According to the Gas Consumers Council (GCC), the poorest consumers will suffer the most. The council claims a document on the future of the gas market has been held back by ministers because of fears that it could damage Tory prospects in this week's local elections.
Ian Powe, the director of the GCC, said: 'The Government will be ridiculed if the price of competition turns out to be higher gas bills for low income families hardest hit by VAT.' VAT on domestic fuel was introduced at 8 per cent last month.
There has been speculation that once competition is allowed, gas bills for some customers will rise by about 18 per cent. British Gas would not comment on the potential for price increases. However one industry source said: 'There will be winners and losers. Competition by its nature dictates that.'
The consultative document, now expected next week, is intended to set out the way in which competition might be introduced into the gas market.
At present companies other than British Gas can supply only those consumers using more than 2,500 therms a year - mainly businesses. The Government has said it wants competition for all gas consumers to be phased in between 1996 and 1998. Rivals to British Gas, including electricity companies and North Sea producers, are keen to break into the market for household gas.
According to British Gas, the prices paid by smaller customers - those using fewer than 600 therms - do not reflect the cost of supplying gas to them. The company claims to break even when a customer buys 600 therms annually and says that the 10 million domestic customers using less than that are being subsidised by eight million who use more. It is expected that one effect of opening the market to free competition will be a move to cost-related pricing so that those 10 million smaller users could end up paying more.
The Gas Consumers Council is also concerned that the Government will allow gas prices to vary according to where the consumers live. The council has warned MPs in south-west England and Wales that their constituents may suffer because they are a long way from where gas is landed on the North Sea coast. Prices could be 4 per cent higher than in, say, East Anglia.
Ofgas, the gas regulator, has said that it does not want to see sudden changes in prices. But at the same time Clare Spottiswoode, the director general of Ofgas, said that she wanted a 'level playing field' to apply to all gas companies, including British Gas.
Last week British Gas called on the Government not to allow its rivals to 'cherry pick' the most lucrative customers, leaving it with an obligation to supply the rest.Reuse content