British Gas rise may help to end standard energy tariffs

Credit: Tom Gowanlock/Shutterstock.com

The move will see customers on standard variable tariffs (SVTs) pay £76 more per year for their electricity, bringing their total annual bill for electricity and gas to £1120, an increase of 7%.

However, British Gas have moved to shield their more vulnerable customers from the rise, with the energy provider promising to credit £76 to the 200,000 customers receiving the Warm Home Discount (WHD) from them.

And in further moves to deflect any ill will for the rise away from them, British Gas have not only blamed the increase on elevated energy distribution costs and Government policy, but have even vowed to work with Ofgem in phasing out SVTs.

Still the cheapest of the Big Six

For a while, British Gas were unique among the Big Six energy providers insofar as they vowed to freeze their energy prices until August, when the other five major providers introduced increases over the spring.

Yet as "a price freeze until August" implies, energy prices were likely to rise soon after, and British Gas have confirmed this suspicion by announcing their rise.

While they've announced an electricity rise of 12.5% from September 15th, they will be keeping their gas prices where they are, something they state makes them "one of the cheapest in the dual fuel standard tariff market".

Source: Ofgem; Big Six energy suppliers

As the table above reveals, their claim is indeed true when it comes to the Big Six, yet this won't stop the price rise from weighing on the finances of many households.

It comes soon after Ofgem's proposal of a "safeguard tariff", which would potentially cap SVT prices for those customers eligible for the Warm Home Discount.

It also comes after several months during which the Government made a (now abandoned) pledge to introduce a price cap for all customers on SVTs, which can be over £200 more expensive per year than fixed tariffs.

And if things weren't already stacked heavily enough against high energy bills, British Gas' increase also follows Citizens Advice's call for every energy customer in the country to receive a £285, owing to how energy distribution networks (such as the National Grid) had reportedly made £7.5 billion more in profits over an eight year period than was justified.

Warm Home Discount customers

It's as if British Gas were more than well aware of the anti-SVT feeling in the UK, since their price rise has come accompanied by their promise to provide a refund for it to all those customers who receive the WHD.

Commenting on this, the CEO of Centrica Consumer, Mark Hodges, said, "We also welcome and share Ofgem's focus on vulnerable customers. That is why we have decided to give a special credit this winter to the most vulnerable British Gas customers, protecting them from the impact of this price increase".

Still, their attempts at a partial compromise weren't unreservedly welcomed.

For example, Citizens Advice's Gillian Guy said, "This price rise has been issued despite costs for energy firms dropping in recent months".

Unsurprisingly, such claims were disputed by British Gas, with Mark Hodges claiming that the "rise reflects an underlying increase in policy and transmission costs".

The end of SVTs?

This defence, however, is questionable.

For one, the graph below shows that the contribution of Government policy to the cost of bills has been decreasing in recent years, moving from £109 in 2013 to £86 in 2015, when Ofgem last took data.

Source: Ofgem

As for transmission costs, this is a fraught issue, with Citizens Advice recently saying that they've been too high in recent years. Nonetheless, Ofgem have affirmed that network costs have decreased by 17% over the past 30 years, and that they're likely to decrease by another 17% by 2020

In other words, even if transmission costs are still too high, their general trend is downwards rather than upwards, so it seems dubious on the part of British Gas to blame the SVT rise on them.

Yet if nothing else, the weakness of their defence may end up being positive in the long run, simply because it will improve the case for imposing price controls on SVTs, or perhaps for providers doing more to move customers away from them.

Indeed, as Mark Hodges himself says, British Gas are willing to look at the possibility of "phasing out the standard variable tariff", so their bill hike may in fact emerge as one of the important first steps on the road to discontinuing SVTs.