Rising wholesale oil and gas prices finally impact British Gas customers

  • Increase delayed for around 340,000 vulnerable customers on Essentials tariff until the end of winter
  • 2.4m customers on fixed-term tariffs to receive no increase at all
  • New fixed price product available to offer price certainty for customers
  • British Gas - the first energy supplier to offer free insulation to anyone over 70
  • £7 in every £10 spent (by all UK energy suppliers) on vulnerable customer initiatives comes from British Gas1
  • Retail electricity and gas prices will each increase by 15 per cent 

British Gas today announced an increase to its tariffs for domestic gas and electricity on the back of rises in wholesale gas and electricity markets driven up by escalating energy prices in the second half of 2007.

In the last six months of 2007, higher wholesale gas prices have reduced British Gas operating margins to around 1 per cent and at current wholesale prices would be loss making in 2008 without the increase. As a result, and with immediate effect, British Gas electricity and gas retail prices will each increase by 15 per cent2.

The price increase will not apply to around 340,000 customers on the British Gas social tariff, Essentials, until spring 20083 and 2.4 million customers on fixed term products will not be affected at this time4.

Since British Gas reduced its retail gas prices by 20 per cent in the spring of 20075, wholesale energy prices have risen sharply and the forward gas price for 2008 has increased by 51 per cent, and the forward electricity prices by 61 per cent6.

Further cost pressures are also affecting UK energy suppliers. The price charged to British Gas to transport and distribute energy will rise by 7 per cent in 2008 and the Government's targets for renewable electricity generation and carbon emissions reduction are an increasing obligation. Combined, these now make up £264 each year of an average household energy bill7. Even after today's increase our prices for an average customer will be 6 per cent (£64) cheaper than 2006 prices8.

Phil Bentley, Managing Director, British Gas, said: "As the UK's biggest buyer of gas, we want lower gas prices. However, lower availability of supplies from both the UK and the Continent coupled with higher global oil prices have forced up wholesale prices. We can't absorb the burden of these higher energy prices and the costs of delivering a cleaner environment. As Britain's greenest electricity supplier9, we are investing in further lowering our carbon emissions. However, this also comes at an increasing cost for all. Ultimately, the best way of reducing energy bills is to make our homes more energy efficient."

British Gas also called for faster progress on liberalising energy markets in Continental Europe to help break the historic link between gas prices and oil prices and provide greater long-term price stability to the UK energy market. 

Phil Bentley added: "Our energy market is now part of a much bigger picture. The UK gas market is competitive but is now fully linked to Continental Europe where the gas market is less competitive and prices are linked to oil prices. As oil prices have increased, so has the cost of gas across Europe, and this has hit the UK."
To help reduce the impact of rising costs and address emissions from homes, British Gas is rolling out a new free insulation programme. Under the new CERT scheme, from January 2008 British Gas is offering to insulate any UK home belonging to someone who is over 70 years old at no cost to the householder. The ‘no means testing' approach to the scheme could see up to 1.7 million homes receiving free roof and cavity wall insulation.       

To offer further help for up to 25,000 of its most vulnerable customers, British Gas has also launched a Winter Protection Package, called Winter Warmer, which includes a credit of up to £90 rebate and free insulation. It is also investing a further £13.45 million in the British Gas Energy Trust over the next four years, which helps consumers with debt problems - taking the total committed to the Trust to £21.3 million since 2004.

A new report from energywatch this week found that: "British Gas has and will have made the most significant voluntary commitment to measures to reduce the impact of fuel bills on its vulnerable customers." The report concluded that British Gas' financial commitment to helping its vulnerable customers was "nearing double the level that would be expected from its market share"10.