British Gas has cut prices by 5% just days after a financial regulator accused the big six energy suppliers of amassing £1.2bn of excess profits in the five years to 2013.
The company said the reduction in gas bills from 27 August would benefit nearly 7 million customers, but critics argued the cuts were not as deep as they should have been and noted that electricity prices were left untouched.
The move by British Gas follows strong criticism in a major report on the industry from the Competition and Markets Authority (CMA) earlier in July, while new energy secretary Amber Rudd has also called on suppliers to pass on falls seen in wholesale power prices. Wholesale gas prices are down more than 20% on the levels of a year ago.
Mark Hodges, British Gas managing director, said wholesale costs were only one consideration.
“There are a range of costs that make up energy bills, some decreasing and others increasing. This reduction reflects our lower projected total costs for 2015 and 2016 and we’re pleased that customers will see the benefits in their gas bills ahead of next winter.”
British Gas had already made a similar cut earlier in the year, as did other energy suppliers. However, Joe Malinowski – of price comparison website theenergyshop.com – said the latest reduction was “long overdue”, and British Gas should have reduced prices by a further £70.
“Wholesale energy prices at the start of the year indicated that retail prices should be around £140 lower, but the first round of cuts in January were more like £30,” he said.
British Gas’s standard prices will drop to a typical £1,121, but supermarket Sainbury’s is charging a typical £930 a year. The Sainsbury’s tariff is supplied by British Gas. “It is anomalies like that that mean this whole energy market makes no sense,” said Malinowski.
Ofgem, the energy regulator that also came in for ferocious criticism from the CMA, pointed out that householders could save up to £200 more a year by switching to even lower cost providers.
The CMA has recommended a range of reforms to make the energy markets work better for customers, including a plan to cap all prices for a while.
Hodges said he welcomed the regulator’s review, but warned there was a danger that price caps might lead to “unintended consequences” – including creating less competition, not more.
The move by British Gas is expected to be followed by some of its big six rivals, while the issue of who to blame for high prices and low capacity is moves up the political agenda.
