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The big news utilities-wise over the past week is that British Gas has announced an average 7% cut in 'bills' for its household customers – the third cut in energy prices from the company in the past 12 months.
I put 'bills' in inverted commas because the mainstream media would have you think this applies to electricity as well as gas. In fact, it applies to gas bills only.
8 million households to benefit
Nevertheless, the cuts should benefit eight million households given that British Gas is still the biggest gas supplier to the UK market. The company reckons the cut will see its eight million customers each save an average £55 a year and makes the company the UK’s cheapest gas supplier.
Good for the consumer, good for PR
The company didn’t waste the public relations opportunity it created for itself. Phil Bentley, the managing director, said: "At British Gas, we know household budgets are stretched, and that our customers are concerned about the effect the recent cold weather will have on their winter fuel bills.
"I'm pleased we're able to offer our customers some extra help with this gas price cut - and that we're able to do this while it's still winter, allowing our customers to really feel the benefit."
The price cut is an average across all regions of the UK and applies to all paying methods. Those using pre-payment meters will see a slightly bigger reduction than others as the company is removing the price difference between payment methods, largely as the extra levy on pre-payment rates was seen as penalising those having the most difficulty in paying their bills.
There no doubt this is a surprise move given the bitterly cold winter we have been experiencing. The news of the cuts, and British Gas’ warm words, has prompted all sorts of speculation whether its competitors will be forced to follow suit, starting a price war.
The simple answer to that is – don’t count on it!
Although British Gas’ move makes it the cheapest supplier, and follows cuts amounting to 10% last year, these cuts don’t make up for the massive 43% hike in bills we saw it introduce in 2008.
And it comes just at a time when Ofgem, the energy regulator, has issued a report warning that households face "unaffordable" energy bills and power cuts unless urgent action is taken to improve the crumbling state of Britain's power stations and pipelines.
The watchdog says the government may have to take charge of the complete energy market of the UK to avoid a disaster. It claims that without the necessary investment in infrastructure – along with the long-term upward pressure on fuel prices – household utility bills could reach an average £2,000 per year as soon as 2015.
Consumer groups such as Which? have also been clamouring for price cuts for several months on the back of falling wholesale gas and electricity prices.
It might be that British Gas's move is just a clever stunt to deflect the criticism onto the other five big suppliers in the UK market. And it might also help smooth over any furore about the announcement of the 43% hike in profits to £540 million it is to make thanks to wholesale gas prices falling by two-thirds.
Little chance of a price war
So it looks certain that British Gas’ move is largely politically-motivated. And while there will be increased pressure on the other big suppliers - E.ON Energy, EDF Energy, Npower, Scottish Power, Scottish and Southern Energy - to follow suit, there seems little chance of a price war and even less chance that these price cuts will be around for long.
But good news needs to be appreciated and sources close to British Gas say it will cut bills with little delay as in the past the company has come under fire for announcing a price cut to great fanfare only to take two months to implement the lower tariffs.
Who benefits?
According to British Gas, about eight million people will benefit. Customers on tariffs such as OnlineSaver and WebSaver 6 will also benefit, as they are guaranteed a 3% and 6% discount from the standard tariff until next May.
Should you switch now?
If you are on a standard tariff, then you should almost certainly do so as any standard tariff will be considerably more expensive than the much more competitive tariffs all providers offer online.
But don’t make the mistake of automatically switching to British gas. The charges vary from region to region and vary between providers. Yes, these latest cuts might make British Gas the cheapest on average but don’t assume that necessarily applies to you. As always, the advice is to shop around online to secure yourself the best deal.
Use the news of British Gas’ price cuts to remind yourself to do just that!
