British Gas has raised electricity prices by 12.5% in a move consumer experts warned could kick off a new round of price rises from rival suppliers this winter.
The company, owned by Centrica, left its gas prices unchanged, which means the average annual dual fuel bill will rise by 7.3%, or £76, to £1,120. The increase, which takes effect on 15 September, will affect 3.1 million customers. The company said it would give a £76 credit to more than 200,000 vulnerable customers to protect them from the increase.
The government expressed concern about the rise, which they said should not be blamed on government policy, and said they were not ruling out future steps to “increase fairness for customers.”
A spokesperson for the Department of Business, Energy and Industrial Strategy (BEIS) said: “Energy firms should treat all their customers fairly and we’re concerned this price rise will hit many people already on poor-value tariffs. Government policy costs make up a relatively small proportion of household energy bills. Wholesale prices are the bigger portion of household bills and are coming down.
“We are not ruling anything out – whether it is action by the regulator or legislation – to increase fairness for customers.”
Shadow energy minister Alan Whitehead called it a “whopping rise” and said the government should take further action.
“There was an agreement coming into the election that there should be a price cap operating across the market and action should be taken on the standard variable tariffs that so many customers are on. Unfortunately the government has changed their minds about that now and we want to press them to change their minds,” the Labour MP told BBC Radio 4’s Today programme.
The chief executive of Citizens Advice, Gillian Guy, said: “British Gas has in recent years been offering one of the less expensive standard variable tariffs from a larger firm, but today’s price rise will close this gap and hit longstanding customers hardest. This price rise has been issued despite costs for energy firms dropping in recent months.”
Iain Conn, Centrica’s chief executive, defended the move, saying the electricity price rise was the first since November 2013 and reflected a 16% rise in the cost of energy and delivery to customers’ homes since 2014.
“We haven’t taken the decision lightly,” he said on Sky News. “We realise that 3.1 miilon people are affected. I should stress that just over 5 million customers are unaffected by today’s news. In the end we’ve had to respond, like many of our competitors, to the underlying increases we’ve seen in electricity.”
Martin Lewis, the founder of website MoneySavingExpert, said the move was a catch-up price rise from British Gas and might prompt another batch of rises this winter.
Previous price freezes by British Gas had lulled customers into a “false sense of security that it wouldn’t move prices”, Lewis said, which meant consumers did nothing, “when they could have cut their rate and locked that in for longer by actively picking a far cheaper one-year fixed energy tariff.” He added that the cheapest tariffs on the market were £844.
News of the price rise came as Centrica reported an adjusted profit before tax of £639m for the six months to June, down from £688m a year earlier.
Conn, who was handed a pay rise of nearly 40% last year, taking his remuneration package to £4.15m, said: “Centrica delivered a solid first-half financial performance despite reduced energy demand due to warm weather and strong competitive pressures, and we remain on track to achieve the 2017 targets we set out in February.”
Households are missing out on the cheapest tariffs by not switching suppliers. Although the number of people switching rose by 30% last year, around two-thirds of bill payers are still on the worst-value standard tariffs. Trials are under way on how to encourage people to switch.
Hannah Maundrell, editor in chief of money.co.uk, said: “I’m worried the Conservatives’ promise to ‘end unfair practices in the energy market’ will make people think they don’t need to switch. They do. There is no guarantee when and if anything will be done, so it’s not worth wasting money while you wait.
“Switching energy deals could help you to save now and protect you against hikes in the near future. There’s no point sticking with the same supplier when you could pay hundreds less for exactly the same service elsewhere.”