British Gas price cut 'not enough'

Wholesale prices have plummeted

Updated: 
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British Gas has dropped its prices by 5% - but is under fire from consumer groups, who think the price cut isn't enough.

It's the second reduction from the company in six months, and, it says, the two together will slash £72 from the average annual bill.

The move follows a recent price cut from E.ON, and reflects - to an extent - the lower prices being paid by suppliers following a fall in the price of oil.

But wholesale gas prices have fallen by 25% since the beginning of the year, leading consumer groups and politicians to protest that British Gas hasn't gone far enough.

"Wholesale prices have come down by about 30% since the start of 2014, and the prices of the cheapest switchers' deals have dropped over 10%, yet this is only a trivial cut," says Martin Lewis of MoneySavingExpert.

Last week, the Competition and Markets Authority (CMA) reported that the big six energy firms were charging customers £1.2 billion more than they would have been able to do in a truly competitive market. As many as 70% of the UK's energy customers are sitting on the most expensive standard tariffs, it says.

"The recent Competition and Markets Authority interim report showed that households have been overcharged by more than a billion pounds a year by the Big Six energy companies," says Labour's shadow energy and climate change minister, Jonathan Reynolds.

"Whilst any cut in energy bills is welcome, this is long overdue. Wholesale energy costs are at a five year low and this still isn't fully reflected in household bills."

The CMA has recommended introducing some sort of price cap, but the government has rejected this idea.

Says Reynolds: "If the government was serious about fixing the market and reducing bills, then they should give the regulator the power to cut prices, as Labour has consistently argued for."

British Gas defends the 5% cut by saying that the cost of the gas itself is only around half of its costs overall. "There are a range of costs that make up energy bills, some decreasing and others increasing," says managing director Mark Hodges.

Pipeline costs have been going up steadily for the last few years, the company says. In any case, it adds, the price its currently paying was set as long as two years ago, meaning the company is now paying more than the current market value.

The answer for customers is to shop around.

"Reductions in standard tariffs are good news for customers," says Ann Robinson, director of consumer policy at price comparison site uSwitch.

"However, the biggest savings are to be found by switching to more competitive fixed deals – which are over £250 a year cheaper than the average standard big six direct debit standard tariff."

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