British Gas incurs wrath of customers with price hike

London Briefing: website error alerts of price jump and Bank of England warns on debt

British Gas offices in Staines: the looming 12.5 per cent increase is almost five times the rate of inflation. Photograph: Toby Melville
British Gas offices in Staines: the looming 12.5 per cent increase is almost five times the rate of inflation. Photograph: Toby Melville

When an overenthusiastic employee mistakenly posts news of a price hike on the company website the day before it’s due to be announced, you know you’re in for a difficult time.

And so it was for Centrica chief executive Iain Conn, who faced an angry backlash from customers, consumers groups and politicians on Tuesday as he formally announced a hefty 12.5 per cent jump in electricity charges at its British Gas subsidiary from next month.

They’d had plenty of time to fume about the move, as a statement entitled “Why we’ve had to raise electricity prices – our first increase since November 2013” had popped up on the British Gas website on Monday afternoon.

It was clearly a work in progress, as the text read only “blah blah” and it was soon taken down.

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Conn clearly knew he’d need to justify such a large rise. British Gas is Britain’s biggest energy supplier and the increase is almost five times the rate of inflation. Some 3.1 million customers will be affected, with their bills rising by £76 a year, taking them to £1,120 for those on a standard tariff.

Not that Conn needs to worry. He received a pay rise of £1 million last year, taking his package to more than £4 million. He attempted to defend the price rise, saying British Gas had held off raising its rates for far longer than other energy suppliers. It was a “catch-up price hike”, he insisted.

‘Slap in the face’

While that is true, wholesale prices are actually falling now, which should give the group scope if not to reduce bills, then to at least hold them. Consumer groups, who fear the British Gas move will spark another round of increases from rival suppliers later this year, said it was “the ultimate slap in the face” for families.

Energy prices were a key part of Theresa May’s election campaign, with the prime minister promising to introduce a price cap that would protect 17 million customers on the most expensive tariffs.

The government has since U-turned on that pledge, however, and there was no mention of a price cap in the Queen’s speech outlining the government’s legislative programme for the next two years.

Conn will have done himself no favours with the politicians by suggesting government policies, such as wind and solar subsidies, were partly to blame for the price hike. A government spokeswoman responded by expressing concern over the increase, adding that government policies make up a relatively small proportion of household energy bills “and cannot explain these price rises”.

As British Gas made its announcement, Virgin Media added to the gloom for cash-strapped households with plans to hike prices for its television, broadband and phone packages from November.

Some five million customers will be hit, paying up to an extra £50 a year, depending on their package. The autumn increase follows three price hikes by Virgin last year.

Rising inflation is eating away at disposable incomes and, as food prices continue their upward march because of the Brexit-inspired fall in the pound, these latest blows to household budgets come amid growing concern over consumer debt.

‘Spiral of complacency’

The Bank of England has already expressed its unease about what it termed a “spiral of complacency” over debt, warning the banks against any return to the reckless lending that caused the global financial crisis.

New figures released by Threadneedle Street on Monday showed that unsecured consumer debt has climbed back above the £200 billion level for the first time since the crisis in 2008. Taking in car loans, credit cards and overdrafts, outstanding debt ballooned to £201 billion in the year to June, an increase of 10 per cent.

The Financial Conduct Authority revealed that as many as 2.2 million indebted people were in "financial distress" and that these tended to be from the more vulnerable sections of society – the less educated and the unemployed, as well as younger people and those with children.

Rating agency Moody’s weighed in, warning that some borrowers would struggle to repay their debts against the background of a weaker economy and increased cost of living.

There’s not much consumers can do about the weaker economy but, at least with their energy bills, they can take action to get a better deal.

The energy regulator has estimated that households can save up to £300 a year simply by changing to a rival supplier.

Even before its price hike news, British Gas customers were clearly doing just that. The group admitted yesterday that it had lost almost 400,000 customers over the first half of the year.

Fiona Walsh is business editor of theguardian.com