British Gas announces biggest ever price hike

Following hot on the heels of EDF, British Gas yesterday became the second energy company in a week to announce a major increase in domestic gas and electricity prices, blaming soaring wholesale prices for the move.

The company said that electricity prices would increase by nine per cent, while the price of gas would rise by 35 per cent. It claimed that its average dual-fuel domestic customer would see annual bills climb from £913 to £1,317.

The announcement, which came just hours ahead of parent company Centrica's confirmation that it had recorded profits of £880m for the first half of the year, was roundly condemned by consumer groups. But British Gas insisted that the price hike was a necessary result of soaring wholesale prices, which have seen the price of gas for the coming winter climb 89 per cent compared to last year, while electricity prices have risen 72 per cent over the same period.

The company said profits for its residential division were down 69 per cent during the first half of the year as a direct result of the climbing wholesale prices.

British Gas managing director, Phil Bentley, insisted that the company had to protect its margins to fund investment in new, cleaner energy infrastructure. " British Gas leads the industry in securing new sources of energy for the UK, from bringing in new gas supplies and building the world’s largest offshore wind farm, to completing the first modern power station to be built in the UK for eight years," he said. "However, these investments cost billions of pounds and we cannot sell energy at a huge loss."

He added that the only way for customers to combat the rising prices was through a greater focus on energy-saving measures. "The simple fact… is that we have entered an era of unprecedented high world energy prices," he explained. " The only answer to cope with higher energy prices, I'm afraid, is for all of us to be more energy efficient and we will be contacting all British Gas customers to show how they can save energy to try and offset these price rises."

The company operates a range of initiatives designed to help customers enhance their energy efficiency that will see it invest £900m over the next three years in energy-saving measures such as insulation.

The price hike will feed speculation that business customers can expect to see similar increases in energy costs.

Business customers tend to be locked into longer term contracts that mean they are not directly affected by increases in domestic energy tariffs, but experts have warned that rising wholesale prices will have an impact when those contracts come to be renegotiated.

Speaking earlier this month, following the publication of a report predicting energy prices could rise by 60 per cent over the next four months, a spokesman for British Gas admitted that if "we see wholesale prices keep going north, it will have an impact on business bills in a similar vein to the impact it will have on domestic prices".

In related news, Paul Bettison, chairman of the Local Government Association's Environment Board, yesterday called for an overhaul of the way energy efficiency initiatives were funded.

Writing in the Guardian, Bettison called for an annual charge of £500m for the next five years against the energy companies to fund councils' efforts to insulate half the homes in the UK.

"You and I already pay an extra £33 towards our fuel bills to fund home insulation schemes run by utility companies," he wrote. "What we are arguing is that the suppliers should match these contributions pound for pound out of their profits. Councils should lead this programme to tackle the pitfalls of existing schemes because local authorities would ensure a more efficient method of carrying out the work, greater accountability, and a better chance of encouraging householders to take part."