Further leap revealed for British Gas bills

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The Independent Online

Millions of British Gas customers were hit by another hike in household energy bills today after the firm posted record losses of almost £150 million.

British Gas owner Centrica said it would increase its gas bills by 12.4 per cent and electricity bills by 9.4 per cent from September 4.

It is the fourth time in two years that British Gas has increased its charges by more than the rate of inflation and follows a 22 per cent hike in both gas and electricity bills in March.

Announcing that increase in February, British Gas managing director Mark Clare said the firm saw "no need for any further price rises this year" as long as wholesale energy prices remained steady.

But today he said the cost of wholesale gas had soared 71 per cent in the last 12 months - including a 30 per cent rise since February - leaving it "no alternative but to increase prices".

It came as British Gas posted record half-year losses of £143 million.

"We cannot continue running the company at a loss," said Mr Clare, who said the latest price increases should see British Gas "break even" over the full year.

"We need to run a profitable business so that we can invest in bringing more gas into the UK, which will drive down wholesale prices in the longer term."

The losses at British Gas cut Centrica's overall pre-tax profits from £894 million to £569 million in the six months to June 30 - a fall of 36 per cent.

Centrica chief executive Sam Laidlaw, who took over from Sir Roy Gardner this month, said: "Unprecedentedly high wholesale energy costs created difficult trading conditions in the first half and today's price increase is necessary to restore margins."

But critics said the move inflicted yet more misery on the firm's 10.7 million gas customers and 5.8 million electricity customers. British Gas lost 432,000 customers in the first six months of the year, partly due to the March price hike.

Ann Robinson, director of price comparison and switching service uSwitch.com, said: "The public assurances given earlier in the year by British Gas following their record price rises in February have been rendered meaningless to their customers today, as they face further price misery in what has become the annus horribilis for UK households."

Earlier this week, rival EDF Energy said it would charge its customers 19 per cent more for gas and up to 9.1 per cent more for electricity from next Tuesday. Scottish Power imposed similar price rises just over two weeks ago.

The recent hikes represent the latest in three years of misery for households across the UK, which have seen the average gas bill leap almost 80 per cent and the average electricity bill rise more than 50 per cent.

Suppliers have blamed the increases on the soaring cost of wholesale gas in the UK, which has been driven up by record oil prices, the growing reliance on imports and the lack of openness in energy markets on the Continent.

The UK became a net importer of gas at the end of 2004 and now relies on 15 per cent of its supplies from overseas. That is expected to rise to 50 per cent by 2010 and 85 per cent by 2020.

Centrica produces around 20 per cent of the gas it supplies to its British Gas customers - although it aims to increase this to 35 per cent to 40 per cent - so needs to pay market rates for the rest.

Wholesale gas on the market for this winter is now 266 per cent more expensive than it was for the winter of 2002 to 2003.

Last month, outgoing Centrica boss Sir Roy branded the European energy market "dysfunctional" and called for reform.

Today, Steve Bloomfield, national officer of public service union Unison, said: "It is very disappointing to hear of the continued losses being faced by British Gas.

"They are almost entirely caused by a dysfunctional energy market that has led to the highest levels of wholesale gas price increases in living memory.

"But the biggest losers will be low-income households. Although the winter rebate will help, this latest price hike is likely to push many families into greater debt."

Mr Clare warned of a further 20 per cent rise in the cost of wholesale gas by the end of the year but said such an increase was accounted for in today's price hike.

"We hope there will be no further increases in prices but it depends on the cost of wholesale gas," he said.

The lack of gas flowing into the UK from Europe last winter prompted UK regulator Ofgem and the European Commission to act to open up the energy markets on the Continent.

Mr Clare said: "Our hope was that we would see wholesale prices start to fall, partly because of the European Commission's activities - and they have been quite active - but we have not yet seen the results come through.

"The anxiety over Europe is still there as it was last year and as a result we have seen wholesale gas prices remain stubbornly high.

"We cannot carry on operating at a loss and if it is clear that wholesale prices are continuing to move away from us we have to increase energy bills."