FUEL bills for millions of householders will rise by more than four times the rate of inflation as a decade of cheap energy prices came to an abrupt end yesterday.
British Gas, Britain’s largest gas and electricity supplier, announced its highest increase since customers were allowed to switch suppliers in 1996.
The increase, which triggered demands for an investigation into gas markets, comes after soaring petrol prices, a 7 per cent increase in water bills due next year, and rising mortgage interest rates and council tax bills.
Rising energy costs will put a heavy burden on pensioners and low-income families and will put pressure on Gordon Brown to devise some help for pensioners and poorer families in his Pre-Budget Report in November. The Chancellor has deferred an increase in duty on petrol and diesel until November.
British Gas, which supplies more than 18 million customers, said that gas prices would rise by 12.4 per cent and electricity by 9.4 per cent from September 20.
This is British Gas’s second price increase this year and means that a typical family will pay £145 more than last year for gas and electricity. Next month’s rise works out at an extra 13p a day for gas and 7p for electricity. British Gas blamed soaring wholesale energy prices and record oil prices for the increase.
The depletion of the North and Irish Sea gas reserves, which will see Britain become dependent on gas imports from next year, is pushing up wholesale prices. It is expected that Britain will have to import 75 per cent of its gas needs by 2015.
Wholesale prices for next winter are now 50 per cent higher than in 2003 and other companies are expected to follow British Gas’s lead.
“The era of cheap energy is over,” Mark Clare, managing director of British Gas, said.
Allan Asher, chief executive of Energywatch, the consumer watchdog, called the increase a body blow to consumers. “This price rise is going to add millions to bills and expose many thousands of households to the risk of fuel poverty,” he said.
Stephen O’Brien, the Shadow Industry Secretary, demanded an explanation for the scale of the rises. “Consumers will want to know why these prices are rising by such a sharp amount,” he said. “The public can have no confidence that rising prices will result in better energy services in the future, given the irresponsible absence of a long-term national energy strategy from this Government.”
Vincent Cable, the Liberal Democrat Treasury spokesman, said: “It is inevitable that energy prices will rise because of the shock experienced through higher oil and gas prices globally.
“The unfortunate consequence is the added pressure on the Bank of England to increase interest rates to combat inflation.”
British Gas’s increases have been matched by rival suppliers, including EDF Energy, Scottish & Southern and Powergen. Npower is reviewing domestic prices.
However, there are suspicions that wholesale price rises have been manipulated by some gas shippers. Energywatch has called for an urgent investigation by the Competition Commission.
“It is no surprise that British Gas has responded to the rising wholesale cost of gas. But it is by no means clear why the wholesale price is so high,” it said.
Martin O’Neill, chairman of the Commons Trade and Industry Committee, said that if prices stabilised at this level, his committee would probably investigate the energy market.
He told The Times: “It has been clear for some time that energy prices were going to go up. Whether they need to go up by this margin remains to be seen.
“I think that we need to break the link between gas prices and petrol prices. They are not the same markets and government action at an international level is required.”
Concerns over the ability of the elderly to pay rising bills are reflected in British Gas’s decision to cap increases for pensioners until 2007. Customers aged over 60 who are receiving pension credits can have their bills capped at this year’s prices.
PRICE RISES SINCE JANUARY
EDF electricity 10.5%; gas 8.1%
ScottishPower electricity 5%; gas 5%
Scottish & Southern electricity 4%; gas 8.9%
British Gas electricity 15.3%; gas 18.3%
Brent crude oil 40%
* from April 2005