Customers, Finance and investment

Supplier announces first price hike in over three years blaming increasing input costs

British Gas has announced a 12.5 per cent increase in electricity prices, in a controversial move which will take effect in mid-September.

Shadow energy minister Alan Whitehead described the increase as “whopping”, adding that it “doesn’t appear to be justifiable”.

The average annual dual fuel bill for a typical household on a standard varaible tariff (SVT) is to rise by £76 to £1120, an increase of 7.3 per cent. It is the first time the British Gas SVT has been increased since November 2013.

Overall, 3.1 million customers will be affected by the hike, leaving 5.3 million who will escape any uptick in electricity bills.

Revealing the tariff change, British Gas promised it will protect its most vulnerable customers from price increases. Its 200,000 (SVT) customers who automatically receive the Warm Home Discount, will be credited with £76 into their accounts.

Despite the price rise, British Gas insisted the company remains one of the most competitive energy retail companies in the UK. It has cut standard rate prices four times, reflecting past reductions in wholesale costs, since its last price hike.

The new price rise was blamed by British Gas on increasing government and environmental input costs. Iain Conn, chief executive of British Gas parent company Centrica said these costs ought to be more evenly distributed among energy retailers to create a more level playing field for all suppliers. Currently, smaller suppliers are exempt from contributing towards some policy costs, like the Energy Company Obligation.

Over the past year and a half, British Gas claimed the increasing cost of energy supply had resulted in it selling electricity at a loss, and that profit margins have been borderline for a longer period of two and a half years.

Conn explained: “We have been selling electricity at a loss, due to transmission and distribution costs associated with feed in tariffs, renewable energy, and the smart meter roll out programme alongside the Data and Communications Centre.”

He continued: “We were always very competitive, so we need to restore the balance with these losses. Nobody is trying to apportion blame, but we are recouping the losses through bills rather than general taxation.”

Conn also recommended that plans for an energy price cap should be scrapped in favour of discontinuing standard variable tariffs in order to address problems with customer engagement and rewarding loyalty.

The confirmation of the British Gas price rise came on the same day as its interim annual results which revealed a drop in rofits and earnings for the Centrica Group but steady perfomance across its customer facing business compared to the first half of 2016.

The hike drew fire from politicians and consumer groups.

Alex Neill, managing director of home products and services at consumer body Which?, said: “Hard-pressed consumers waiting to see how the Government will tackle costly standard variable tariffs will be disappointed to see prices rising.”

She advised: “Customers concerned about their tariff should switch to a fixed price deal now, and the government should rapidly set out how it intends to make this market work better for consumers.”

Shadow chancellor John McDonnel told the BBC that British Gas’s price rise amounted to extortion at a time “when peoples’ wages are being cut or frozen and people are struggling.”

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