Page last updated at 11:04 GMT, Thursday, 4 February 2010

British Gas cuts gas prices by 7%

Phil Bentley from British Gas and's Mark Todd on the price cut

British Gas has announced it is cutting standard household gas prices by an average of 7%, with immediate effect.

The price cut, which the company says will benefit eight million households, will save the average customer £55 a year, British Gas said.

This is the third price cut that the company has implemented in the past 12 months, it added.

Energy suppliers have been criticised for not passing on cuts in wholesale oil and gas prices to customers.

Wholesale gas prices dropped sharply from February 2009, and domestic prices dropped in the spring.

Cold weather

Fears have been raised over the cost of energy, especially for the most vulnerable, during the recent cold spell.

Now that British Gas has made the move, other suppliers will be under pressure to follow suit
Ann Robinson, Uswitch

"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," the company said.

"This latest price cut means that, no matter where you live in Britain, British Gas is offering, on average, the cheapest standard gas, electricity and dual fuel prices - beating all other major suppliers."

After pressures from the regulator and consumer groups, the company also said it had removed the price differential for pre-payment gas meters, meaning pre-pay customers now pay, on average, the same for their energy as those who pay by cash or cheque.

The price cuts are taken as an average, with customers benefiting to a different degree depending on where they live in the UK and what price plan they are on. Electricity prices are unchanged.

The cheapest online dual-fuel tariff from British Gas has now fallen to £899.

Following suit?

The average household bill for a dual-fuel British Gas customer will now drop from £1,202 to £1,147, according to price comparison website Uswitch.

"Now that British Gas has made the move, other suppliers will be under pressure to follow suit. But this is by no means a guarantee of further cuts," said Ann Robinson, of Uswitch.

The other five major suppliers of gas to UK domestic customers told the BBC that they were monitoring the market.

John McShane, of energy consultancy Saturn Energy, said: "The big six energy suppliers had been playing poker with people's energy bills, refusing to pass on cuts despite falling wholesale gas prices.

"This spells good news for households and businesses, who have faced rapidly rising energy bills over the past two years. However, this could well be short-lived, as we are expecting energy price rises in the longer term as the economy recovers."

Wholesale prices

Energy suppliers have come under increasing pressure to drop the cost of bills, following falls in wholesale prices. This came after wholesale prices were blamed for the record 35% rise in gas bills by British Gas in July 2008.

Gas prices graph

Domestic prices have remained relatively static. Defending the lack of price cuts earlier, a British Gas spokesman said that other costs had risen.

These included transport and distribution costs, and the government's "green levy" that had risen by 18% in the last year.

Energy regulator Ofgem has found that the energy companies' prices have generally followed the pattern of wholesale prices, pointing out that the suppliers buy gas well in advance of it being used in our homes.

On Wednesday, Ofgem raised the possibility of a 25% rise in domestic energy bills in mainland Britain in the next 10 years, owing to the investment needed to cover energy shortages.

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