Leader: Energy companies need to get real

BRITISH Gas blames higher wholesale costs for the latest swingeing price increases - 18 per cent for gas and 16 per cent for electricity.

Given their scale, a more credible explanation is surely owed. The latest increases take the rise in the bills of British Gas customers to 258 or 25 per cent within a year, and must raise serious questions over the ability of many to cope.

The formal explanation has also been challenged by Customer Focus, which points out that while wholesale costs have gone up they are still around a third lower than their 2008 peak. Yet over the same period British Gas prices have risen by around 44 per cent on gas and 21 per cent on electricity. Such is the intensifying squeeze on budgets being suffered by millions of households across Britain, it is quite unrealistic for the energy companies to expect that price rises of this magnitude can be passed on without a significant impact on domestic consumption - and on revenues.

The company maintains it is investing in future energy supply in the UK and after these price increases, "we will be making a fair return". But the definition of fairness varies with the business and economic environment in which firms operate. In any competitive market consumers also have an influence on prices. British Gas does not have an automatic entitlement to ever-rising profits and needs to show it is making every effort to minimise the impact of wholesale rises through cost savings and efficiencies. If it passes on such increases, it must also be braced for the reaction from millions of customers on whom it depends.