during the first six months of the year, 69 per cent down on last year's figure.

Mr Bentley said that without today's price increases, British Gas would lose several hundred million pounds in the second half of the year.

The company is desperate to refute accusations that it is profiteering, particularly in the face of growing calls for a windfall tax on the energy industry, and yesterday reiterated its promise to spend £43m over the next 12 months on "fuel poor" customers struggling to pay their bills.

British Gas also promised it would make no further increases this year to the bills of customers on its standard tariffs.

But analysts said the company might have to make further price increases early in 2009 and warned that its main rivals were certain to announce similar price increases for their own customers.

Aside from British Gas, of the next five biggest home energy suppliers in the UK, only EDF has so far raised its prices this summer, announcing increases of up to 22 per cent last week. Scottish & Southern has already warned that higher bills are imminent, while ScottishPower, E.On and npower are expected to fall into line within weeks.

"The difference between the main suppliers on price has been and will remain very small," said Joe Malinowski, the chief executive of The Energy Shop. "There is no question that the other providers will follow these moves."

Mr Malinowski expects most providers, including British Gas, to raise their prices again in January or February of next year unless there is a substantial fall in the cost of wholesale gas in the meantime.

The soaring cost of fuel bills has prompted calls for the Government to review regulation of the energy industry, the structure of which was heavily criticised by MPs sitting on the Business and Enterprise Select Committee this week. Ministers are also under pressure to do more to help low-income households caught out by the price rises.

However, energy companies insist that Britons pay lower home energy bills than consumers in most other countries in Europe. The most recent figures from the Department of Business and Enterprise show that, at the end of 2007, UK domestic gas prices were the fourth lowest in the European Union and electricity prices were the eighth lowest. While prices have risen since the end of last year, there have also been increases on the Continent.

Nevertheless, Brendan Barber, the general secretary of the Trades Union Congress, called for a rethink of the Government's energy policy. "The UK's coal reserves must be allowed to play a bigger part in our energy mix," he said. "Coal would give UK consumers and industry more stable and secure energy prices, rather than the volatility we are now witnessing."

Gordon Lishman, the director-general of Age Concern, said: "It is absolutely unacceptable that around 2.25 million pensioner households are now living in fuel poverty, and thousands more will soon be facing the same fate. As an emergency measure to help alleviate the problem this winter, the Government and energy companies should be working together to offer 'fuel vouchers' to the poorest pensioners."

Economists warned that the latest round of price rises would also be a further blow to the Bank of England's attempts to bring inflation back to its 2 per cent target rate. Philip Shaw, an economist at Investec, said energy suppliers were increasing bills by more than expected, making it likely that inflation would rise even more significantly above the current level of 3.8 per cent.

"[This] increases the chances that inflation will hit 5 per cent over the autumn," Mr Shaw warned. Such a rise would prompt calls for a rise in interest rates, putting additional pressure on many households' budgets.