Page last updated at 15:46 GMT, Wednesday, 30 July 2008 16:46 UK

Record rise for British Gas bills

Centrica Boss Phil Bentley defends gas prices rises

British Gas owner Centrica says it is raising gas prices by a record 35% and electricity prices by 9%.

The UK's biggest domestic energy supplier said that the price hikes would take place with immediate effect.

It blamed "soaring wholesale energy prices", but added that standard tariff prices would not rise again in 2008.

The move comes just a few days after rival EDF Energy put up gas prices by 22% and electricity prices by 17%, with other firms expected to follow suit.

Watchdog Energywatch said it believed the 35% gas bill rise was the biggest single increase in the price of a utility seen to date.

Graph showing price rises

British Gas, which has 15.9 million customers, also announced that its profits for the first half of the year were down by 69% to 166m.

Centrica said the average dual fuel bill for a British Gas customer would go up by 25% - putting the average household bill at about 1,240. This is the second increase this year, after a 15% rise in bills in January.

"We very much regret that we have had to make this decision at a time when many household budgets are already under pressure," said British Gas managing director Phil Bentley.

"The simple fact though is that we have entered an era of unprecedented high world energy prices."

Average direct debit from 968 to 1,240
Average standard credit from 1,055 to 1,317
Average pre-paid meter from 1,144 to 1,383
Source: British Gas, figures are based on a medium usage customer

A report prepared for Centrica earlier this month warned that annual average gas bills could rise from 600 to more than 1,000 early in the next decade.

Centrica said that wholesale gas prices in the coming winter would be up 89% on the previous winter.

It added that the UK was suffering from diminishing gas reserves, and estimated that the UK would import 40% of its gas this year compared with 27% last year.

The price of gas has risen in recent months as it is linked to the cost of oil, although oil prices have started to fall again in recent weeks. Energywatch described the link as "absurd".

Fuel poverty

The move will heighten concern about rising levels of fuel poverty - defined as when a household spends more than 10% of its income on fuel bills.

This is just profiteering from BG. How can they justify raising their prices by such an exorbitant amount again?
Mike, London

Adam Scorer, of Energywatch, said this had become the most pressing issue for the government.

"People will be in fear of the winter," he said.

He said the 35% rise was "without precedent" and many customers would react with disbelief to the price increase.

But British Gas's Mr Bentley told the BBC that the firm would be working hard with its poorest customers to ensure their homes were energy efficient.

Average direct debit from 588 to 834
Average standard credit from 656 to 882
Average pre-paid meter from 712 to 923
Source: British Gas

The 340,000 customers on the Essentials account, aimed at low-income groups, will have prices frozen until April 2009.

Tim Wolfenden, head of home services at price comparison website, said that for everyone else the major jolt would come in March when bills landed after winter gas use.

Inflation effect

The price rises will also draw extra attention to Centrica's results which are published on Thursday.

Energy prices line graph over time

British Gas said it was working hard to take costs out of the business and was on target to save 60m this year, but it could not absorb the impact of such high wholesale prices.

Mr Scorer said it people would want to know how British Gas owner Centrica was doing as a gas wholesaler.

And Steve Bloomfield, national officer at Unison, said Centrica had seen huge increases in profits as a producer and retailer of gas.

He said the government should take steps to reform the energy market.

"Customers and staff deserve a fairer deal," he said.

Average direct debit from 394 to 420
Average standard credit from 414 to 460
Average pre-paid meter from 432 to 475
Source: British Gas

Analysts have suggested that the price rises could have a significant effect on inflation.

If all the suppliers raised prices by about the same amount as British Gas it would add just less than 1% to the Consumer Price Index (CPI), which currently stands at 3.8%.

Analysts at Capital Economics and Deutsche Bank said in August, when CPI was already predicted to be 4.1%, it could breach 5% although price falls elsewhere could keep it below 5%.

RPI would increase from 4.6% to 4.8% as the weighting put on energy prices was different, they said.

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