Consumers will keep feeling the heat of energy price rises

Published on Friday 1 August 2008 10:39

WITH petrol prices continuing to rise, the cost of food soaring and interest rates forecast to climb before the year is out, consumers are finding their pay packet is not stretching quite as far as it did only a few months ago.

The last thing that anybody feeling the pinch wanted was for another big rise in their energy bills at a time when they are going to feel it more than ever before.

While the combined effect of a number of rises in gas and electricity prices in recent years has already been taking its toll, there will be few customers of Scottish Gas who will not feel the pressure on their wallets from the latest record-breaking price rise announced this week.

While many customers of the company may have spent yesterday and today arranging to switch to another provider in order to avoid the rise, it will prove largely pointless – prices will rise whichever company's name is on your bill, it is only a matter of time until more price rise announcements come.

Almost every time an energy company announces a price rise, all of its rivals invariably follow suit. They are, after all, putting up prices for the same reasons and, the companies argue, they cannot survive without raising prices.

EDF Energy got the ball rolling last Friday with a 17 per cent rise in electricity prices and 22 per cent rise for gas bills.

But the Scottish Gas rise blew that out of the water – with gas customers preparing for bills to rise by more than a third as electricity users face a nine per cent hike.

The average dual fuel user will now face paying 405 more every year for their power.

When added to the company's rise earlier this year, it means that the average dual fuel user on a Scottish Gas standard plan will now be paying 44 per cent more than they were at the turn of the year.

EDF customers are paying 34 per cent more but there is now a fear among consumer groups that British Gas has set the benchmark.

That has led Age Concern to express fears that lives could be put at risk as elderly people avoid putting on the heating for the fear of raking up huge bills.

Yet fuel poverty is more widespread than may be expected – and is certainly not restricted to the elderly.

Before the Centrica price rise, around 700,000 households in Scotland were in what is described as 'fuel poverty' – where at least ten per cent of the household disposable income is spent on energy.

But the latest price rise is expected to make another 160,000 households fall into that category.

It would mean that a third of all households in Scotland will be in fuel poverty – and that will rise once the other four providers raise prices.

Graham Kerr, a spokesman for Energywatch Scotland, said: "If the companies keep going on like this we could have almost half of all households in Scotland being fuel poor. This will already take us uncomfortably past one-third of all households being fuel poor and, if it keeps rising, it will only get worse.

"We thought the rise might be high, something like 17 per cent, but British Gas blew that out of the water."

The 35 per cent rise in gas prices and nine per cent in electricity announced by Centrica was much bigger than previously expected and leaves a strong possibility that some firms may go even further and raise prices by more than 40 per cent.

Former justice minister Cathy Jamieson, one of the favourites to become the leader of Scottish Labour, urged the Chancellor to consider a windfall tax on energy companies in order to try to help fight rising energy bills.

"The energy companies need to be given a choice," she said. "Either they stop these price rises now or they should expect tough action against them.

"The Chancellor of the Exchequer should make it clear that unless we see these companies show some decency then he should be prepared to introduce a windfall tax and then use that money to reduce people's energy bills." She also called on the Scottish Government to act "instead of carping from the sidelines".

Customers who started paying the new rates yesterday were most likely surprised by the timing of Centrica's latest profits announcement, which showed that it made 992 million in the first six months of the year and is to increase the dividend paid to shareholders by 16 per cent to 144m. However, the firm's profits were 19 per cent down on the same period last year and British Gas saw profits fall 69 per cent to 166m amid record wholesale costs.

British Gas managing director Phil Bentley has said energy companies have now entered a period of "unprecedented" world energy prices that can no longer be absorbed by the companies.

The Energy Retailers Association's outgoing chief executive Duncan Sedgwick has called for the government to share more information about customers with firms to allow them to target their fuel poverty aid.

Gas and electricity is an essential commodity and many consumers will only use it when it is necessary. There are fears that the latest round of price rises could force them to cut back too far – with potentially severe consequences.