Jeff Salway: Uniform energy price hikes make powerful case for sector reform

THE only thing more inevitable than Scottish & Southern Energy's price hike was the scale of it.

ScottishPower set the tone when it raised electricity and gas prices by 19 and 10 per cent respectively from next month. British Gas dutifully followed up with increases of 18 and 16 per cent and, by a strange coincidence, SSE is raising electricity and gas prices by 11 and 18 per cent, respectively.

It's safe to say that we won't be offering prizes for the most accurate price change forecast ahead of the next increases, expected soon from EDF, Eon and npower.

The big six energy suppliers have rejected accusations of a pack mentality, insisting there is nothing of the cabal about the way in which they operate. The current series of increases undermines that argument somewhat.

You might assume the rises are so similar because the suppliers are all responding to the same increase in wholesale gas prices. Except they don't all pay the same for their supply and in some cases there are significant differences in the prices they pay - which makes the uniformity of the increases quite bizarre.

The energy regulator has made promising noises about cracking down on the big six suppliers in recent months and progress has been made. However, the events of recent weeks - not only the price increases, but further evidence of doorstep mis-selling and the absurd range of tariffs that is deterring many people from making a switch - remind us that the energy market is in drastic need of reform.

For nearly three years, thousands of homeowners across the UK have been comforted during hard times by the knowledge that their mortgage costs have hit rock-bottom.

Those on tracker rates, in particular, have saved thousands and had the chance to pay down their mortgage at a much faster rate. At a time when jobs are being cut, wages trimmed, benefits slashed and household and fuel bills hiked, those low repayments have, for many, been a huge silver lining. But research suggests that those savings are being wiped out. The combination of rising fuel and energy prices has almost entirely offset the low mortgage payments from which many are benefiting, according to a report by Capital Economics.

The average mortgage balance was about 95,000 in September 2008, just before interest rates began falling. Lower interest rates have slashed monthly repayments by an average of 125 a month in that time, a saving that has been almost wiped out by rising bills. When the retail prices index measure of inflation - which excludes mortgage repayments - is factored into earnings, just 30 of the mortgage payment savings remain, Capital Economics estimates.And the gap will continue narrowing as earnings rise below inflation and household bills keep going up, with the benefit of lower loan repayments eclipsed by mid-2012, it predicts.

All this suggests that the theory that low interest rates are helping to prevent steeper house price falls - by keeping a lid on the level of forced sales - may not stand scrutiny for much longer. Few people believe house prices will rise again this year and already there's enough evidence to suggest 2012 may also be too early for a recovery.

Consumer confidence continues to plummet, according to the latest research, with little optimism over the economic outlook. Hardly surprising, given the government's knuckle-headed refusal to respond to the obvious need for a change in tack. It points to inflation and the fact that much of it is due to factors out of its control.

But Chancellor George Osborne's continued rejection of a VAT tweak seems rash and premature. The slump in consumer confidence since the January VAT increase to 20 per cent and the subsequent havoc wreaked on the high street, with retailers going bust at an alarming rate, are compelling reasons for a U-turn - not something this shambolic government has been averse to on other issues.

Research by the British Retail Consortium found that raising VAT to 20 per cent would cost 163,000 jobs over four years and slash consumer spending by 3.6 billion in the same period. That research was conducted last year, before energy and fuel costs started rising at a faster rate than anyone had anticipated. The government has remained stubborn in the face of calls for economic stimulus, but it can't ignore the alarm bells any longer.